Edgar Filing: AECOM TECHNOLOGY CORP

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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 March 31, 2010

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

For the transition period from to

Commission File Number 0-52423

AECOM TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		61-1088522
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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 period 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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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 May 3, 2010, 114,693,406 shares of the registrant’s common stock were outstanding.

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AECOM TECHNOLOGY CORPORATION

INDEX

PART I.		FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of March 31, 2010 (unaudited) and September 30, 2009

		Consolidated Statements of Income for the Three and Six Months Ended March 31, 2010 (unaudited) and March 31, 2009 (unaudited)

		Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2010 (unaudited) and March 31, 2009 (unaudited)

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2010 (unaudited) and March 31, 2009 (unaudited)

		Notes to 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

	Item 4.	Controls and Procedures

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 5	Other Information
	Item 6.	Exhibits

SIGNATURES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AECOM Technology Corporation
Consolidated Balance Sheets

(in thousands, except share data)

	March 31, 2010			September 30, 2009
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	196,284		$	263,489
Cash in consolidated joint ventures	10,265			27,288
Total cash and cash equivalents	206,549			290,777
Accounts receivable—net	1,950,645			1,732,959
Prepaid expenses and other current assets	142,056			82,195
Current assets held for sale	—			74,527
Deferred tax assets—net	49,316			34,077
TOTAL CURRENT ASSETS	2,348,566			2,214,535
PROPERTY AND EQUIPMENT—NET	235,639			228,835
DEFERRED TAX ASSETS—NET	85,777			91,139
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES	30,441			34,505
GOODWILL	1,132,771			1,062,919
INTANGIBLE ASSETS—NET	61,796			61,979
OTHER NON-CURRENT ASSETS	44,353			95,969
TOTAL ASSETS	$	3,939,343		$	3,789,881

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	13,070		$	13,268
Accounts payable	413,503			401,239
Accrued expenses and other current liabilities	755,792			722,531
Billings in excess of costs on uncompleted contracts	368,192			333,952
Income taxes payable	2,111			19,585
Current liabilities held for sale	—			50,325
Current portion of long-term debt	9,592			15,839
TOTAL CURRENT LIABILITIES	1,562,260			1,556,739
OTHER LONG-TERM LIABILITIES	245,607			336,635
LONG-TERM DEBT	178,061			142,102
TOTAL LIABILITIES	1,985,928			2,035,476
AECOM STOCKHOLDERS’ EQUITY:
Convertible preferred stock—authorized, 7,799,780; issued and outstanding, 24,578 and 25,130 shares at March 31, 2010 and September 30, 2009; respectively, $100.00 liquidation preference value	2,458			2,513
Common stock—authorized, 150,000,000 shares of $0.01 par value; issued and outstanding, 113,225,510 and 110,890,075 as of March 31, 2010 and September 30, 2009, respectively	1,132			1,109
Preferred stock, Class C—authorized, 200 shares; issued and outstanding, 53 and 56 shares as of March 31, 2010 and September 30, 2009, respectively; no par value, $1.00 liquidation preference value	—			—
Preferred stock, Class E—authorized, 20 shares; issued and outstanding, 4 and 5 shares as of March 31, 2010 and September 30, 2009; no par value, $1.00 liquidation preference value	—			—
Additional paid-in capital	1,517,012			1,458,326
Accumulated other comprehensive loss	(127,909		)	(146,575		)
Retained earnings	518,547			414,345
TOTAL AECOM STOCKHOLDERS’ EQUITY	1,911,240			1,729,718
Noncontrolling interests	42,175			24,687
TOTAL STOCKHOLDERS’ EQUITY	1,953,415			1,754,405
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,939,343		$	3,789,881

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Consolidated Statements of Income

(unaudited - in thousands, except per share data)

	Three Months Ended						Six Months Ended
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009

Revenue	$	1,601,166		$	1,498,058		$	3,081,950		$	2,950,686

Cost of revenue	1,493,271			1,410,125			2,891,078			2,782,146
Gross profit	107,895			87,933			190,872			168,540

Equity in earnings of joint ventures	3,451			4,904			7,829			10,640
General and administrative expenses	27,898			23,931			49,763			41,177
Income from operations	83,448			68,906			148,938			138,003

Other income (expense)	1,829			(1,418		)	3,533			(6,206		)
Interest expense, net	(2,385		)	(1,919		)	(3,360		)	(5,517		)
Income from continuing operations before income tax expense	82,892			65,569			149,111			126,280

Income tax expense	21,048			18,431			37,513			35,891
Income from continuing operations	61,844			47,138			111,598			90,389

Discontinued operations, net of tax	(190		)	1,192			(77		)	1,692
Net income	61,654			48,330			111,521			92,081
Noncontrolling interests in income of consolidated subsidiaries, net of tax	(3,165		)	(4,932		)	(7,250		)	(7,778		)
Net income attributable to AECOM	$	58,489		$	43,398		$	104,271		$	84,303

Net income allocation:
Preferred stock dividend	$	35		$	35		$	70		$	71
Net income available for common stockholders	58,454			43,363			104,201			84,232
Net income attributable to AECOM	$	58,489		$	43,398		$	104,271		$	84,303

Net income attributable to AECOM per share:
Basic
Continuing operations	$	0.51		$	0.40		$	0.92		$	0.78
Discontinued operations	—			0.01			—			0.02
	$	0.51		$	0.41		$	0.92		$	0.80

Diluted
Continuing operations	$	0.51		$	0.39		$	0.91		$	0.77
Discontinued operations	—			0.01			—			0.02
	$	0.51		$	0.40		$	0.91		$	0.79

Weighted average shares outstanding:
Basic	113,801			106,465			113,477			105,497
Diluted	115,044			108,148			114,771			107,384

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Consolidated Statements of Comprehensive Income

(unaudited—in thousands)

	Three Months Ended						Six Months Ended
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009

Net income	$	61,654		$	48,330		$	111,521		$	92,081

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	4,301			(793		)	17,005			(50,837		)
Swap valuation	359			1,801			759			(1,637		)
Pension adjustments	32			3,945			902			1,613
Comprehensive income, net of tax	66,346			53,283			130,187			41,220
Noncontrolling interests in comprehensive income of consolidated subsidiaries, net of tax	(3,165		)	(4,932		)	(7,250		)	(7,778		)
Comprehensive income attributable to AECOM, net of tax	$	63,181		$	48,351		$	122,937		$	33,442

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

	Six Months Ended
	March 31, 2010			March 31, 2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	111,521		$	92,081
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	40,504			39,134
Equity in earnings of unconsolidated joint ventures	(7,829		)	(10,640		)
Distribution of earnings from unconsolidated joint ventures	4,235			10,324
Non-cash stock compensation	16,465			12,285
Excess tax benefit from share based payment	(8,780		)	(9,856		)
Foreign currency translation	4,973			(7,667		)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(168,697		)	(28,556		)
Prepaid expenses and other assets	(9,131		)	5,794
Accounts payable	(2,336		)	(15,633		)
Accrued expenses and other current liabilities	(72,147		)	(97,740		)
Billings in excess of costs on uncompleted contracts	20,340			43,631
Other long-term liabilities	1,925			(18,633		)
Income taxes payable	(13,297		)	(5,886		)
Net cash (used in) provided by operating activities from continuing operations	(82,254		)	8,638
Net cash (used in) provided by operating activities from discontinued operations	(4,227		)	6,056
Net cash (used in) provided by operating activities	(86,481		)	14,694

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for business acquisitions, net of cash acquired	(40,600		)	(17,920		)
Proceeds from disposal of business	25,799			—
Net investment in unconsolidated joint ventures	5,191			2,083
Sales of investment securities	—			81,449
Payments for capital expenditures	(27,467		)	(32,565		)
Net cash (used in) provided by investing activities	(37,077		)	33,047

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under credit agreements	41,908			285
Repayments of borrowings under credit agreements	(14,698		)	(104,486		)
Proceeds from issuance of common stock	3,411			98,930
Proceeds from exercise of stock options	3,934			8,711
Payments to repurchase common stock	(12,005		)	(3,148		)
Excess tax benefit from share based payment	8,780			9,856
Net contributions from (distributions to) noncontrolling interests	5,438			(4,018		)
Net cash provided by financing activities	36,768			6,130

EFFECT OF EXCHANGE RATE CHANGES ON CASH	2,562			(8,192		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(84,228		)	45,679
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	290,777			197,122
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	206,549		$	242,801

NON-CASH INVESTING AND FINANCING ACTIVITY
Common stock issued in acquisitions	$	33,500		$	—

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Notes to Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

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

The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2009. The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The results of operations for the six months ended March 31, 2010 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2010.

The Company reports its annual results of operations based on 52 or 53-week periods ending on the Friday nearest September 30. The Company reports its quarterly results of operations based on periods ending on the Friday nearest December 31, March 31, and June 30. For clarity of presentation, all periods are presented as if the periods ended on September 30, December 31, March 31, and June 30.

2. Adoption of Changes in Accounting Principles

In December 2007, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 810-10, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (ASC 810-10). ASC 810-10 requires all entities to report noncontrolling interests in subsidiaries as a separate component of equity in the consolidated balance sheet and to reflect net income attributable to noncontrolling interests below net income on the consolidated statement of income. The Company adopted ASC 810-10 during the first quarter ended December 31, 2009. Accordingly, prior periods have been restated to reflect these reclassifications.

In December 2007, the FASB issued ASC 805-10, “Business Combinations” (ASC 805-10). ASC 805-10 significantly changes the way companies account for business combinations and will generally require more assets acquired and liabilities assumed to be measured at their acquisition-date fair value. Under ASC 805-10, legal fees and other transaction-related costs are expensed as incurred and are no longer included as a cost of acquiring the business. ASC 805-10 also requires, among other things, acquirers to estimate the acquisition-date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent consideration in earnings. In addition, restructuring costs the acquirer expects, but is not obligated to incur, must be recognized separately from the business acquisition. This pronouncement has been applied by the Company to all acquisitions consummated on or after October 1, 2009. Transaction and restructuring costs expensed as a result of the adoption of ASC 805-10 were not material.

In February 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-09 “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements” (ASU 2010-09). The amendments remove the requirement for a United States Securities and Exchange Commission (SEC) registrant to disclose a date, in both issued and revised financial statements, through which that filer had evaluated subsequent events. Accordingly, the Company removed the related disclosure from the Notes to Consolidated Financial Statements. Consistent with past practice, the Company has evaluated subsequent events through the issuance date of our financial statements. The adoption did not have a material impact on the Company’s financial statements.

In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements” (ASU 2010-06). ASU 2010-06 amended certain provisions of ASC 820-10, “Fair Value Measurement and Disclosures” by requiring additional disclosures for transfers in and out of Level 1 and Level 2 fair value measurements, as well as requiring fair value measurement disclosures for each class of assets and liabilities in addition to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The adoption did not have a material impact on the Company’s financial statements or disclosures, as the Company did not have any transfers between Level 1 and Level 2 fair value measurements and did not have material classes of assets and liabilities that required additional disclosure. Certain provisions of ASU 2010-06 are effective for the Company for the fiscal year beginning October 1, 2011. These provisions will require the Company to present separately information on all purchases, sales, issuances, and settlements of financial instruments valued using significant unobservable inputs (Level 3) in the reconciliation for fair value measurements. The Company does not believe the adoption in its fiscal year beginning October 1, 2011, will have a material impact on its financial statements or disclosures.

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3. Recently Issued Accounting Pronouncements

In October 2009, the FASB issued ASU No. 2009-13 “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13) which updates ASC Topic 605, “Revenue Recognition.” ASU 2009-13 provides another alternative for determining the selling price of deliverables and will allow companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction’s economics and could result in earlier revenue recognition. ASU 2009-13 is effective for the Company prospectively for revenue arrangements entered into or materially modified on or after October 1, 2010; however, early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2009-13 on its financial statements.

In December 2009, the FASB issued ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (ASU 2009-17). ASU 2009-17 amends prior accounting for variable interests and requires a company to perform an analysis to determine whether its interests give it a controlling financial interest in a variable interest entity. A company must also assess whether it has the power to direct the activities of the variable interest entity and whether it has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity. ASU 2009-17 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity, eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and expands required disclosures. ASU 2009-17 may be applied retrospectively in previously issued financial statements with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. ASU 2009-17 is effective for the Company’s fiscal year beginning October 1, 2010. The Company is currently evaluating the impact that the adoption of ASU 2009-17 will have on its financial statements.

In December 2008, the FASB issued ASC 715-20-65, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (ASC 715-20-65). ASC 715-20-65 amends SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The additional disclosure requirements include expanded disclosure about an entity’s investment policies and strategies, the categories of plan assets, concentrations of credit risk and fair value measurements of plan assets. This standard is effective for the Company in its fiscal year ending September 30, 2010. The Company will amend its disclosures accordingly beginning with the financial statements included in its fiscal year 2010 Form 10-K.

4. Business Acquisitions, Goodwill and Intangible Assets

Business acquisitions completed during the three and six months ended March 31, 2010 were immaterial both individually and in the aggregate based on the Company’s consolidated assets, investments and net income. Additionally, the Company acquired control of an entity and commenced consolidating it during the quarter ended December 31, 2009. This consolidation did not have a material impact to the Company’s financial statements. Total consideration related to acquisitions consisted of $40.6 million in cash, net of cash acquired, and $33.5 million in Company stock. The Company is in the process of finalizing project related liabilities related to recent acquisitions.

The changes in the carrying value of goodwill by reporting segment for the six months ended March 31, 2010 and 2009 were as follows:

	September 30, 2009		Post- Acquisition Adjustments			Foreign Exchange Impact		Acquired		March 31, 2010
	(in thousands)
Professional Technical Services	$	1,060,093	$	(2,091	)	$	3,797	$	46,227	$	1,108,026
Management Support Services	2,826		—			—		21,919		24,745
Total	$	1,062,919	$	(2,091	)	$	3,797	$	68,146	$	1,132,771

	September 30, 2008		Post- Acquisition Adjustments		Foreign Exchange Impact			Acquired		March 31, 2009
	(in thousands)
Professional Technical Services	$	946,263	$	49,696	$	(24,020	)	$	—	$	971,939
Management Support Services	2,826		—		—			—		2,826
Total	$	949,089	$	49,696	$	(24,020	)	$	—	$	974,765

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The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of March 31, 2010 and September 30, 2009, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:

	March 31, 2010				September 30, 2009
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
	(in thousands)
Backlog	$	65,742	$	62,077	$	63,137	$	55,021
Customer Relationships	78,313		20,182		69,999		16,136
Total	$	144,055	$	82,259	$	133,136	$	71,157

At the time of acquisition, the Company preliminarily estimates the amount of the identifiable intangible assets acquired based upon historical valuations of similar acquisitions and the facts and circumstances available at the time. The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than 12 months from the date of acquisition. The Company has yet to complete its final valuation of intangible assets for one of the business acquisitions noted above.

The following table presents estimated amortization expense of existing intangible assets for the remainder of fiscal 2010 and for the succeeding years:

Fiscal Year	(in thousands)
2010	$	6,002
2011	9,991
2012	8,315
2013	8,315
2014	8,169
Thereafter	21,004
Total	$	61,796

5. Discontinued Operations

Assets and liabilities held for sale primarily related to a non-strategic business in the United Kingdom, which was acquired as part of the acquisition of Earth Tech into the Company’s Professional Technical Services segment and was disposed of during the first quarter ended December 31, 2009.

For the three and six months ended March 31, 2010 and 2009, the summarized results of the discontinued operation, included in the Company’s results of operations, are as follows (in millions):

	Three Months Ended					Six Months Ended
	March 31, 2010			March 31, 2009		March 31, 2010			March 31, 2009
Revenue	$	0.4		$	19.1	$	13.6		$	36.2

Earnings before income taxes	$	(0.2	)	$	1.3	0.1			1.9
Income tax expense	—			0.1		0.2			0.2
Earnings from discontinued operations, net of tax	$	(0.2	)	$	1.2	$	(0.1	)	$	1.7

6. Restructuring Costs

In fiscal 2009, in connection with the Earth Tech acquisition, the Company initiated plans for workforce reductions and facility closures. During the quarter ended December 31, 2009, the Company initiated a restructuring plan for its United Kingdom operations to reduce ongoing overhead costs and improve operating efficiencies. The accrued restructuring costs are expected to be paid over the next five years.

The following table presents a reconciliation of the restructuring reserve balance in our PTS Segment from October 1, 2009 to March 31, 2010:

	Six Months Ended March 31, 2010
	Severance Costs			Facility Costs			Total
	(in millions)
Accrual, beginning of the period	$	1.7		$	26.3		$	28.0
Accrued and other adjustments during the period	4.5			0.6			5.1
Paid during the period	(5.1		)	(3.5		)	(8.6		)
Accrual, end of the period	$	1.1		$	23.4		$	24.5

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7. Accounts Receivable—Net

Net accounts receivable consisted of the following as of March 31, 2010 and September 30, 2009:

	March 31, 2010			September 30, 2009
	(in thousands)
Billed	$	1,157,667		$	992,444
Unbilled	843,163			785,783
Contract retentions	52,568			55,203
Total accounts receivable—gross	2,053,398			1,833,430
Allowance for doubtful accounts	(102,753		)	(100,471		)
Total accounts receivable—net	$	1,950,645		$	1,732,959

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 accounts billed after the period end. Substantially all unbilled receivables as of March 31, 2010 and September 30, 2009 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 for 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 an 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 March 31, 2010 or September 30, 2009.

8. Disclosures About Pension Benefit Obligations

The following table details the components of net periodic benefit cost for the plans for the three and six months ended March 31, 2010 and 2009:

	Three Months Ended												Six Months Ended
	March 31, 2010						March 31, 2009						March 31, 2010						March 31, 2009
	U.S.			Int’l			U.S.			Int’l			U.S.			Int’l			U.S.			Int’l
	(in thousands)
Components of net periodic (benefit) cost:
Service costs	$	—		$	1,285		$	462		$	1,021		$	—		$	2,621		$	925		$	2,114
Interest cost on projected benefit obligation	2,011			5,284			2,154			5,021			4,022			10,810			4,308			10,445
Expected return on plan assets	(1,996		)	(5,887		)	(1,959		)	(5,229		)	(3,992		)	(12,038		)	(3,918		)	(10,874		)
Amortization of prior service costs	—			(79		)	(260		)	(73		)	—			(161		)	(419		)	(152		)
Amortization of net loss	341			586			729			804			682			1,197			1,216			1,555
Curtailment gain recognized	—			—			—			—			(1,933		)	—			—			—
Net periodic (benefit) cost	$	356		$	1,189		$	1,126		$	1,544		$	(1,221	)	$	2,429		$	2,112		$	3,088

The total amounts of employer contributions paid for the six months ended March 31, 2010 were $3.9 million for U.S. plans and $8.2 million for non-U.S. plans. The expected remaining scheduled employer contributions for the fiscal year ending September 30, 2010 are $1.4 million for U.S. plans and $7.6 million for non-U.S. plans. During the quarter ended December 31, 2009, the Company adopted an amendment to freeze pension plan benefit accruals for certain U.S. employee plans resulting in a curtailment gain of $1.9 million. Included in other long-term liabilities are net pension liabilities of $120.5 million and $132.5 million as of March 31, 2010 and September 30, 2009, respectively.

9. Fair Value Measurements

In September 2006, the FASB issued ASC 820-10, “Fair Value Measurements” (ASC 820-10), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. ASC 820-10 was effective for the Company on October 1, 2008 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value in its consolidated financial statements on a recurring basis (at least annually).

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Effective October 1, 2009, the Company adopted the fair value measurement guidance for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis. These assets and liabilities include items such as goodwill and long lived assets that are measured at fair value resulting from impairment, if deemed necessary. For additional information about the Company’s impairment evaluation process, refer to Note 1 to the Consolidated Financial Statements in the Company’s 2009 Form 10-K. During the second quarter ended March 31, 2010, the Company did not record any fair market value adjustments to those financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) in millions:

	March 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Deferred compensation plan assets (1)	$	0.4	$	0.4	$	—	$	—
Total assets	$	0.4	$	0.4	$	—	$	—

Deferred compensation plan liability (1)	$	87.5	$	—	$	87.5	$	—
Derivative liabilities (2)	0.6		—		0.6		—
Total liabilities	$	88.1	$	—	$	88.1	$	—

	September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Deferred compensation plan assets (1)	$	0.6	$	0.6	$	—	$	—
Total assets	$	0.6	$	0.6	$	—	$	—

Deferred compensation plan liability (1)	$	92.8	$	—	$	92.8	$	—
Derivative liabilities (2)	1.9		—		1.9		—
Total liabilities	$	94.7	$	—	$	94.7	$	—

(1)

The Company maintains a participant-directed, non-qualified deferred compensation plan structured as a rabbi trust (a trust established to provide a source of funds for the plan on a tax-deferred basis) for eligible highly compensated employees. The rabbi trust held approximately $0.4 million and $0.6 million, or 1% of its investment assets, in marketable securities valued using quoted market prices as of March 31, 2010 and September 30, 2009, respectively. The remaining assets, not reflected in this table, of $65.6 million and $53.7 million, respectively, are valued at cash surrender value and not subject to this disclosure. The related deferred compensation liability represents the fair value of the participant deferrals, which are held in insurance funds that are not publicly traded. These investments are valued at the net asset value per share provided by the Company’s administrator multiplied by the number of shares held by the participants. For additional information about the Company’s deferred compensation plan, refer to Note 17 to Consolidated Financial Statements in the Company’s 2009 Form 10-K and Note 13 herein.

(2)

For additional information about the Company’s fair value measurements of these interest rate swap agreements, refer to Notes 1 and 11 to Consolidated Financial Statements in the Company’s 2009 Form 10-K.

10. Stock-Based Compensation

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 has only been publicly-traded since May 2007, 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 U.S. Treasury bond rates with maturities equal to the expected term of the option on the grant date. The Company uses historical data as a basis to estimate the probability of forfeitures.

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The fair value of options granted during the three and six months ended March 31, 2010 and 2009 were determined using the following weighted average assumptions:

	Three Months Ended				Six Months Ended
	March 31, 2010		March 31, 2009		March 31, 2010		March 31, 2009
Dividend yield	—		—		—		—
Expected volatility	39.9	%	37.6	%	39.9	%	37.6	%
Risk-free interest rate	1.6	%	1.8	%	1.6	%	1.8	%
Term (in years)	4.5		4.5		4.5		4.5

For the six months ended March 31, 2010 and 2009, compensation expense recognized related to stock options was $1.9 million and $1.9 million, respectively. Unrecognized compensation expense relating to stock options outstanding as of March 31, 2010 and September 30, 2009 was $6.8 million, to be recognized over the awards’ respective vesting periods, which are generally three years.

Stock option activity for the six months ended March 31, 2010 and 2009 was as follows:

	2010				2009
	Shares of stock under options		Weighted average exercise price		Shares of stock under options		Weighted average exercise price
	(in thousands)				(in thousands)
Outstanding at the beginning of the period	3,806		$	16.36	5,309		$	11.78
Options granted	361		24.91		890		23.68
Options exercised	(372	)	11.01		(1,030	)	8.48
Options forfeited or expired	(39	)	21.70		(23	)	19.67
Outstanding at the end of the period	3,756		17.65		5,146		14.47

Vested and expected to vest in the future as of March 31	3,663		$	17.48	5,083		$	14.29

The weighted average grant-date fair value of stock options granted during the six months ended March 31, 2010 and 2009 was $8.76 and $8.04, respectively.

The Company grants restricted stock units under the Performance Earnings Program (PEP), whereby units are earned and issued dependent upon meeting established cumulative performance objectives and service conditions over a three-year period. The Company recognized compensation expense relating to the PEP of $10.8 million and $9.7 million during the six months ended March 31, 2010 and 2009, respectively. Additionally, the Company issues restricted stock units which are earned based only on service conditions, resulting in compensation expense of $3.4 million and $0.6 million during the six months ended March 31, 2010 and 2009, respectively. Unrecognized compensation expense related to PEP units and restricted stock units outstanding was $29.7 million and $17.2 million as of March 31, 2010 and $21.2 million and $3.9 million as of September 30, 2009, respectively, to be recognized over the awards’ respective vesting periods which are generally three years.

Cash flows attributable to tax benefits resulting from tax deductions in excess of compensation cost recognized for share-based payments is classified as financing cash flows. Excess tax benefits of $8.8 million and $9.9 million for the six months ended March 31, 2010 and 2009, respectively, have been classified as financing cash inflows in the unaudited Consolidated Statements of Cash Flows.

11. Income Taxes

A number of tax years are under audit by the relevant federal, state and foreign tax authorities. The Company is currently under examination by the U.S. Internal Revenue Service (IRS) for the fiscal years 2006 and 2007. During December 2009, the Company settled the portion of this audit relating to Research and Experimentation Credits, resulting in a $3.2 million reduction to income tax expense. The Company also recorded additional income tax expense totaling $2.9 million during the six months period ended March 31, 2010 relating to other audit issues, currently under dispute.

The Company anticipates that some of the audits may be concluded in the foreseeable future, including in fiscal year 2010. Based on the status of these audits, it is reasonably possible that the conclusion of the audits may result in a reduction of unrecognized tax benefits. However, it is not possible to estimate the impact of this change at this time due to the status of the tax examinations.

During the three months ended March 31, 2010, the Company recorded a $4.3 million reduction to income tax expense relating to the restructuring of its Australian operations and a $2.2 million reduction to income tax expense as a result of effectively settling the amount of Canadian Scientific Research and Experimental Development (SRED) credits claimed on the Company’s Canadian tax returns for the tax years prior to 2009.

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The effective tax rate was 25.2% and 28.4% for the six months ended March 31, 2010 and 2009, respectively. The decrease in tax rate was primarily due to the IRS examination items, the Australian restructuring, and the Canadian SRED credits discussed above. Another factor contributing to the lower tax rate was that more of the Company’s foreign operations are being conducted in lower tax rate jurisdictions.

12. Net Income Per Share

Basic net income per share (EPS) excludes dilution and is computed by dividing net income available for common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income attributable to AECOM 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 a reconciliation of the denominators for basic and diluted EPS:

	Three Months Ended		Six Months Ended
	March 31, 2010	March 31, 2009	March 31, 2010	March 31, 2009
	(in thousands)
Denominator for basic earnings per share	113,801	106,465	113,477	105,497
Potential common shares:
Stock options	960	1,570	1,042	1,771
Other	283	113	252	116
Denominator for diluted earnings per share	115,044	108,148	114,771	107,384

For the six months ended March 31, 2010 and 2009, no options were excluded from the calculation of potential common shares because they were considered anti-dilutive.

13. Other Financial Information

Accrued expenses consist of the following:

	March 31, 2010		September 30, 2009
	(in millions)
Accrued salaries and benefits	$	279.0	$	323.3
Accrued contract costs	341.1		358.2
Deferred compensation plan liability (Note 9)	87.5		—
Other accrued expenses	48.2		41.0
	$	755.8	$	722.5

Accrued contract costs primarily relate to costs for services provided by subcontractors and other non-employees. Accrued contract costs also include balances related to professional liability risks of $105.1 million and $98.3 million as of March 31, 2010 and September 30, 2009, respectively.

Other long-term liabilities consist of the following:

	March 31, 2010		September 30, 2009
	(in millions)
Pension liabilities (Note 8)	$	120.5	$	132.5
Deferred compensation plan liability (Note 9)	—		92.8
Reserve for uncertain tax positions (Note 11)	65.1		54.4
Other	60.0		56.9
	$	245.6	$	336.6

The components of accumulated other comprehensive loss are as follows:

	March 31, 2010			September 30, 2009
	(in millions)
Foreign currency translation adjustment	$	(20.6	)	$	(37.7	)
Defined benefit minimum pension liability adjustment, net of tax	(106.9		)	(107.8		)
Interest rate swap valuation	(0.4		)	(1.1		)
	$	(127.9	)	$	(146.6	)

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The Company elected to terminate its U.S. deferred compensation plan effective in December 2009. As a result of the termination, 6.3 million outstanding restricted stock units and the Company’s deferred compensation liability of $87.5 million as of March 31, 2010 are expected to be settled in December 2010. Accordingly, this liability was reclassified from other long-term liabilities to accrued expenses and other current liabilities in December 2009. Additionally, $62.2 million in investments held in a rabbi trust to fund the deferred compensation liability were reclassified from other non-current assets to other current assets in December 2009. The 6.3 million outstanding stock units can only be settled in common stock of the Company, and as such remain classified in AECOM’s stockholder equity as of March 31, 2010.

14. Commitments and Contingencies

The Company records amounts representing its estimated liabilities relating to claims, guarantees, litigation, audits and investigations. The Company relies in part on qualified actuaries to assist it in determining the level of reserves to establish for insurance-related claims that are known and have been asserted against it, and for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to the Company’s claims administrators as of the respective balance sheet dates. The Company includes any adjustments to such insurance reserves in its consolidated results of operations.

The Company is a defendant in various lawsuits arising in the normal course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on its consolidated balance sheet or statements of income or cash flows.

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. At March 31, 2010, the Company was contingently liable in the amount of approximately $161.6 million under standby letters of credit issued primarily in connection with general and professional liability insurance programs and for payment and performance guarantees.

In the ordinary course of business, the Company enters into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated partnerships, joint ventures and other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The guarantees have various expiration dates. The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties. Generally, under joint venture arrangements, if a partner is financially unable to complete its share of the contract, the other partner(s) will 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 does not expect that these guarantees will have a material adverse effect on its consolidated balance sheet or statements of income or cash flows.

Combat Support Associates Joint Venture - Kuwait Labor Law Matter

On March 24, 2010, the U.S. Defense Contract Audit Agency (DCAA) issued a DCAA Form 1 questioning costs incurred during fiscal year 2007 by Combat Support Associates (CSA), a consolidated joint venture that includes AECOM Government Services, Inc. (AGS), in the performance of a U.S. Government contract in Kuwait. The costs in question were incurred in paying Service Terminal Indemnity (STI) to CSA’s employees at the end of their employment agreements. The DCAA questioned the reasonableness and allowability of the payments on the basis that CSA allegedly paid more than the amount required by the Kuwait Labor Law.

CSA has requested that the U.S. Government contracting officer make a final determination that the costs are proper under the contract. If the contracting officer declines to overrule the DCAA Form 1, CSA intends to utilize all proper avenues to defend against the Government’s claim, including appeals processes.

The Company believes based upon advice of Kuwaiti legal counsel that CSA has been and continues to be in compliance with STI requirements of Kuwait labor laws. Therefore, the Company presently believes that, if required, CSA would be successful in obtaining a favorable determination of this matter. However, if the DCAA Form 1 is not overruled and subsequent appeals were unsuccessful, the decision could have a material adverse effect on the Company’s results of operations.

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15. Reportable Segments

The Company’s operations are organized into two reportable segments: Professional Technical Services (PTS) and Management Support Services (MSS). The Company’s PTS reportable segment delivers planning, consulting, architectural and engineering design, and program and construction management services to institutional, commercial and government clients worldwide. The Company’s MSS reportable segment provides program and facilities management and maintenance, training, logistics, consulting, and technical assistance and systems integration services, primarily for agencies of the U.S. government. These reportable segments are organized by the types of services provided, the differing specialized needs of the respective clients, and how the Company manages its business. The Company has aggregated various operating segments into its PTS reportable segment based on their similar characteristics, including similar long term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.

Management internally analyzes the results of its operations using several non-GAAP measures. A significant portion of the Company’s revenues relates to services provided by subcontractors and other non-employees that it categorizes as other direct costs. Other direct costs are segregated from cost of revenues resulting in revenue, net of other direct costs, which is a measure of work performed by Company employees. The Company has included information on revenue, net of other direct costs, as it believes that it is useful to view our revenue exclusive of costs associated with external service providers.

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

Reportable Segments:	Professional Technical Services			Management Support Services			Corporate			Total
	(in thousands)
Three Months Ended March 31, 2010:
Revenue	1,316,948			284,218			$	—		$	1,601,166
Revenue, net of other direct costs (non-GAAP)	965,997			85,867			—			1,051,864
Gross profit	95,468			12,427			—			107,895
Equity in earnings of joint ventures	2,018			1,433			—			3,451
General and administrative expenses	—			—			27,898			27,898
Operating income	97,486			13,860			(27,898		)	83,448

Gross profit as a % of revenue	7.2		%	4.4		%	—			6.7		%
Gross profit as a % of revenue, net of other direct costs (non-GAAP)	9.9		%	14.5		%	—			10.3		%

Three Months Ended March 31, 2009:
Revenue	$	1,239,655		$	258,403		$	—		$	1,498,058
Revenue, net of other direct costs (non-GAAP)	899,655			66,806			—			966,461
Gross profit	74,288			13,645			—			87,933
Equity in earnings of joint ventures	3,409			1,495			—			4,904
General and administrative expenses	—			—			23,931			23,931
Operating income	77,697			15,140			(23,931		)	68,906

Gross profit as a % of revenue	6.0		%	5.3		%	—			5.9		%
Gross profit as a % of revenue, net of other direct costs (non-GAAP)	8.3		%	20.4		%	—			9.1		%

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Reportable Segments:	Professional Technical Services			Management Support Services			Corporate			Total
	(in thousands)
Six Months Ended March 31, 2010:
Revenue	$	2,521,387		$	560,563		$	—		$	3,081,950
Revenue, net of other direct costs (non-GAAP)	1,849,838			164,352			—			2,014,190
Gross profit	167,106			23,766			—			190,872
Equity in earnings of joint ventures	4,290			3,539			—			7,829
General and administrative expenses	—			—			49,763			49,763
Operating income	171,396			27,305			(49,763		)	148,938

Gross profit as a % of revenue	6.6		%	4.2		%	—			6.2		%
Gross profit as a % of revenue, net of other direct costs (non-GAAP)	9.0		%	14.5		%	—			9.5		%

Six Months Ended March 31, 2009:
Revenue	$	2,469,481		$	481,205		$	—		$	2,950,686
Revenue, net of other direct costs (non-GAAP)	1,747,045			110,006			—			1,857,051
Gross profit	147,615			20,925			—			168,540
Equity in earnings of joint ventures	6,386			4,254			—			10,640
General and administrative expenses	—			—			41,177			41,177
Operating income	154,001			25,179			(41,177		)	138,003

Gross profit as a % of revenue	6.0		%	4.3		%	—			5.7		%
Gross profit as a % of revenue, net of other direct costs (non-GAAP)	8.4		%	19.0		%	—			9.1		%

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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” 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 approximately 43,000 employees and staff employed in the field on projects.

Our business focuses primarily on providing fee-based professional technical and support services and therefore our business is 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 spent on client projects and our ability to manage our costs. We report 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 end markets such as the transportation, facilities, environmental and energy 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.

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 subcontractors and other direct costs.

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

Our costs consist primarily of the compensation we pay to our employees, including salaries, fringe benefits, the costs of hiring subcontractors and other project-related expenses, and sales, general and administrative costs.

Throughout this section, we refer to companies we acquired in the last 12 months as “acquired companies.”

Components of Income and Expense

Our management analyzes the results of our operations using several non-GAAP measures. A significant portion of our revenue relates to services provided by subcontractors and other non-employees that we categorize as other direct costs. Those costs are typically paid to service providers upon our receipt of payment from the client. We segregate other direct costs from revenue resulting in a measurement that we refer to as “revenue, net of other direct costs,” which is a measure of work performed by AECOM employees. We have included information on revenue, net of other direct costs, as we believe that it is useful to view our revenue exclusive of costs associated with external service providers.

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

	Six Months Ended
	March 31, 2010		March 31, 2009
	(in millions)
Other Financial Data:
Revenue	$	3,082	$	2,951
Other direct costs	1,068		1,094
Revenue, net of other direct costs	2,014		1,857
Cost of revenue, net of other direct costs	1,823		1,689
Gross profit	191		168
Equity in earnings of joint ventures	8		11
General and administrative expenses	50		41
Income from operations	$	149	$	138

Reconciliation of Cost of Revenue:
Other direct costs	$	1,068	$	1,094
Cost of revenue, net of other direct costs	1,823		1,689
Cost of revenue	$	2,891	$	2,783

Results of Operations

Consolidated Results

	Three Months Ended											Six Months Ended
	March 31,			March 31,			Change					March 31,			March 31,			Change
	2010			2009			$			%		2010			2009			$			%
	(in thousands)
Revenue	$	1,601,166		$	1,498,058		$	103,108		6.9	%	$	3,081,950		$	2,950,686		$	131,264		4.4	%
Other direct costs	549,302			531,597			17,705			3.3		1,067,760			1,093,635			(25,875		)	(2.4	)
Revenue, net of other direct costs	1,051,864			966,461			85,403			8.8		2,014,190			1,857,051			157,139			8.5
Cost of revenue, net of other direct costs	943,969			878,528			65,441			7.4		1,823,318			1,688,511			134,807			8.0
Gross profit	107,895			87,933			19,962			22.7		190,872			168,540			22,332			13.3
Equity in earnings of joint ventures	3,451			4,904			(1,453		)	(29.6	)	7,829			10,640			(2,811		)	(26.4	)
General and administrative expenses	27,898			23,931			3,967			16.6		49,763			41,177			8,586			20.9
Income from operations	83,448			68,906			14,542			21.1		148,938			138,003			10,935			7.9
Other (expense) income	1,829			(1,418		)	3,247			*		3,533			(6,206		)	9,739			*
Interest expense, net	(2,385		)	(1,919		)	(466		)	24.3		(3,360		)	(5,517		)	2,157			(39.1	)
Income before income tax expense	82,892			65,569			17,323			26.4		149,111			126,280			22,831			18.1
Income tax expense	21,048			18,431			2,617			14.2		37,513			35,891			1,622			4.5
Income from continuing operations	61,844			47,138			14,706			31.2		111,598			90,389			21,209			23.5
Discontinued operations, net of tax	(190		)	1,192			(1,382		)	*		(77		)	1,692			(1,769		)	*
Net income		61,654			48,330			13,324		27.6			111,521			92,081			19,440		21.1
Noncontrolling interests in income of consolidated subsidiaries, net of tax	(3,165		)	(4,932		)	1,767			(35.8	)	(7,250		)	(7,778		)	528			(6.8	)
Net income attributable to AECOM	$	58,489		$	43,398		$	15,091		34.8	%	$	104,271		$	84,303		$	19,968		23.7	%

* Not meaningful

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

	Three Months Ended				Six Months Ended
	March 31, 2010		March 31, 2009		March 31, 2010		March 31, 2009
Revenue, net of other direct costs	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue, net of other direct costs	89.7		90.9		90.5		90.9
Gross profit	10.3		9.1		9.5		9.1
Equity in earnings of joint ventures	0.3		0.5		0.4		0.6
General and administrative expense	2.7		2.5		2.5		2.3
Income from operations	7.9		7.1		7.4		7.4
Other income (expense)	0.2		(0.1	)	0.2		(0.3	)
Interest expense, net	(0.2	)	(0.2	)	(0.2	)	(0.3	)
Income before income tax expense	7.9		6.8		7.4		6.8
Income tax expense	2.0		1.9		1.9		1.9
Income from continuing operations	5.9		4.9		5.5		4.9
Discontinued operations, net of tax	0.0		0.1		0.0		0.1
Net income	5.9		5.0		5.5		5.0
Noncontrolling interests in income of consolidated subsidiaries, net of tax	(0.3	)	(0.5	)	(0.3	)	(0.5	)
Net income attributable to AECOM	5.6	%	4.5	%	5.2	%	4.5	%

Revenue

Our revenue for the three months ended March 31, 2010 increased $103.1 million, or 6.9%, to $1.6 billion as compared to $1.5 billion for the corresponding period last year. $81.3 million of our revenue for the three months ended March 31, 2010 was provided by companies acquired in the past twelve months. Excluding the revenue provided by companies acquired in the past twelve months, revenue increased $21.8 million, or 1.5%, from the three months ended March 31, 2009.

Our revenue for the six months ended March 31, 2010 increased $131.3 million, or 4.4%, to $3.1 billion as compared to $3.0 billion for the corresponding period last year. $135.7 million was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue decreased $4.4 million, or 0.1%.

The increase in revenue, excluding acquired companies, for the three months ended March 31, 2010 was primarily attributable to stronger foreign currencies (primarily the Australian dollar and Canadian dollar) of approximately $74 million, and increased demand for our engineering and program management services on infrastructure projects in Hong Kong. These increases were offset by a decrease in demand for our architecture, engineering, and environmental management services primarily in the privately financed facilities market of approximately $65 million.

The decrease in revenue, excluding acquired companies, for the six months ended March 31, 2010 was primarily attributable to the decrease in demand noted above for our services, primarily in the privately financed facilities market, resulting in a decline in revenue of approximately $200 million. Decreases for these services were offset by a $41 million increase in our MSS segment, excluding an acquired company, primarily resulting from increased volume on our Contract Field Teams and Combat Support projects, stronger foreign currencies (primarily the Australian dollar and Canadian dollar) of approximately $130 million and increased demand for our engineering and program management services on infrastructure projects in Libya and Hong Kong.

Revenue, Net of Other Direct Costs

Our revenue, net of other direct costs, for the three months ended March 31, 2010 increased $85.4 million, or 8.8%, to $1.1 billion as compared to $1.0 billion for the corresponding period last year. Of this increase, $55.5 million, or 65.0%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs, provided by acquired companies, revenue, net of other direct costs, increased $29.9 million, or 3.1% over the three months ended March 31, 2009.

Our revenue, net of other direct costs, for the six months ended March 31, 2010 increased $157.1 million, or 8.5%, to $2.0 billion as compared to $1.9 billion for the corresponding period last year. Of this increase, $94.9 million, or 60.4%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs, provided by acquired companies, revenue, net of other direct costs, increased $62.2 million, or 3.3% over the six months ended March 31, 2009.

Table of Contents

The increase in revenue, net of other direct costs, excluding revenue net of other direct costs provided by acquired companies, for the three months ended March 31, 2010 was primarily due to reasons noted above under “Revenue.”

The increase in revenue, net of other direct costs, excluding revenue net of other direct costs provided by acquired companies, for the six months ended March 31, 2010 was primarily due to reasons noted above, under “Revenue”, as well as increased work performed on our Contracts Field Teams project which has a significantly greater portion of work directly performed by us as compared to other projects.

Gross Profit

Our gross profit for the three months ended March 31, 2010 increased $20.0 million, or 22.7%, to $107.9 million as compared to $87.9 million for the corresponding period last year. Of this increase, $6.7 million, or 33.5%, was provided by companies acquired in the past twelve months. Excluding gross profit provided by acquired companies, gross profit increased $13.3 million, or 15.1%, from the three months ended March 31, 2009. For the three months ended March 31, 2010, gross profit, as a percentage of revenue, net of other direct costs, increased to 10.3% from 9.1% in the three months ended March 31, 2009.

Our gross profit for the six months ended March 31, 2010 increased $22.3 million, or 13.3%, to $190.9 million as compared to $168.5 million in the corresponding period last year. Of this increase, $9.4 million, or 42.2%, was provided by companies acquired in the past twelve months. Excluding gross profit provided by acquired companies, gross profit increased $12.9 million, or 7.7%. For the six months ended March 31, 2010, gross profit, as a percentage of revenue, net of other direct costs, increased to 9.5% from 9.1% in the corresponding period last year.

The increases in gross profit, excluding acquired companies, and gross profit, as a percentage of revenue, net of other direct costs, were primarily attributable to the benefits realized from our continuing cost efficiency initiatives and the integration of our Earth Tech acquisition, partially offset by lower margins in our MSS segment as described below. The increases in gross profit were also partially due to favorable changes in foreign exchange rates. The lower gross profit, as a percentage of revenue, net of other direct costs, for the six months ended March 31, 2010 as compared to the three months ended March 31, 2010 is primarily due to severance costs of $4.5 million substantially incurred by our business in the United Kingdom in the three months ended December 31, 2009.

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended March 31, 2010 decreased $1.4 million, or 29.6%, to $3.5 million as compared to $4.9 million in the corresponding period last year.

Our equity in earnings of joint ventures for the six months ended March 31, 2010 decreased $2.8 million, or 26.4%, to $7.8 million as compared to $10.6 million in the corresponding period last year.

The decrease was primarily attributable to decreased volume in a joint venture providing engineering and design services at an airport in the United Arab Emirates and the acquisition of a controlling interest in a joint venture that was previously accounted for under the equity method.

General and Administrative Expenses

Our general and administrative expenses for the three months ended March 31, 2010 increased $4.0 million, or 16.6%, to $27.9 million as compared to $23.9 million for the corresponding period last year. For the three months ended March 31, 2010, general and administrative expenses, as a percentage of revenue, net of other direct costs was 2.7% as compared to 2.5% in the corresponding period last year.

Our general and administrative expenses for the six months ended March 31, 2010 increased $8.6 million, or 20.9%, to $49.8 million as compared to $41.2 million in the corresponding period last year. For the six months ended March 31, 2010, general and administrative expenses, as a percentage of revenue, net of other direct costs was 2.5% as compared to 2.3% in the corresponding period last year.

The increase in general and administrative expenses was primarily attributable to costs associated with staffing and other expenses related to the growth in our business and continued investments to support our strategic initiatives, including the launch of our new branding campaign.