Edgar Filing: AECOM TECHNOLOGY CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

AECOM TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		61-1088522
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

555 South Flower Street, Suite 3700

Los Angeles, California 90071

(Address of principal executive office and zip code)

(213) 593-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 1, 2007, 98,335,369 shares of the registrant’s common stock were outstanding.

AECOM TECHNOLOGY CORPORATION
INDEX

PART I.		FINANCIAL INFORMATION

	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2006 and June 30, 2007 (unaudited)
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2006 and 2007 (unaudited)
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2006 and 2007 (unaudited)
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2006 and 2007 (unaudited)
		Notes to Condensed Consolidated Financial Statements (unaudited)

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6.	Exhibits

SIGNATURES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AECOM Technology Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share data)

	September 30, 2006			June 30, 2007
				(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	118,477		$	303,601
Cash in consolidated joint ventures	9,393			39,472
Total cash and cash equivalents	127,870			343,073

Accounts receivable—net	913,178			1,051,414
Prepaid expenses and other current assets	52,827			80,016
TOTAL CURRENT ASSETS	1,093,875			1,474,503

PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures	85,201			122,439
Leasehold improvements	31,539			40,928
Total	116,740			163,367
Accumulated depreciation and amortization	(26,417		)	(49,268		)
PROPERTY AND EQUIPMENT—NET	90,323			114,099

DEFERRED INCOME TAXES—NET	98,449			103,524
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES	19,943			22,493
GOODWILL	466,508			548,243
INTANGIBLE AND OTHER ASSETS—NET	18,168			33,916
OTHER NON-CURRENT ASSETS	38,508			140,411

TOTAL ASSETS	$	1,825,774		$	2,437,189

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) / EQUITY

CURRENT LIABILITIES:
Short-term debt	$	2,716		$	2,316
Accounts payable	265,192			235,867
Accrued expenses and other current liabilities	365,548			430,723
Billings in excess of costs on uncompleted contracts	143,283			171,114
Income taxes payable	35,646			36,593
Deferred tax liability—net	12,824			11,784
Share purchase liability	55,394			—
Current portion of long-term debt	11,949			4,543
TOTAL CURRENT LIABILITIES	892,552			892,940

OTHER LONG-TERM LIABILITIES	112,970			185,903
LONG-TERM DEBT	122,790			56,623

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST	18,701			17,818
REDEEMABLE COMMON AND PREFERRED STOCK AND STOCK UNITS	771,207			—
NOTES RECEIVABLE FROM STOCKHOLDERS	(36,552		)	—
REDEEMABLE PREFERRED STOCK, Class F—47,000 and 0 authorized, issued and outstanding as of September 30, 2006 and June 30, 2007, respectively, $2,500 liquidation preference value	117,500			—
REDEEMABLE PREFERRED STOCK, Class G—47,000 and 0 authorized, issued and outstanding as of September 30, 2006 and June 30, 2007, respectively, $2,500 liquidation preference value	117,500			—

STOCKHOLDERS’ (DEFICIT) / EQUITY:
Convertible preferred stock—authorized, 7,799,780 shares; issued and outstanding 56,203 shares and 46,741 shares as of September 30, 2006 and June 30, 2007, respectively, $100 liquidation preference value	—			4,674
Preferred stock, Class C—authorized, 200 shares; issued and outstanding, 56.297 and 71.368 as of September 30, 2006 and June 30, 2007, respectively, no par value, $1.00 liquidation preference value	—			—
Preferred stock, Class E—authorized, 20 shares; issued and outstanding, 5.427 and 5.736 as of September 30, 2006 and June 30, 2007, respectively, no par value, $1.00 liquidation preference value	—			—
Common stock—authorized, 150,000,000 shares of $0.01 par value; issued and outstanding, 34,183,074 and 98,204,106 shares as of September 30, 2006 and June 30, 2007, respectively	—			982
Additional paid-in capital	(254,225		)	1,253,321
Accumulated other comprehensive loss	(36,669		)	(20,373		)
Retained earnings	—			45,301
TOTAL STOCKHOLDERS’ (DEFICIT) / EQUITY	(290,894		)	1,283,905

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) / EQUITY	$	1,825,774		$	2,437,189

See accompanying Notes to Condensed Consolidated Financial Statements

AECOM Technology Corporation
Condensed Consolidated Statements of Income
(unaudited—in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	June 30, 2006		June 30, 2007		June 30, 2006		June 30, 2007

Revenue	$	911,486	$	1,100,656	$	2,517,213	$	3,122,914
Cost of revenue	678,581		788,565		1,855,246		2,278,531
Gross profit	232,905		312,091		661,967		844,383

Equity in earnings of joint ventures	1,554		3,992		4,117		7,628
General and administrative expenses	209,340		270,401		591,161		738,376
Income from operations	25,119		45,682		74,923		113,635

Minority interest in share of earnings	3,022		3,824		8,503		9,058
Gain on the sale of equity investment	—		—		—		11,286
Interest expense — net	2,528		6,312		10,318		9,615
Income before income tax expense	19,569		35,546		56,102		106,248

Income tax expense	6,262		11,360		17,953		35,343
Net income	$	13,307	$	24,186	$	38,149	$	70,905

Net income allocation:
Preferred stock dividend	$	78	$	68	$	2,125	$	184
Net income available for common stockholders	13,229		24,118		36,024		70,721
Net income	$	13,307	$	24,186	$	38,149	$	70,905

Earnings per share:
Basic	$	0.24	$	0.30	$	0.66	$	1.09
Diluted	$	0.18	$	0.26	$	0.55	$	0.85

Weighted average common shares outstanding:
Basic	55,762		80,915		54,242		64,948
Diluted	73,882		92,037		69,804		83,013

Condensed Consolidated Statements of Comprehensive Income
(unaudited—in thousands)

	Three Months Ended					Nine Months Ended
	June 30, 2006			June 30, 2007		June 30, 2006		June 30, 2007

Net income	$	13,307		$	24,186	$	38,149	$	70,905

Other comprehensive income:
Foreign currency translation adjustments	(372		)	9,122		414		16,296
Comprehensive income	$	12,935		$	33,308	$	38,563	$	87,201

See accompanying Notes to Condensed Consolidated Financial Statements

AECOM Technology Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited—in thousands)

	Nine Months Ended June 30,
	2006			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	38,149		$	70,905
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,536			30,980
Equity in earnings of unconsolidated joint ventures	(4,117		)	(7,628		)
Distribution of earnings from unconsolidated joint ventures	6,904			6,284
Stock match and other non-cash stock compensation	10,076			19,648
Write-off of deferred financing costs and make-whole premium	2,100			3,166
Interest income on notes from stockholders	(1,576		)	(754		)
Foreign currency translation	(1,391		)	5,110
Gain on sale of equity investment	—			(11,286		)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(121,651		)	(78,880		)
Prepaid expenses and other assets	2,441			(46,285		)
Accounts payable	47,973			(31,140		)
Accrued expenses and other current liabilities	21,841			44,476
Billings in excess of costs on uncompleted contracts	20,153			22,126
Income taxes payable	5,471			(213		)
Other long-term obligations	(716		)	(6,170		)
Net cash provided by operating activities	54,193			20,339

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for business acquisitions, net of cash acquired	(34,089		)	(137,460		)
Proceeds from the sale of equity investment	—			14,683
Net investments in unconsolidated joint ventures	2,310			(237		)
Payments for capital expenditures	(21,542		)	(32,941		)
Proceeds on sale of property and equipment	20,959			—
Net cash used in investing activities	(32,362		)	(155,955		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under credit agreements	253,284			55,726
Repayments of borrowings under long-term obligations	(297,989		)	(133,611		)
Proceeds from issuance of common stock and preferred stock	41,013			54,561
Proceeds from issuance of stock upon exercise of stock options	5,050			4,102
Net proceeds from the issuance of Class F and Class G preferred stock	232,120			—
Net proceeds from the issuance of common stock in initial public offering	—			469,378
Funding of stock purchase plan rabbi trust	—			(75,413		)
Repurchase of Class D preferred stock	(116,486		)	—
Repayment of notes receivable from stockholders	1,306			22,663
Payments to repurchase common stock and common stock units	(49,905		)	(48,581		)
Payments of dividends on convertible preferred stock	(1,900		)	—
Net cash provided by financing activities	66,493			348,825

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(26		)	1,994

NET INCREASE IN CASH AND CASH EQUIVALENTS	88,298			215,203
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	54,302			127,870
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	142,600		$	343,073

See accompanying Notes to Condensed Consolidated Financial Statements

AECOM Technology Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Basis of Presentation

The accompanying condensed consolidated financial statements of AECOM Technology Corporation, or the Company, are unaudited, and, in the opinion of management, include all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented. All inter-company balances and transactions are eliminated in consolidation.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10 as filed with the Securities and Exchange Commission on July 3, 2007 for the fiscal year ended September 30, 2006.

The results of operations for the three and nine months ended June 30, 2007 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2007.

All share and per share amounts reflect, on a retroactive basis, the 2-for-1 stock split effected in the form of a 100% stock dividend wherein one additional share of stock was issued effective May 4, 2007 for each share outstanding as of the record date of May 4, 2007.

2. Initial Public Offering

In May 2007, the Company completed the initial public offering of 40,422,500 shares of common stock, which included the exercise of the underwriters’ over-allotment option to purchase 5,272,500 shares, at $20.00 per share, before underwriting discounts and commissions. Of the total shares sold in the offering, 15,261,203 were sold by stockholders of the Company. Proceeds to AECOM, net of underwriting discounts, commissions, and other offering related costs were approximately $469,400,000, of which $75,400,000 was used to fund elections by employees to diversify their holdings in the Company’s stock purchase plan. Proceeds to the selling stockholders, net of underwriting discounts and commissions, were approximately $286,500,000. The Company’s common stock commenced trading on the New York Stock Exchange under the ticker symbol “ACM” on May 10, 2007.

Additionally, effective with the closing of the initial public offering, all of the Company’s redeemable common and preferred stock and stock units were converted into common stock and stock units. The Company funded a rabbi trust for the deferred compensation obligations of the diversified stock purchase plan balances, and has recorded the assets within other non-current assets and the related liability within other long-term liabilities. Prior to the initial public offering, redeemable common and preferred stock and stock units were classified outside permanent equity because redemption was not solely within the control of the Company.

3. Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Total cash and cash equivalents includes cash in consolidated joint ventures.

4. Accounts Receivable—Net

Net accounts receivable consisted of the following as of September 30, 2006 and June 30, 2007:

	September 30, 2006			June 30, 2007
	(in thousands)
Billed	$	543,606		$	609,467
Unbilled	372,034			445,818
Contract retentions	38,921			45,839
Total accounts receivable—gross	954,561			1,101,124
Allowance for doubtful accounts	(41,383		)	(49,710		)
Total accounts receivable—net	$	913,178		$	1,051,414

Billings in excess of costs on uncompleted contracts	$	143,283		$	171,114

Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the period end. Substantially all unbilled receivables as of September 30, 2006 and June 30, 2007 are expected to be billed and collected within twelve months of such date. Contract retentions represent amounts invoiced to clients where payments have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project. These retention agreements vary from project to project and could be outstanding several months or years.

Allowances for doubtful accounts have been determined through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experience.

Other than the U.S. government, no single client accounted for more than 10% of the Company’s accounts receivable as of September 30, 2006 or June 30, 2007.

5. Goodwill and Acquired Intangible Assets

The changes in the carrying value of goodwill by reporting unit for the nine months ended June 30, 2007 were as follows:

	September 30, 2006		Post Acquisition Adjustments			Acquired		June 30, 2007
	(in thousands)
Professional Technical Services	$	457,575	$	464		$	81,771	$	539,810
Management Support Services	8,933		(500		)	—		8,433
Total	$	466,508	$	(36	)	$	81,771	$	548,243

The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of September 30, 2006 and June 30, 2007 included in intangible and other assets—net in the accompanying condensed consolidated balance sheets, were as follows:

	September 30, 2006				June 30, 2007
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
	(in thousands)
Backlog	$	16,687	$	15,254	$	28,776	$	21,098
Customer Relationships	18,179		2,180		28,773		3,928
Trade-Names	899		163		1,773		380
Total	$	35,765	$	17,597	$	59,322	$	25,406

At the time of acquisition, the Company estimates the amount of the identifiable intangible assets acquired based upon historical valuations and the facts and circumstances available at the time. The Company concludes the value of the identifiable intangible assets during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition. However, based upon the date of acquisition, the purchase allocation period may cross into subsequent fiscal periods.

The following table presents estimated amortization expense for the remainder of fiscal 2007 and for the succeeding years:

Fiscal Year	(in thousands)
2007	$	4,094
2008	7,354
2009	3,232
2010	3,222
2011	3,079
Thereafter	12,935
Total	$	33,916

6. Disclosures About Pension Benefit Obligations

The Company’s pension cost for the three and nine months ended June 30, 2006 and 2007 includes the following components:

	Three Months Ended June 30,						Nine Months Ended June 30,
U.S. Plans	2006			2007			2006			2007
	(in thousands)
Service costs	$	765		$	651		$	2,295		$	1,953
Interest cost on projected benefit obligation	1,678			1,876			5,034			5,629
Expected return on plan assets	(1,621		)	(1,719		)	(4,863		)	(5,157		)
Amortization of prior service costs	(290		)	(289		)	(870		)	(867		)
Amortization of net loss	1,433			982			4,299			2,946
Net periodic benefit cost	$	1,965		$	1,501		$	5,895		$	4,504

	Three Months Ended June 30,				Nine Months Ended June 30,
Non-U.S. Plans	2006		2007		2006		2007
	(in thousands)
Service costs	$ 1,316		$ 1,170		$ 3,948		$ 3,633
Interest cost on projected benefit obligation	3,812		4,499		11,436		13,160
Expected return on plan assets	(3,427	)	(4,267	)	(10,281	)	(12,275	)
Amortization of prior service costs	(220	)	(101	)	(660	)	(624	)
Amortization of net gain	1,459		979		4,377		2,897
Curtailment gain recognized	—		—		—		(2,646	)
Net periodic benefit cost	$ 2,940		$ 2,280		$ 8,820		$ 4,145

The total amounts of employer contributions paid for the three and nine months ended June 30, 2007 were $2.5 and $2.6 million, respectively, for U.S. plans and $20.4 and $28.1 million, respectively for non-U.S. plans. The expected remaining scheduled annual employer contributions for fiscal year September 30, 2007 are $0.6 million for U.S. plans and $4.0 million for non-U.S. plans.

7. Reportable Segments

The Company’s operations are organized by two reportable segments: Professional Technical Services and Management Support Services. This segmentation corresponds to how the Company manages its business as well as the underlying characteristics of its markets.

Management internally analyzes the results of the Company’s segments and operations using the non-GAAP measure of revenue, net of other direct costs which is a measure of work performed by the Company obtained by subtracting subcontractor fees and related costs from revenue.

The following tables set forth summarized financial information concerning the Company’s reportable segments:

Reportable Segments:	Professional Technical Services			Management Support Services			Total
	(in thousands)
Three Months Ended June 30, 2006:
Revenue	$	720,347		$	190,695		$	911,042
Revenue, net of other direct costs	465,143			26,417			491,560
Gross profit	225,293			10,323			235,616
Gross profit as a % of revenue	31.3		%	5.4		%	25.9		%
Gross profit as a % of revenue, net of other direct costs	48.4		%	39.1		%	47.9		%
Equity in earnings of joint ventures	560			994			1,554
General and administrative expenses	191,251			4,865			196,116
Segment income from operations	34,602			6,452			41,054

Three Months Ended June 30, 2007:
Revenue	$	903,386		$	196,307		$	1,099,693
Revenue, net of other direct costs	611,800			31,140			642,940
Gross profit	302,434			11,738			314,172
Gross profit as a % of revenue	33.5		%	6.0		%	28.6		%
Gross profit as a % of revenue, net of other direct costs	49.4		%	37.7		%	48.9		%
Equity in earnings of joint ventures	830			2,928			3,758
General and administrative expenses	252,598			5,394			257,992
Segment income from operations	50,666			9,272			59,938
Segment assets	1,775,242			177,561			1,952,803

Reportable Segments:	Professional Technical Services			Management Support Services			Total
	(in thousands)
Nine Months Ended June 30, 2006:
Revenue	$	2,039,968		$	476,342		$	2,516,310
Revenue, net of other direct costs	1,320,166			72,674			1,392,840
Gross profit	637,185			27,684			664,869
Gross profit as a % of revenue	31.2		%	5.8		%	26.4		%
Gross profit as a % of revenue, net of other direct costs	48.3		%	38.1		%	47.7		%
Equity in earnings of joint ventures	1,965			2,151			4,116
General and administrative expenses	550,796			13,175			563,971
Segment income from operations	88,354			16,660			105,014

Nine Months Ended June 30, 2007:
Revenue	$	2,497,950		$	621,478		$	3,119,428
Revenue, net of other direct costs	1,653,559			79,850			1,733,409
Gross profit	815,663			32,697			848,360
Gross profit as a % of revenue	32.7		%	5.3		%	27.2		%
Gross profit as a % of revenue, net of other direct costs	49.3		%	40.9		%	48.9		%
Equity in earnings of joint ventures	1,845			6,668			8,513
General and administrative expenses	688,541			17,200			705,741
Segment income from operations	128,967			22,165			151,132
Segment assets	1,775,242			177,561			1,952,803

	Three Months Ended						Nine Months Ended
*Reconciliations:*	June 30, 2006			June 30, 2007			June 30, 2006			June 30, 2007
	(in thousands)
Revenue:
Revenue from reportable segments	$	911,042		$	1,099,693		$	2,516,310		$	3,119,428
Other revenue	444			963			903			3,486
Total consolidated revenue	$	911,486		$	1,100,656		$	2,517,213		$	3,122,914

Gross profit:
Gross profit from reportable segments	$	235,616		$	314,172		$	664,869		$	848,360
Other	(2,711		)	(2,081		)	(2,902		)	(3,977		)
Total consolidated gross profit	$	232,905		$	312,091		$	661,967		$	844,383

Equity in earnings of joint ventures:
Equity in earnings of joint ventures from reportable segments	$	1,554		$	3,758		$	4,116		$	8,513
Other equity in earnings of joint ventures	—			234			1			(885		)
Total consolidated equity in earnings of joint ventures	$	1,554		$	3,992		$	4,117		$	7,628

General and administrative expenses:
General and administrative expenses of reportable segments	$	196,116		$	257,992		$	563,971		$	705,741
Unallocated corporate general and administrative expense	13,224			12,409			27,190			32,635
Total general and administrative expense	$	209,340		$	270,401		$	591,161		$	738,376

Income from operations:
Segment income from operations	$	41,054		$	59,938		$	105,014		$	151,132
Loss from operations not allocated to reportable segments	(15,935		)	(14,256		)	(30,091		)	(37,497		)
Total consolidated income from operations	$	25,119		$	45,682		$	74,923		$	113,635

Segment assets:
Total assets of reportable segments										$	1,952,803
Other assets not allocated to reportable segments and eliminations										484,386
Total assets										$	2,437,189

8. Recently Issued Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 will be effective for the Company’s fiscal year ending September 30, 2009. The Company is currently evaluating the potential impact of the provisions of SFAS 159 on its results of operations and financial position.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS 158). SFAS 158 requires employers to fully recognize the obligations associated with defined benefit pension plans in their financial statements. The Company will be required to initially recognize such obligations and apply the disclosure requirements as of the end of current fiscal year ending September 30, 2007. Additionally, the Company will be required to measure such obligations as of the end of its fiscal year, rather than up to three months earlier as had been previously permitted, effective in its fiscal year ending September 30, 2009. The Company is currently evaluating the impact of the provisions of SFAS 158 on its results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements. The provisions of SFAS 157 will be effective for the Company’s fiscal year ending September 30, 2009. The Company is currently evaluating the potential impact of the provisions of SFAS 157 on its results of operations and financial position.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements. FIN 48 prescribes that a company should use a “more-likely-than-not” recognition threshold for such income taxes based on the technical merits of the tax position taken. Additionally, FIN 48 provides guidance on recognition or de-recognition of interest and penalties, changes in judgment in interim periods, and disclosures of uncertain tax positions. FIN 48 becomes effective for the Company in the period beginning October 1, 2007. The Company is in the process of determining the effect of the adoption of FIN 48 on its results of operations and financial position.

9. Stock-Based Compensation

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R) that requires the Company to expense the value of employee stock options and similar awards. Under SFAS 123R, share-based payment (SBP) awards result in a cost that will be measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest.

SFAS 123R became effective for the Company on October 1, 2006. Upon adoption of SFAS 123R, the Company implemented the prospective transition method. Under this method, prior periods were not restated to reflect the impact of SFAS 123R. SFAS 123R requires that the Company recognize as compensation expense the fair value of all stock-based awards, including stock options, granted to employees and directors in exchange for services over the requisite service period, which is typically the vesting period. SFAS 123R also requires that cash flows resulting from tax benefits realized from stock option exercises or stock vesting events in excess of tax benefits recognized from stock-based compensation expenses be classified as cash flows from financing activities instead of cash flows from operating activities for awards subject to SFAS 123R.

Prior to October 1, 2006, the Company accounted for employee stock-based compensation using the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under the intrinsic value method, no compensation expense was reflected in the statement of income for stock options granted to employees, as all stock options had an exercise price equal to the fair value of the underlying common stock on the date of grant.

Under the prospective transition method, the Company continues to account for options granted prior to October 1, 2006 under the provisions of APB Opinion No. 25 to the extent vested. Since stock options had an exercise price equal to the fair value of the underlying common stock on the date of grant, no compensation expense will be recognized for options granted prior to October 1, 2006 unless modifications are made to those options. Prior to the adoption of SFAS 123R, the fair value of stock options used to disclose pro forma net income and earnings per share disclosures was the estimated value using the minimum value method as allowed for non-public companies. The adoption of SFAS 123R did not have a material effect on the Company’s results of operations, financial position, or cash flows.

The fair value of the Company’s stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model. The expected term of awards granted represents the period of time the awards are expected to be outstanding. As the Company’s common stock was not publicly-traded when options were granted, expected volatility was based on a historical volatility, for a period consistent with the expected option term, of publicly-traded peer companies. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the option on the grant date. The Company uses historical data as a basis to estimate forfeitures.

The fair value of options granted during the three and nine months ended June 30, 2007 was determined using the following weighted average assumptions:

	Three Months Ended June 30, 2007		Nine Months Ended June 30, 2007
Dividend yield	—		—
Expected volatility	25	%	25	%
Risk-free interest rate	4.6	%	4.6	%
Term (in years)	7		7

Under SFAS 123R, the Company’s net income for the three and nine months ended June 30, 2007 was $0.2 million and $0.5 million, respectively, lower than under the Company’s previous accounting method, as a result of recognizing as expense the fair value of stock options.

Stock option activity for the nine months ended June 30, 2007 was as follows:

	Shares of stock under options		Weighted average exercise price		Aggregate intrinsic value
					(in thousands)

Outstanding at September 30, 2006	8,928,640		$	8.42	$	75,213
Options granted	675,565		14.79		9,994
Options forfeited or expired	(27,466	)	13.68		(376		)
Options exercised	(1,367,303	)	7.81		(10,683		)
Outstanding at June 30, 2007	8,209,436		9.03		$	74,148

Vested and expected to vest in the future as of June 30, 2007	8,196,405		$	9.02	$	73,953

The weighted average grant-date fair value of stock options granted during the nine months ended June 30, 2007 was $5.76.

10. Earnings Per Share

Basic earnings per share, or EPS, excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding and dilutive potential common shares for the period. The Company includes as potential common shares the weighted average dilutive effects of outstanding stock options using the treasury stock method.

The following table sets forth the computation of basic and diluted EPS:

	Three Months Ended				Nine Months Ended
	June 30, 2006		June 30, 2007		June 30, 2006		June 30, 2007
	(in thousands, except per share data)
Numerator for basic earnings per share:
Net income	$	13,307	$	24,186	$	38,149	$	70,905
Preferred stock dividends	78		68		2,125		184
Net income available for common stockholders	$	13,229	$	24,118	$	36,024	$	70,721

Denominator for basic earnings per share	55,762		80,915		54,242		64,948
Potential common shares:
Preferred stock, Class D	—		—		4,221		—
Preferred stock, Class F and G	15,562		7,829		8,591		15,108
Stock options	2,126		2,988		2,159		2,562
Preferred stock, other	432		305		434		395
Stock warrants	—		—		157		—
Denominator for diluted earnings per share	73,882		92,037		69,804		83,013

Earnings per share:
Basic	$	0.24	$	0.30	$	0.66	$	1.09
Diluted	$	0.18	$	0.26	$	0.55	$	0.85

For the three and nine months ended June 30, 2006 and 2007, no stock options were excluded from the calculation or were considered anti-dilutive.

11. Stock Plans

Prior to our initial public offering of common stock, shares held by previous employees were repurchased by the Company. During the nine months ended June 30, 2007, the Company’s Global Stock Program, or GSP, sold to the Company 1.5 million shares for $21.5 million as compared to 1.6 million for $20.0 million during the nine months ended June 30, 2006. During the nine months ended June 30, 2007, the Company’s Stock Purchase Plan, or SPP, sold to the Company 0.7 million shares for $10.1 million as compared to 0.6 million shares for $8.3 million during the nine months ended June 30, 2006. During the nine months ended June 30, 2007, direct shareholders sold to the Company 1.1 million shares for $16.2 million as compared to 1.3 million shares for $17.6 million during the nine months ended June 30, 2006.

12. Commitments and Contingencies

The Company is subject to certain claims and lawsuits typically filed against the engineering and consulting profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance against such claims, subject to certain deductibles and policy limits. From time to time the Company establishes reserves for litigation that is considered a probable loss. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the financial position of the Company.

At June 30, 2007, the Company was contingently liable in the amount of approximately $49.1 million under standby letters of credit issued primarily in connection with general and professional liability insurance programs and for payment and performance guarantees relating to domestic and overseas contracts. In addition, in some instances the Company guarantees that a project, when complete, will achieve specified performance standards. If the project subsequently fails to meet guaranteed performance standards, the Company may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.

Under joint venture arrangements, if a partner is financially unable to complete its share of the contract, the other partner(s) will generally be required to complete those activities. The Company generally only enters into joint venture arrangements with partners who are reputable, financially sound and who carry appropriate levels of surety bonds for the project in order to adequately assure completion of their assignments. The Company is a partner in certain joint ventures where the joint venture has contracted with subconsultants for certain specialized professional services. The joint venture, or the Company to the extent that the joint venture partner(s) are unable to fulfill their responsibilities, is liable to the third-party customer for performance of the sub-consultant and would be liable to the sub-consultant if the third-party customer fails to make payments due the joint venture for sub-consultant services.

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Forward-Looking Statements

This Quarterly Report contains certain forward-looking statements, including the plans and objectives of management for our business, operations and economic performance. These forward-looking statements generally can be identified by the context of the statement or the use of forward-looking terminology, such as “believes,” “estimates,” “anticipates,” “intends,” “expects,” “plans,” “is confident that” or words of similar meaning, with reference to us or our management. Similarly, statements that describe our future operating performance, financial results, financial position, plans, objectives, strategies or goals are forward-looking statements. Although management believes that the assumptions underlying the forward-looking statements are reasonable, these assumptions and the forward-looking statements are subject to various factors, risks and uncertainties, many of which are beyond our control, including, but not limited to, our dependence on long-term government contracts, which are subject to uncertainties concerning the government’s budgetary approval process, the possibility that our government contracts may be terminated by the government, our ability to successfully manage our joint ventures, the risk of employee misconduct or our failure to comply with laws and regulations, our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business, our ability to attract and retain key technical and management personnel, our ability to complete our backlog of uncompleted projects as currently projected, our liquidity and capital resources and changes in regulations or legislation that could affect us. Accordingly, actual results could differ materially from those contemplated by any forward-looking statement. In addition to the other risks and uncertainties mentioned in connection with certain forward-looking statements throughout this Quarterly Report, please review “Part II, Item 1A — Risk Factors” in this Quarterly Report for a discussion of the factors, risks and uncertainties that could affect our future results.

Overview

We are a leading global provider of professional technical and management support services for commercial and government clients around the world. We provide our services in a broad range of end markets and strategic geographic markets through a global network of operating offices and more than 31,000 employees and staff employed in the field on a project-by-project basis.

Our business focuses primarily on providing fee-based professional technical and support services and, as such, we are labor and not capital intensive. We derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees’ time and our ability to manage our costs. We operate our business through two segments: Professional Technical Services (PTS) and Management Support Services (MSS).

Our PTS segment delivers planning, consulting, architecture and engineering design, and program and construction management services to institutional, commercial and government clients worldwide in major end markets such as transportation, facilities and environmental markets. PTS revenue is primarily derived from fees from services that we provide, as opposed to pass-through fees from subcontractors and other direct costs. As a percentage of PTS revenue, our other direct costs, including subcontractor and consultant costs, typically range from 30% to 38%. Our gross margin as a percentage of PTS revenue typically ranges from 30% to 35%, depending on the nature and scope of the underlying projects.

Our MSS segment provides facilities management and maintenance, training, logistics, consulting, technical assistance and systems integration services, primarily for agencies of the U.S. government. MSS revenue typically includes a significant amount of pass-through fees from subcontractor and other direct costs. As a percentage of MSS revenue, other direct costs, including subcontractor, consultants and material costs typically range from 85% to 87%. Our gross margin as a percentage of MSS revenue typically ranges from 3% to 5%, depending on the level of other direct costs required, which can vary significantly from period to period.

In summary, our revenue is dependent on our ability to attract qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, renew existing client agreements and provide outstanding services. Moreover, as a professional services company, the quality of the work generated by our employees is integral to our generation of revenue and profits.

Our costs are driven primarily by the compensation we pay to our employees, including fringe benefits, the cost of hiring subcontractors and other project-related expenses, and sales and general and administrative overhead costs.

Components of Income and Expense

Our management analyzes the results of our operations using two financial measures that are not in accordance with generally accepted accounting principles in the United States (GAAP): revenue, net of other direct costs and cost of revenue, net of other direct costs.

The following table presents, for the periods indicated, a presentation of the non-GAAP financial measures reconciled to the closest GAAP measures:

	Year Ended September 30,										Nine Months Ended June 30,
	2002		2003		2004		2005		2006		2006		2007
	(in millions)
Other Financial Data:
Revenue	$	1,747	$	1,915	$	2,012	$	2,395	$	3,421	$	2,517	$	3,123
Other direct costs	671		725		776		933		1,521		1,123		1,387
Revenue, net of other direct costs	1,076		1,190		1,236		1,462		1,900		1,394		1,736
Cost of revenue, net of other direct costs	598		656		667		785		994		732		892
Gross profit	478		534		569		677		906		662		844
Equity in earnings of joint ventures	1		2		3		2		7		4		8
Amortization expense of acquired intangible assets	—		—		—		3		15		11		8
Other general and administrative expenses	430		467		485		578		795		580		730
General and administrative expenses	430		467		485		581		810		591		738
Income from operations	$	49	$	69	$	87	$	98	$	103	$	75	$	114

Reconciliation of Cost of Revenue:
Other direct costs	$	671	$	725	$	776	$	933	$	1,521	$	1,123	$	1,387
Cost of revenue, net of other direct costs	598		656		667		785		994		732		892
Cost of revenue	$	1,269	$	1,381	$	1,443	$	1,718	$	2,515	$	1,855	$	2,279

Results of Operations

Consolidated Results

	Three Months Ended								Nine Months Ended
	June 30		June 30		Change				June 30		June 30		Change
	2006		2007		$		%		2006		2007		$			%
	(in thousands)
Revenue	$	911,486	$	1,100,656	$	189,170	20.8	%	$	2,517,213	$	3,122,914	$	605,701		24.1	%
Other direct costs	419,482		456,965		37,483		8.9		1,123,470		1,386,608		263,138			23.4
Revenue, net of other direct costs	492,004		643,691		151,687		30.8		1,393,743		1,736,306		342,563			24.6
Cost of revenue, net of other direct costs	259,099		331,600		72,501		28.0		731,776		891,923		160,147			21.9
Gross profit	232,905		312,091		79,186		34.0		661,967		844,383		182,416			27.6
Equity in earnings of joint ventures	1,554		3,992		2,438		156.9		4,117		7,628		3,511			85.3
General and administrative expenses	209,340		270,401		61,061		29.2		591,161		738,376		147,215			24.9
Income from operations	25,119		45,682		20,563		81.9		74,923		113,635		38,712			51.7
Minority interest in share of earnings	3,022		3,824		802		26.5		8,503		9,058		555			6.5
Gain on sale of equity investment	—		—		—		0.0		—		11,286		11,286			—
Interest expense, net	2,528		6,312		3,784		149.7		10,318		9,615		(703		)	(6.8	)
Income before income tax expense	19,569		35,546		15,977		81.6		56,102		106,248		50,146			89.4
Income tax expense	6,262		11,360		5,098		81.4		17,953		35,343		17,390			96.9
Net income	$	13,307	$	24,186	$	10,879	81.8	%	$	38,149	$	70,905	$	32,756		85.9	%

The following table presents the percentage relationship of certain items to revenue, net of other direct costs:

	Three Months Ended				Nine Months Ended
	June 30, 2006		June 30, 2007		June 30, 2006		June 30, 2007
Revenue, net of other direct costs	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue, net of other direct costs	52.7	%	51.5	%	52.5	%	51.4	%
Gross profit	47.3	%	48.5	%	47.5	%	48.6	%
Equity in earnings of joint ventures	0.3	%	0.6	%	0.3	%	0.4	%
General and administrative expense	42.5	%	42.0	%	42.4	%	42.5	%
Income from operations	5.1	%	7.1	%	5.4	%	6.5	%
Minority interest in share of earnings	0.6	%	0.6	%	0.6	%	0.5	%
Gain on sale of equity investment	—		—		—		0.7	%
Interest expense — net	0.5	%	1.0	%	0.7	%	0.6	%
Income before income tax expense	4.0	%	5.5	%	4.1	%	6.1	%
Income tax expense	1.3	%	1.8	%	1.3	%	2.0	%
Net income	2.7	%	3.7	%	2.8	%	4.1	%

Revenue

Our revenue for the three months ended June 30, 2007 increased $189.2 million, or 20.8%, to $1.1 billion as compared to $911.5 million for the corresponding period last year. Of this increase, $91.7 million, or 48.5%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $97.5 million, or 10.7%. This increase was primarily attributable to increased spending for infrastructure development in Australia, Canada, and the United Arab Emirates as a result of continued economic growth in these regions, higher volume of work performed for clients in the building and transportation sectors of our operations in the United Kingdom, and an increase in design/build services performed in the United States. Increased demand in these markets was partially offset by a decline in revenue from contracts we hold with the Federal Emergency Management Agency (“FEMA”) as a result of a decrease in hurricane recovery activities in the Gulf Coast region.

Our revenue for the nine months ended June 30, 2007 increased $605.7 million, or 24.1%, to $3.1 billion as compared to $2.5 billion for the corresponding period last year. Of this increase, $202.3 million, or 33.4%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $403.4 million, or 16.0%. In addition to the growth factors mentioned above, this increase was also attributable to a higher volume of task orders received associated with U.S. government activity in Kuwait, partially offset by the reduction in emergency / disaster events that trigger task orders under our FEMA emergency response program in the first two fiscal quarters.

Revenue, Net of Other Direct Costs

Our revenue, net of other direct costs for the three months ended June 30, 2007 increased $151.7 million, or 30.8%, to $643.7 million as compared to $492.0 million in the corresponding period last year. Of this increase, $73.5 million, or 48.5%, was provided by companies acquired in the past twelve months. Excluding the revenue, net of other direct costs provided by acquired companies, revenue, net of other direct costs increased $78.2 million, or 15.9%. This increase was primarily attributable to the revenue growth factors noted above.

Our revenue, net of other direct costs for the nine months ended June 30, 2007, increased $342.6 million, or 24.6%, to $1.7 billion as compared to $1.4 billion in the corresponding period last year. Of this increase, $160.3 million, or 46.8%, was provided by companies acquired in the past twelve months. Excluding the revenue, net of other direct costs provided by acquired companies, revenue, net of other direct costs increased $182.3 million, or 13.1%. This increase was primarily attributable to the revenue growth factors mentioned above.

Cost of Revenue, Net of Other Direct Costs

For the three months ended June 30, 2007, our cost of revenue, net of other direct costs increased $72.5 million, or 28.0%, to $331.6 million as compared to $259.1 million in the corresponding period last year. Of this increase, $33.4 million, or 46.0%, was incurred by acquired companies. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased $39.1 million, or 15.1%. Included in cost of revenue, net of other direct costs is stock match expense of $3.6 million and $2.8 million for the three months ended June 30, 2007 and 2006, respectively. Most of our cost of revenue, net of other direct costs is attributable to employee related costs.

For the three months ended June 30, 2007, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 51.5% as compared to 52.7% in the corresponding period last year.

For the nine months ended June 30, 2007, our cost of revenue, net of other direct costs increased $160.1 million, or 21.9%, to $891.9 million as compared to $731.8 million in the corresponding period last year. Of this increase, $74.7 million, or 46.6% was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased $85.5 million, or 11.7%. Included in cost of revenue, net of other direct costs is stock match expense of $8.9 million and $7.5 million for the nine months ended June 30, 2007 and June 30, 2006, respectively. For the nine months ended June 30, 2007, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 51.4% as compared to 52.5% in the corresponding period last year.

Gross Profit

Our gross profit for the three months ended June 30, 2007 increased $79.2 million, or 34.0%, to $312.1 million as compared to $232.9 million in the corresponding period last year. Of this increase, gross profit provided by companies acquired in the past 12 months was $40.2 million, or 50.7%. Excluding gross profit provided by acquired companies, gross profit increased $39.0 million, or 16.8%. The increase was primarily attributable to improved project performance. For the three months ended June 30, 2007, gross profit, as a percentage of revenue, net of other direct costs, was 48.5% as compared to 47.3% in the corresponding period last year.

Our gross profit for the nine months ended June 30, 2007, increased $182.4 million, or 27.6%, to $844.4 million as compared to $662.0 million in the corresponding period last year. Of this increase, gross profit provided by companies acquired in the past 12 months was $85.6 million, or 46.9%. Excluding gross profit provided by acquired companies, gross profit increased $96.8 million, or 14.6%. This increase was primarily attributable to the factors mentioned above. For the nine months ended June 30, 2007, gross profit, as a percentage of revenue, net of other direct costs, was 48.6% as compared to 47.5% in the corresponding period last year.

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended June 30, 2007 increased $2.4 million, or 157%, to $4.0 million as compared to $1.6 million in the corresponding period last year. The increase was primarily attributable to our participation in a joint venture at the Department of Energy’s Nevada Test Site that commenced in the fourth quarter of fiscal 2006.

Our equity in earnings of joint ventures for the nine months ended June 30, 2007 increased $3.5 million, or 85.3%, to $7.6 million as compared to $4.1 million in the corresponding period last year. The increase was primarily attributable to the factor mentioned above.

General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2007 increased $61.1 million, or 29.2%, to $270.4 million as compared to $209.3 million in the corresponding period last year. Of this increase, $34.4 million, or 56.4%, was incurred by acquired companies. Excluding general and administrative expenses associated with acquired companies, general and administrative expenses increased $26.6 million, or 12.7%. The increase was primarily attributable to growth in revenue noted above, increased headcount associated with acquired companies, continued investments throughout the organization to support strategic initiatives and expenses incurred related to our becoming a public reporting company, including compliance efforts related to the requirements of the Sarbanes-Oxley Act of 2002. For the three months ended June 30, 2007, general and administrative expenses, as a percentage of revenue, net of other direct costs was 42.0% as compared to 42.5% in the corresponding period last year. Included in general and administrative expenses is amortization expense of acquired intangible assets of $1.6 million and $3.7 million for the three months ended June 30, 2007 and 2006, respectively. Included in general and administrative expenses is stock match expense of $1.2 million and $1.0 million for the three months ended June 30, 2007 and 2006, respectively.

Our general and administrative expenses for the nine months ended June 30, 2007 increased $147.2 million, or 24.9%, to $738.4 million as compared to $591.2 million in the corresponding period last year. Of this increase, $77.1 million, or 52.4%, was incurred by acquired companies. Excluding general and administrative expenses associated with acquired companies, general and administrative expenses increased $70.1 million, or 11.9%. The increase was primarily attributable to the factors mentioned above. For the nine months ended June 30, 2007, general and administrative expenses, as a percentage of revenue, net of other direct costs was 42.5% as compared to 42.4% in the corresponding period last year. Included in general and

administrative expenses is amortization expense of acquired intangible assets of $7.9 million and $10.7 million for the nine months ended June 30, 2007 and 2006, respectively. Also included in general and administrative expenses is stock match expense of $3.0 million and $2.6 million for the nine months ended June 30, 2007 and 2006, respectively.

Gain on Sale of Equity Investment

During the nine months ended June 30, 2007, we sold our minority interest in an equity investment in the U.K. for 7.5 million GBP, or approximately $14.7 million. Related to this sale, we recorded a gain on the sale of $11.3 million.

Interest Expense — Net

Our net interest expense for the three months ended June 30, 2007 increased $3.8 million, or 150%, to $6.3 million as compared to $2.5 million in the corresponding period last year. This increase was primarily attributable to make-whole premiums incurred upon the early repayment of $60.5 million in fixed rate senior notes with proceeds from our initial public offering completed in May 2007.

Our net interest expense for the nine months ended June 30, 2007 decreased $0.7 million, or 6.8%, to $9.6 million as compared to $10.3 million in the corresponding period last year. This decrease was primarily attributable to lower borrowings in the nine months ending June 30, 2007 as compared to the corresponding period in the prior year, partially offset by the make-whole premiums mentioned above.

Income Tax Expense

The effective tax rate for the three and nine months ending June 30, 2007 was 32.0% and 33.3% as compared to 32.0% and 32.0% for the three and nine months ended June 30, 2006.

Net Income

The factors described above resulted in our net income of $24.2 million for the three months ended June 30, 2007 an increase of 81.8% from $13.3 million in the corresponding period last year, and net income of $70.9 million for the nine months ended June 30, 2007 an increase of 85.9% from $38.1 million in the corresponding period last year.

Results of Operations by Reportable Segment:

Professional Technical Services

	Three Months Ended								Nine Months Ended
	June 30,		June 30,		Change				June 30,		June 30,		Change
	2006		2007		$		%		2006		2007		$		%
	($ in thousands)
Revenue	$	720,347	$	903,386	$	183,039	25.4	%	$	2,039,968	$	2,497,950	$	457,982	22.5	%
Other direct costs	255,204		291,586		36,382		14.3		719,802		844,391		124,589		17.3
Revenue, net of other direct costs	465,143		611,800		146,657		31.5		1,320,166		1,653,559		333,393		25.3
Cost of revenue, net of other direct costs	239,850		309,366		69,516		29.0		682,981		837,896		154,915		22.7
Gross profit	$	225,293	$	302,434	$	77,141	34.2		$	637,185	$	815,663	$	178,478	28.0

The following table presents the percentage relationship of certain items to revenue, net of other direct costs:

	Three Months Ended				Nine Months Ended
	June 30, 2006		June 30, 2007		June 30, 2006		June 30, 2007
Revenue, net of other direct costs	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue, net of other direct costs	51.6		50.6		51.7		50.7
Gross profit	48.4	%	49.4	%	48.3	%	49.3	%

Revenue

PTS’ revenue for the three months ended June 30, 2007 increased $183.1 million, or 25.4%, to $903.4 million as compared to $720.3 million in the corresponding period last year. Of this increase, $91.7 million, or 50.1%, was provided by companies acquired in the past twelve months. Excluding revenue provided by acquired companies, PTS’ revenue increased $91.3 million, or 12.7%. This increase was primarily attributable to increased government and private sector spending for infrastructure development in Australia, Canada, and the United Arab Emirates as a result of continued economic growth, an increase in our building and transportation business in the U.K., and higher volumes of design/build services in the United States. These increases were partially offset by a decline in task orders received from FEMA as result of decreased hurricane recovery activities in the Gulf Coast region.

PTS’ revenue for the nine months ended June 30, 2007 increased $458.0 million, or 22.5%, to $2.5 billion as compared to $2.0 billion in the corresponding period last year. Of this increase, $202.3 million, or 44.2%, was provided by companies acquired in the past twelve months. Excluding revenue provided by acquired companies, PTS’ revenue increased $255.7 million, or 12.5%. This increase was primarily attributable to the factors mentioned above.

Revenue, Net of Other Direct Costs

PTS’ revenue, net of other direct costs for the three months ended June 30, 2007 increased $146.7 million, or 31.5%, to $611.8 million as compared to $465.1 million in the corresponding period last year. Of this increase, $73.5 million, or 50.1%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by acquired companies, PTS’ revenue, net of other direct costs increased $73.1 million, or 15.7%. This increase was primarily attributable to the factors mentioned above.

PTS’ revenue, net of other direct costs for the nine months ended June 30, 2007 increased $333.4 million, or 25.3%, to $1.7 billion as compared to $1.3 billion in the corresponding period last year. Of this increase, $160.3 million, or 48.1%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by acquired companies, PTS’ revenue, net of other direct costs increased $173.1 million, or 13.1%. This increase was primarily attributable to the factors mentioned above.

Cost of Revenue, Net of Other Direct Costs

For the three months ended June 30, 2007, PTS’ cost of revenue, net of other direct costs increased $69.5 million, or 29.0%, to $309.4 million as compared to $239.9 million in the corresponding period last year. Of this increase, $33.4 million, or 48.0%, was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased by $36.2 million, or 15.1%. For the three months ended June 30, 2007, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 50.6% as compared to 51.6% in the corresponding period last year.

For the nine months ended June 30, 2007, PTS’ cost of revenue, net of other direct costs increased $154.9 million, or 22.7%, to $837.9 million as compared to $683.0 million in the corresponding period last year. Of this increase, $74.7 million, or 48.2%, was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased by $80.2 million, or 11.7%. For the nine months ended June 30, 2007, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 50.7% as compared to 51.7% in the corresponding period last year.

Gross Profit

PTS’ gross profit for the three months ended June 30, 2007 increased $77.1 million, or 34.2%, to $302.4 million as compared to $225.3 million in the corresponding period last year. Of this increase, $40.2 million, or 52.1%, was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquir