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, 2010
OR
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)
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Delaware |
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61-1088522 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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 x 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):
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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 2, 2010, 116,136,722 shares of the registrant’s common stock were outstanding.
AECOM TECHNOLOGY CORPORATION
AECOM Technology Corporation
(in thousands, except share data)
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June 30, 2010 |
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September 30, 2009 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
241,843 |
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$ |
263,489 |
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Cash in consolidated joint ventures |
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52,039 |
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27,288 |
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Total cash and cash equivalents |
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293,882 |
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290,777 |
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Accounts receivable—net |
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1,902,633 |
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1,732,959 |
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Prepaid expenses and other current assets |
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145,241 |
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82,195 |
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Current assets held for sale |
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— |
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74,527 |
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Deferred tax assets—net |
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36,189 |
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34,077 |
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TOTAL CURRENT ASSETS |
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2,377,945 |
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2,214,535 |
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PROPERTY AND EQUIPMENT—NET |
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226,143 |
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228,835 |
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DEFERRED TAX ASSETS—NET |
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92,805 |
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91,139 |
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INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES |
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33,194 |
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34,505 |
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GOODWILL |
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1,148,629 |
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1,062,919 |
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INTANGIBLE ASSETS—NET |
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62,514 |
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61,979 |
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OTHER NON-CURRENT ASSETS |
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58,610 |
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95,969 |
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TOTAL ASSETS |
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$ |
3,999,840 |
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$ |
3,789,881 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Short-term debt |
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$ |
5,589 |
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$ |
13,268 |
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Accounts payable |
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397,920 |
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401,239 |
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Accrued expenses and other current liabilities |
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806,881 |
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722,531 |
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Billings in excess of costs on uncompleted contracts |
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343,828 |
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333,952 |
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Income taxes payable |
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2,703 |
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19,585 |
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Current liabilities held for sale |
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— |
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50,325 |
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Current portion of long-term debt |
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9,562 |
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15,839 |
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TOTAL CURRENT LIABILITIES |
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1,566,483 |
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1,556,739 |
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OTHER LONG-TERM LIABILITIES |
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244,118 |
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336,635 |
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LONG-TERM DEBT |
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173,640 |
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142,102 |
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TOTAL LIABILITIES |
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1,984,241 |
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2,035,476 |
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AECOM STOCKHOLDERS’ EQUITY: |
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Convertible preferred stock—authorized, 2,500,000; issued and outstanding, 24,405 and 25,130 shares as of June 30, 2010 and September 30, 2009, respectively; $100.00 liquidation preference value |
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2,441 |
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2,513 |
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Common stock—authorized, 150,000,000 shares of $0.01 par value; issued and outstanding, 113,777,608 and 110,890,075 shares as of June 30, 2010 and September 30, 2009, respectively |
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1,138 |
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1,109 |
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Preferred stock, Class C—authorized, 200 shares; issued and outstanding, 52 and 56 shares as of June 30, 2010 and September 30, 2009, respectively; no par value, $1.00 liquidation preference value |
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— |
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— |
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Preferred stock, Class E—authorized, 20 shares; issued and outstanding, 4 and 5 shares as of June 30, 2010 and September 30, 2009, respectively; no par value, $1.00 liquidation preference value |
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— |
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— |
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Additional paid-in capital |
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1,540,359 |
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1,458,326 |
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Accumulated other comprehensive loss |
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(156,599 |
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(146,575 |
) |
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Retained earnings |
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583,355 |
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414,345 |
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TOTAL AECOM STOCKHOLDERS’ EQUITY |
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1,970,694 |
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1,729,718 |
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Noncontrolling interests |
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44,905 |
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24,687 |
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TOTAL STOCKHOLDERS’ EQUITY |
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2,015,599 |
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1,754,405 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
3,999,840 |
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$ |
3,789,881 |
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See accompanying Notes to Consolidated Financial Statements.
AECOM Technology Corporation
Consolidated Statements of Income
(unaudited - in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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June 30, 2010 |
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June 30, 2009 |
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June 30, 2010 |
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June 30, 2009 |
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Revenue |
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$ |
1,635,183 |
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$ |
1,541,289 |
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$ |
4,717,133 |
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$ |
4,491,975 |
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Cost of revenue |
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1,520,118 |
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1,453,772 |
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4,411,196 |
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4,235,918 |
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Gross profit |
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115,065 |
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87,517 |
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305,937 |
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256,057 |
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Equity in earnings of joint ventures |
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5,941 |
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6,153 |
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13,770 |
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16,793 |
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General and administrative expenses |
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28,327 |
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20,071 |
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78,090 |
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61,248 |
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Income from operations |
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92,679 |
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73,599 |
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241,617 |
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211,602 |
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Other income (expense) |
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(253 |
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3,248 |
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3,280 |
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(2,958 |
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Interest expense, net |
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(1,126 |
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(2,617 |
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(4,486 |
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(8,134 |
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Income from continuing operations before income tax expense |
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91,300 |
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74,230 |
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240,411 |
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200,510 |
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Income tax expense |
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22,665 |
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21,187 |
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60,178 |
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57,078 |
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Income from continuing operations |
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68,635 |
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53,043 |
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180,233 |
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143,432 |
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Discontinued operations, net of tax |
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— |
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1,118 |
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(77 |
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2,810 |
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Net income |
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68,635 |
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54,161 |
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180,156 |
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146,242 |
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Noncontrolling interests in income of consolidated subsidiaries, net of tax |
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(3,793 |
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(3,040 |
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(11,043 |
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(10,818 |
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Net income attributable to AECOM |
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$ |
64,842 |
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$ |
51,121 |
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$ |
169,113 |
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$ |
135,424 |
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Net income allocation: |
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Preferred stock dividend |
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$ |
34 |
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$ |
34 |
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$ |
104 |
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$ |
105 |
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Net income available for common stockholders |
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64,808 |
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51,087 |
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169,009 |
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135,319 |
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Net income attributable to AECOM |
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$ |
64,842 |
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$ |
51,121 |
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$ |
169,113 |
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$ |
135,424 |
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Net income attributable to AECOM per share: |
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Basic |
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Continuing operations |
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$ |
0.57 |
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$ |
0.45 |
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$ |
1.49 |
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$ |
1.24 |
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Discontinued operations |
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— |
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0.01 |
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(0.01 |
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0.03 |
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$ |
0.57 |
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$ |
0.46 |
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$ |
1.48 |
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$ |
1.27 |
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Diluted |
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Continuing operations |
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$ |
0.56 |
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$ |
0.45 |
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$ |
1.47 |
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$ |
1.22 |
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Discontinued operations |
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— |
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0.01 |
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— |
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0.03 |
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$ |
0.56 |
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$ |
0.46 |
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$ |
1.47 |
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$ |
1.25 |
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Weighted average shares outstanding: |
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Basic |
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114,539 |
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109,872 |
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113,831 |
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106,955 |
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Diluted |
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115,620 |
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111,515 |
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115,054 |
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108,761 |
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See accompanying Notes to Consolidated Financial Statements.
AECOM Technology Corporation
Consolidated Statements of Comprehensive Income
(unaudited—in thousands)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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Net income |
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$ |
68,635 |
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$ |
54,161 |
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$ |
180,156 |
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$ |
146,242 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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(29,516 |
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32,679 |
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(12,511 |
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(18,159 |
) |
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Swap valuation |
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229 |
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355 |
|
988 |
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(1,282 |
) |
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Pension adjustments |
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597 |
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(118 |
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1,499 |
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1,495 |
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Comprehensive income, net of tax |
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39,945 |
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87,077 |
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170,132 |
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128,296 |
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Noncontrolling interests in comprehensive income of consolidated subsidiaries, net of tax |
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(3,793 |
) |
(3,040 |
) |
(11,043 |
) |
(10,818 |
) |
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Comprehensive income attributable to AECOM, net of tax |
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$ |
36,152 |
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$ |
84,037 |
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$ |
159,089 |
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$ |
117,478 |
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See accompanying Notes to Consolidated Financial Statements.
AECOM Technology Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
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Nine Months Ended |
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June 30, 2010 |
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June 30, 2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
180,156 |
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$ |
146,242 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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57,745 |
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60,787 |
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Equity in earnings of unconsolidated joint ventures |
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(13,770 |
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(16,793 |
) |
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Distribution of earnings from unconsolidated joint ventures |
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7,827 |
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11,220 |
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Non-cash stock compensation |
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25,137 |
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19,214 |
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Excess tax benefit from share based payment |
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(16,713 |
) |
(13,994 |
) |
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Foreign currency translation |
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(3,838 |
) |
(1,420 |
) |
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Changes in operating assets and liabilities, net of effects of acquisitions: |
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Accounts receivable |
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(106,685 |
) |
(39,088 |
) |
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Prepaid expenses and other assets |
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(18,275 |
) |
(10,219 |
) |
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Accounts payable |
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(20,119 |
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(44,064 |
) |
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Accrued expenses and other current liabilities |
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(21,375 |
) |
(60,637 |
) |
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Billings in excess of costs on uncompleted contracts |
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(10,324 |
) |
54,177 |
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Other long-term liabilities |
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(3,764 |
) |
6,423 |
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Income taxes payable |
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(8,026 |
) |
(4,696 |
) |
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Net cash provided by operating activities from continuing operations |
|
47,976 |
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107,152 |
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Net cash (used in) provided by operating activities from discontinued operations |
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(4,227 |
) |
714 |
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Net cash provided by operating activities |
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43,749 |
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107,866 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Payments for business acquisitions, net of cash acquired |
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(70,000 |
) |
(27,132 |
) |
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Proceeds from disposal of business |
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25,799 |
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— |
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Net investment in unconsolidated joint ventures |
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5,988 |
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853 |
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Sales of investment securities |
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— |
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81,449 |
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Payments for capital expenditures |
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(35,178 |
) |
(36,787 |
) |
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Net cash (used in) provided by investing activities |
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(73,391 |
) |
18,383 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from borrowings under credit agreements |
|
34,674 |
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1,073 |
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Repayments of borrowings under credit agreements |
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(18,991 |
) |
(163,994 |
) |
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Proceeds from issuance of common stock |
|
3,316 |
|
99,883 |
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||
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Proceeds from exercise of stock options |
|
9,753 |
|
14,078 |
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Payments to repurchase common stock |
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(12,330 |
) |
(3,904 |
) |
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|
Excess tax benefit from share based payment |
|
16,713 |
|
13,994 |
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||
|
Net contributions from (distributions to) noncontrolling interests |
|
4,375 |
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(3,393 |
) |
||
|
Net cash provided by (used in) financing activities |
|
37,510 |
|
(42,263 |
) |
||
|
|
|
|
|
|
|
||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
(4,763 |
) |
(2,902 |
) |
||
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
3,105 |
|
81,084 |
|
||
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
290,777 |
|
197,122 |
|
||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
293,882 |
|
$ |
278,206 |
|
|
|
|
|
|
|
|
||
|
NON-CASH INVESTING AND FINANCING ACTIVITY |
|
|
|
|
|
||
|
Common stock issued in acquisitions |
|
$ |
34,800 |
|
$ |
12,446 |
|
See accompanying Notes to Consolidated Financial Statements.
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 nine months ended June 30, 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.
The Company’s cash equivalents include highly liquid investments which have initial maturities of three months or less.
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 generally requires 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). ASU 2010-09 removes 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” (ASC 820-10) 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 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.
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 nine months ended June 30, 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 $70.0 million in cash, net of cash acquired, and $34.8 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 nine months ended June 30, 2010 and 2009 were as follows:
|
|
|
September 30, |
|
Post- |
|
Foreign |
|
Acquired |
|
June 30, |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Professional Technical Services |
|
$ |
1,060,093 |
|
$ |
(2,027 |
) |
$ |
(3,555 |
) |
$ |
69,373 |
|
$ |
1,123,884 |
|
|
Management Support Services |
|
2,826 |
|
— |
|
— |
|
21,919 |
|
24,745 |
|
|||||
|
Total |
|
$ |
1,062,919 |
|
$ |
(2,027 |
) |
$ |
(3,555 |
) |
$ |
91,292 |
|
$ |
1,148,629 |
|
|
|
|
September 30, |
|
Post- |
|
Foreign |
|
Acquired |
|
June 30, |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Professional Technical Services |
|
$ |
946,263 |
|
$ |
80,647 |
|
$ |
(7,528 |
) |
$ |
22,547 |
|
$ |
1,041,929 |
|
|
Management Support Services |
|
2,826 |
|
— |
|
— |
|
— |
|
2,826 |
|
|||||
|
Total |
|
$ |
949,089 |
|
$ |
80,647 |
|
$ |
(7,528 |
) |
$ |
22,547 |
|
$ |
1,044,755 |
|
The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of June 30, 2010 and September 30, 2009, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:
|
|
|
June 30, 2010 |
|
September 30, 2009 |
|
||||||||||||||
|
|
|
Gross |
|
Accumulated |
|
Intangible |
|
Gross |
|
Accumulated |
|
Intangible |
|
||||||
|
|
|
(in thousands) |
|
||||||||||||||||
|
Backlog |
|
$ |
67,626 |
|
$ |
(63,344 |
) |
$ |
4,282 |
|
$ |
63,137 |
|
$ |
(55,021 |
) |
$ |
8,116 |
|
|
Customer relationships |
|
80,566 |
|
(22,334 |
) |
58,232 |
|
69,999 |
|
(16,136 |
) |
53,863 |
|
||||||
|
Total |
|
$ |
148,192 |
|
$ |
(85,678 |
) |
$ |
62,514 |
|
$ |
133,136 |
|
$ |
(71,157 |
) |
$ |
61,979 |
|
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 is in the process of completing the final valuation of intangible assets for one of its business acquisitions.
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 |
|
$ |
3,231 |
|
|
2011 |
|
11,167 |
|
|
|
2012 |
|
8,575 |
|
|
|
2013 |
|
8,491 |
|
|
|
2014 |
|
8,346 |
|
|
|
Thereafter |
|
22,704 |
|
|
|
Total |
|
$ |
62,514 |
|
5. 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 Professional Technical Services Segment from October 1, 2009 to June 30, 2010:
|
|
|
Nine Months Ended June 30, 2010 |
|
|||||||
|
|
|
Severance |
|
Facility |
|
Total |
|
|||
|
|
|
(in millions) |
|
|||||||
|
Accrual, beginning of the period |
|
$ |
1.7 |
|
$ |
26.3 |
|
$ |
28.0 |
|
|
Accrued and other adjustments during the period |
|
5.1 |
|
0.6 |
|
5.7 |
|
|||
|
Paid during the period |
|
(5.3 |
) |
(8.9 |
) |
(14.2 |
) |
|||
|
Accrual, end of the period |
|
$ |
1.5 |
|
$ |
18.0 |
|
$ |
19.5 |
|
6. Accounts Receivable—Net
Net accounts receivable consisted of the following as of June 30, 2010 and September 30, 2009:
|
|
|
June 30, |
|
September 30, |
|
||
|
|
|
(in thousands) |
|
||||
|
Billed |
|
$ |
1,088,379 |
|
$ |
992,444 |
|
|
Unbilled |
|
857,627 |
|
785,783 |
|
||
|
Contract retentions |
|
56,026 |
|
55,203 |
|
||
|
Total accounts receivable—gross |
|
2,002,032 |
|
1,833,430 |
|
||
|
Allowance for doubtful accounts |
|
(99,399 |
) |
(100,471 |
) |
||
|
Total accounts receivable—net |
|
$ |
1,902,633 |
|
$ |
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 June 30, 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 June 30, 2010 or September 30, 2009.
7. Disclosures About Pension Benefit Obligations
The following table details the components of net periodic benefit cost for the Company’s pension plans for the three and nine months ended June 30, 2010 and 2009:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||||||||||||
|
|
|
June 30, 2010 |
|
June 30, 2009 |
|
June 30, 2010 |
|
June 30, 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 |
|
$ |
— |
|
$ |
942 |
|
$ |
462 |
|
$ |
1,106 |
|
$ |
— |
|
$ |
3,564 |
|
$ |
1,386 |
|
$ |
3,220 |
|
|
Interest cost on projected benefit obligation |
|
2,011 |
|
5,136 |
|
2,154 |
|
5,405 |
|
6,032 |
|
15,946 |
|
6,461 |
|
15,848 |
|
||||||||
|
Expected return on plan assets |
|
(1,996 |
) |
(5,675 |
) |
(1,959 |
) |
(5,631 |
) |
(5,987 |
) |
(17,713 |
) |
(5,878 |
) |
(16,503 |
) |
||||||||
|
Amortization of prior service costs |
|
— |
|
(75 |
) |
(209 |
) |
(78 |
) |
— |
|
(236 |
) |
(628 |
) |
(230 |
) |
||||||||
|
Amortization of net loss |
|
341 |
|
562 |
|
608 |
|
807 |
|
1,023 |
|
1,758 |
|
1,825 |
|
2,363 |
|
||||||||
|
Curtailment gain recognized |
|
— |
|
— |
|
— |
|
— |
|
(1,933 |
) |
— |
|
— |
|
— |
|
||||||||
|
Net periodic (benefit) cost |
|
$ |
356 |
|
$ |
890 |
|
$ |
1,056 |
|
$ |
1,609 |
|
$ |
(865 |
) |
$ |
3,319 |
|
$ |
3,166 |
|
$ |
4,698 |
|
The total amounts of employer contributions paid for the nine months ended June 30, 2010 were $5.6 million for U.S. plans and $11.9 million for non-U.S. plans. The expected remaining scheduled employer contributions for the fiscal year ending September 30, 2010 are $0.6 million for U.S. plans and $3.6 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 $115.0 million and $132.5 million as of June 30, 2010 and September 30, 2009, respectively.
8. Fair Value Measurements
In September 2006, the FASB issued 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).
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 third quarter ended June 30, 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:
|
|
|
June 30, 2010 |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Deferred compensation plan assets (1) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Total assets |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Deferred compensation plan liability (1) |
|
$ |
84.3 |
|
$ |
— |
|
$ |
84.3 |
|
$ |
— |
|
|
Derivative liabilities (2) |
|
0.2 |
|
— |
|
0.2 |
|
— |
|
||||
|
Total liabilities |
|
$ |
84.5 |
|
$ |
— |
|
$ |
84.5 |
|
$ |
— |
|
|
|
|
September 30, |
|
Quoted Prices |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
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. As of June 30, 2010 and September 30, 2009, the rabbi trust held approximately $0.0 million (0% of its investment assets) and $0.6 million (1% of its investment assets) in marketable securities, respectively. Such marketable securities are valued using quoted market prices. The remaining assets, not reflected in this table, of $62.4 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 12 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. |
9. 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.
The fair value of options granted during the three and nine months ended June 30, 2010 and 2009 were determined using the following weighted average assumptions:
|
|
|
Three and Nine Months Ended |
|
||
|
|
|
June 30, |
|
June 30, |
|
|
Dividend yield |
|
— |
|
— |
|
|
Expected volatility |
|
39.9 |
% |
37.6 |
% |
|
Risk-free interest rate |
|
1.6 |
% |
1.8 |
% |
|
Term (in years) |
|
4.5 |
|
4.5 |
|
For the nine months ended June 30, 2010 and 2009, compensation expense recognized related to stock options was $2.9 million and $3.1 million, respectively. Unrecognized compensation expense relating to stock options outstanding as of June 30, 2010 and September 30, 2009 was $5.8 million and $6.8 million, respectively, to be recognized over the awards’ respective vesting periods, which are generally three years.
Stock option activity for the nine months ended June 30, 2010 and 2009 was as follows:
|
|
|
2010 |
|
2009 |
|
||||||
|
|
|
Shares of stock |
|
Weighted average |
|
Shares of stock |
|
Weighted average |
|
||
|
|
|
(in thousands) |
|
|
|
(in thousands) |
|
|
|
||
|
Outstanding at the beginning of the period |
|
3,806 |
|
$ |
16.36 |
|
5,309 |
|
$ |
11.78 |
|
|
Options granted |
|
376 |
|
24.93 |
|
885 |
|
23.68 |
|
||
|
Options exercised |
|
(937 |
) |
10.58 |
|
(1,682 |
) |
8.75 |
|
||
|
Options forfeited or expired |
|
(46 |
) |
22.19 |
|
(40 |
) |
21.32 |
|
||
|
Outstanding at the end of the period |
|
3,199 |
|
18.97 |
|
4,472 |
|
15.19 |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Vested and expected to vest in the future as of June 30 |
|
3,108 |
|
$ |
18.80 |
|
4,409 |
|
$ |
14.98 |
|
The weighted average grant-date fair value of stock options granted during the nine months ended June 30, 2010 and 2009 was $8.77 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 $16.2 million and $14.1 million during the nine months ended June 30, 2010 and 2009, respectively. Additionally, the Company issues restricted stock units which are earned based only on service conditions, resulting in compensation expense of $5.6 million and $1.1 million during the nine months ended June 30, 2010 and 2009, respectively. Unrecognized compensation expense related to PEP units and restricted stock units outstanding was $22.7 million and $15.4 million as of June 30, 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 $16.7 million and $14.0 million for the nine months ended June 30, 2010 and 2009, respectively, have been classified as financing cash inflows in the unaudited Consolidated Statements of Cash Flows.
10. Income Taxes
The effective tax rate for the nine months ended June 30, 2010 and June 30, 2009 was 25.0% and 28.5%, respectively. The decrease in the 2010 tax rate is primarily due to the discrete recognition of tax benefits considered effectively settled as a result of the Company’s receipt of a signed examination report from the Internal Revenue Service related to audit years 2006 and 2007, as well as, tax benefits associated with the restructuring of our Australian operations and remeasurement of uncertain tax positions relating to the Canadian Scientific Research and Experimental Development tax credit. Additionally, approximately 50% of the Company’s operations are conducted in jurisdictions with a tax rate lower than the U. S. statutory tax rate of 35%.
It is reasonably possible that during the next twelve months the Company will conclude certain tax examinations, including the Internal Revenue Service audit of years 2006 and 2007, and, as a result, settle certain income tax positions for amounts which differ from those accrued as uncertain tax positions.
11. 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 |
|
Nine Months Ended |
|
||||
|
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
|
|
|
|
(in thousands) |
|
||||||
|
Denominator for basic earnings per share |
|
114,539 |
|
109,872 |
|
113,831 |
|
106,955 |
|
|
Potential common shares: |
|
|
|
|
|
|
|
|
|
|
Stock options |
|
698 |
|
1,561 |
|
927 |
|
1,701 |
|
|
Other |
|
383 |
|
82 |
|
296 |
|
105 |
|
|
Denominator for diluted earnings per share |
|
115,620 |
|
111,515 |
|
115,054 |
|
108,761 |
|
For the nine months ended June 30, 2010 and 2009, no options were excluded from the calculation of potential common shares because they were considered anti-dilutive.
12. Other Financial Information
Accrued expenses consist of the following:
|
|
|
June 30, |
|
September 30, |
|
||
|
|
|
(in millions) |
|
||||
|
Accrued salaries and benefits |
|
$ |
333.0 |
|
$ |
323.3 |
|
|
Accrued contract costs |
|
336.8 |
|
358.2 |
|
||
|
Deferred compensation plan liability (Note 8) |
|
84.3 |
|
— |
|
||
|
Other |
|
52.8 |
|
41.0 |
|
||
|
|
|
$ |
806.9 |
|
$ |
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 $107.7 million and $98.3 million as of June 30, 2010 and September 30, 2009, respectively.
Other long-term liabilities consist of the following:
|
|
|
June 30, |
|
September 30, |
|
||
|
|
|
(in millions) |
|
||||
|
Pension liabilities (Note 7) |
|
$ |
115.0 |
|
$ |
132.5 |
|
|
Deferred compensation plan liability (Note 8) |
|
— |
|
92.8 |
|
||
|
Reserve for uncertain tax positions (Note 10) |
|
65.7 |
|
54.4 |
|
||
|
Other |
|
63.4 |
|
56.9 |
|
||
|
|
|
$ |
244.1 |
|
$ |
336.6 |
|
The components of accumulated other comprehensive loss are as follows:
|
|
|
June 30, |
|
September 30, |
|
||
|
|
|
(in millions) |
|
||||
|
Foreign currency translation adjustment |
|
$ |
(50.2 |
) |
$ |
(37.7 |
) |
|
Defined benefit minimum pension liability adjustment, net of tax |
|
(106.3 |
) |
(107.8 |
) |
||
|
Interest rate swap valuation |
|
(0.1 |
) |
(1.1 |
) |
||
|
|
|
$ |
(156.6 |
) |
$ |
(146.6 |
) |
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 $84.3 million as of June 30, 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 June 30, 2010.
13. 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 June 30, 2010, the Company was contingently liable in the amount of approximately $167.0 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 that CSA has been and continues to be in compliance with STI requirements of Kuwait labor laws and has received a letter from Kuwaiti legal counsel supporting its position. 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.
14. 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 |
|
Management |
|
Corporate |
|
Total |
|
||||
|
|
|
(in thousands, except percentages ) |
|
||||||||||
|
Three Months Ended June 30, 2010: |
|
|
|
|
|
|
|
|
|
||||
|
Revenue |
|
$ |
1,337,803 |
|
$ |
297,380 |
|
$ |
— |
|
$ |
1,635,183 |
|
|
Revenue, net of other direct costs (non-GAAP) |
|
965,120 |
|
97,544 |
|
— |
|
1,062,664 |
|
||||
|
Gross profit |
|
105,933 |
|
9,132 |
|
— |
|
115,065 |
|
||||
|
Equity in earnings of joint ventures |
|
2,237 |
|
3,704 |
|
— |
|
5,941 |
|
||||
|
General and administrative expenses |
|
— |
|
— |
|
28,327 |
|
28,327 |
|
||||
|
Operating income |
|
108,170 |
|
12,836 |
|
(28,327 |
) |
92,679 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross profit as a % of revenue |
|
7.9 |
% |
3.1 |
% |
— |
|
7.0 |
% |
||||
|
Gross profit as a % of revenue, net of other direct costs (non-GAAP) |
|
11.0 |
% |
9.4 |
% |
— |
|
10.8 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Three Months Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
||||
|
Revenue |
|
$ |
1,255,039 |
|
$ |
286,250 |
|
$ |
— |
|
$ |
1,541,289 |
|
|
Revenue, net of other direct costs (non-GAAP) |
|
897,015 |
|
73,620 |
|
— |
|
970,635 |
|
||||
|
Gross profit |
|
77,185 |
|
10,332 |
|
— |
|
87,517 |
|
||||
|
Equity in earnings of joint ventures |
|
3,397 |
|
2,756 |
|
— |
|
6,153 |
|
||||
|
General and administrative expenses |
|
— |
|
— |
|
20,071 |
|
20,071 |
|
||||
|
Operating income |
|
80,582 |
|
13,088 |
|
(20,071 |
) |
73,599 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross profit as a % of revenue |
|
6.2 |
% |
3.6 |
% |
— |
|
5.7 |
% |
||||
|
Gross profit as a % of revenue, net of other direct costs (non-GAAP) |
|
8.6 |
% |
14.0 |
% |
— |
|
9.0 |
% |
||||
|
Reportable Segments: |
|
Professional |
|
Management |
|
Corporate |
|
Total |
|
||||
|
|
|
(in thousands, except percentages ) |
|
||||||||||
|
Nine Months Ended June 30, 2010: |
|
|
|
|
|
|
|
|
|
||||
|
Revenue |
|
$ |
3,859,190 |
|
$ |
857,943 |
|
$ |
— |
|
$ |
4,717,133 |
|
|
Revenue, net of other direct costs (non-GAAP) |
|
2,814,958 |
|
261,896 |
|
— |
|
3,076,854 |
|
||||
|
Gross profit |
|
273,039 |
|
32,898 |
|
— |
|
305,937 |
|
||||
|
Equity in earnings of joint ventures |
|
6,527 |
|
7,243 |
|
— |
|
13,770 |
|
||||
|
General and administrative expenses |
|
— |
|
— |
|
78,090 |
|
78,090 |
|
||||
|
Operating income |
|
279,566 |
|
40,141 |
|
(78,090 |
) |
241,617 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross profit as a % of revenue |
|
7.1 |
% |
3.8 |
% |
— |
|
6.5 |
% |
||||
|
Gross profit as a % of revenue, net of other direct costs (non-GAAP) |
|
9.7 |
% |
12.6 |
% |
— |
|
9.9 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Nine Months Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
||||
|
Revenue |
|
$ |
3,724,520 |
|
$ |
767,455 |
|
$ |
— |
|
$ |
4,491,975 |
|
|
Revenue, net of other direct costs (non-GAAP) |
|
2,644,060 |
|
183,626 |
|
— |
|
2,827,686 |
|
||||
|
Gross profit |
|
224,800 |
|
31,257 |
|
— |
|
256,057 |
|
||||
|
Equity in earnings of joint ventures |
|
9,783 |
|
7,010 |
|
— |
|
16,793 |
|
||||
|
General and administrative expenses |
|
— |
|
— |
|
61,248 |
|
61,248 |
|
||||
|
Operating income |
|
234,583 |
|
38,267 |
|
(61,248 |
) |
211,602 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross profit as a % of revenue |
|
6.0 |
% |
4.1 |
% |
— |
|
5.7 |
% |
||||
|
Gross profit as a % of revenue, net of other direct costs (non-GAAP) |
|
8.5 |
% |
17.0 |
% |
— |
|
9.1 |
% |
||||
15. Subsequent Events
In June 2010, the Company entered into a Note Purchase Agreement (Purchase Agreement) providing for a private placement of $300.0 million in aggregate principal amount of senior unsecured notes (Notes). In July 2010 (Closing Date), the Notes were sold to institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Notes consisted of $175.0 million of 5.43% Senior Notes, Series A, due July 2020 and $125.0 million of 1.00% Senior Discount Notes, Series B, due July 2022 for net proceeds of $249.8 million. Interest on the Notes will accrue from the Closing Date, and the Company will pay interest quarterly beginning October 2010, until the Notes mature. The Company’s obligations under the Notes are guaranteed by certain subsidiaries of the Company pursuant to one or more subsidiary guaranties. The Company used the proceeds of the private placement to pay down certain indebtedness of the Company and for general corporate purposes, including acquisitions.
In July 2010, the Company completed the acquisition of Tishman Construction Corporation (Tishman). Tishman is a leading provider of construction management services in the United States and the United Arab Emirates. The Company acquired Tishman to expand its mix of higher-margin construction management/ program management business. The total purchase price for Tishman was approximately $245.0 million, which the Company paid for with a combination of cash and stock.
In July 2010, the Company entered into a stock purchase agreement to acquire the stock of MT Holding Corp., a Delaware corporation and parent of McNeil Technologies, Inc. (McNeil), a Virginia corporation, at a purchase price of $355 million, to be paid in cash. McNeil is a U.S. federal government contractor focused in intelligence analysis and support. The transaction is expected to be completed in the fourth quarter of fiscal 2010 or in the first quarter of fiscal 2011.
In August 2010, the Company entered into separate agreements to acquire the stock and assets of Davis Langdon, in Africa, Australia, Europe, the Middle East and the United States, for an aggregate purchase price of $324 million in cash and stock. Davis Langdon provides construction cost planning and project management services to commercial and government building and public infrastructure owners. These transactions are expected to be completed in the first quarter of fiscal 2011.
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 46,000 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.
The following table presents, for the periods indicated, a presentation of the non-GAAP financial measures reconciled to the closest GAAP measures:
|
|
|
Nine Months Ended |
|
||||
|
|
|
June 30, 2010 |
|
June 30, 2009 |
|
||
|
|
|
(in millions) |
|
||||
|
Other Financial Data: |
|
|
|
|
|
||
|
Revenue |
|
$ |
4,717 |
|
$ |
4,492 |
|
|
Other direct costs |
|
1,640 |
|
1,664 |
|
||
|
Revenue, net of other direct costs |
|
3,077 |
|
2,828 |
|
||
|
Cost of revenue, net of other direct costs |
|
2,771 |
|
2,572 |
|
||
|
Gross profit |
|
306 |
|
256 |
|
||
|
Equity in earnings of joint ventures |
|
14 |
|
17 |
|
||
|
General and administrative expenses |
|
78 |
|
61 |
|
||
|
Income from operations |
|
$ |
242 |
|
$ |
212 |
|
|
|
|
|
|
|
|
||
|
Reconciliation of Cost of Revenue: |
|
|
|
|
|
||
|
Other direct costs |
|
$ |
1,640 |
|
$ |
1,664 |
|
|
Cost of revenue, net of other direct costs |
|
2,771 |
|
2,572 |
|
||
|
Cost of revenue |
|
$ |
4,411 |
|
$ |
4,236 |
|
Results of Operations
Consolidated Results
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||||||||||
|
|
|
June 30, |
|
June 30, |
|
Change |
|
June 30, |
|
June 30, |
|
Change |
|
||||||||||
|
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
||||||
|
|
|
(in thousands, except percentages) |
|
||||||||||||||||||||
|
Revenue |
|
$ |
1,635,183 |
|
$ |
1,541,289 |
|
$ |
93,894 |
|
6.1 |
% |
$ |
4,717,133 |
|
$ |
4,491,975 |
|
$ |
225,158 |
|
5.0 |
% |
|
Other direct costs |
|
572,519 |
|
570,654 |
|
1,865 |
|
0.3 |
|
1,640,279 |
|
1,664,289 |
|
(24,010 |
) |
(1.4 |
) |
||||||
|
Revenue, net of other direct costs |
|
1,062,664 |
|
970,635 |
|
92,029 |
|
9.5 |
|
3,076,854 |
|
2,827,686 |
|
249,168 |
|
8.8 |
|
||||||
|
Cost of revenue, net of other direct costs |
|
947,599 |
|
883,118 |
|
64,481 |
|
7.3 |
|
2,770,917 |
|
2,571,629 |
|
199,288 |
|
7.7 |
|
||||||
|
Gross profit |
|
115,065 |
|
87,517 |
|
27,548 |
|
31.5 |
|
305,937 |
|
256,057 |
|
49,880 |
|
19.5 |
|
||||||
|
Equity in earnings of joint ventures |
|
5,941 |
|
6,153 |
|
(212 |
) |
(3.4 |
) |
13,770 |
|
16,793 |
|
(3,023 |
) |
(18.0 |
) |
||||||
|
General and administrative expenses |
|
28,327 |
|
20,071 |
|
8,256 |
|
41.1 |
|
78,090 |
|
61,248 |
|
16,842 |
|
27.5 |
|
||||||
|
Income from operations |
|
92,679 |
|
73,599 |
|
19,080 |
|
25.9 |
|
241,617 |
|
211,602 |
|
30,015 |
|
14.2 |
|
||||||
|
Other (expense) income |
|
(253 |
) |
3,248 |
|
(3,501 |
) |
(107.8 |
) |
3,280 |
|
(2,958 |
) |
6,238 |
|
(210.9 |
) |
||||||
|
Interest expense, net |
|
(1,126 |
) |
(2,617 |
) |
1,491 |
|
(57.0 |
) |
(4,486 |
) |
(8,134 |
) |
3,648 |
|
(44.9 |
) |
||||||
|
Income before income tax expense |
|
91,300 |
|
74,230 |
|
17,070 |
|
23.0 |
|
240,411 |
|
200,510 |
|
39,901 |
|
19.9 |
|
||||||
|
Income tax expense |
|
22,665 |
|
21,187 |
|
1,478 |
|
7.0 |
|
60,178 |
|
57,078 |
|
3,100 |
|
5.4 |
|
||||||
|
Income from continuing operations |
|
68,635 |
|
53,043 |
|
15,592 |
|
29.4 |
|
180,233 |
|
143,432 |
|
36,801 |
|
25.7 |
|
||||||
|
Discontinued operations, net of tax |
|
— |
|
1,118 |
|
(1,118 |
) |
(100.0 |
) |
(77 |
) |
2,810 |
|
(2,887 |
) |
(102.7 |
) |
||||||
|
Net income |
|
68,635 |
|
54,161 |
|
14,474 |
|
26.7 |
|
180,156 |
|
146,242 |
|
33,914 |
|
23.2 |
|
||||||
|
Noncontrolling interests in income of consolidated subsidiaries, net of tax |
|
(3,793 |
) |
(3,040 |
) |
(753 |
) |
24.8 |
|
(11,043 |
) |
(10,818 |
) |
(225 |
) |
2.1 |
|
||||||
|
Net income attributable to AECOM |
|
$ |
64,842 |
|
$ |
51,121 |
|
$ |
13,721 |
|
26.8 |
% |
$ |
169,113 |
|
$ |
135,424 |
|
$ |
33,689 |
|
24.9 |
% |
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, |
|
June 30, |
|
June 30, |
|
June 30, |
|
|
Revenue, net of other direct costs |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
Cost of revenue, net of other direct costs |
|
89.2 |
|
91.0 |
|
90.1 |
|
90.9 |
|
|
Gross margin |
|
10.8 |
|
9.0 |
|
9.9 |
|
9.1 |
|
|
Equity in earnings of joint ventures |
|
0.6 |
|
0.6 |
|
0.4 |
|
0.6 |
|
|
General and administrative expense |
|
2.7 |
|
2.0 |
|
2.4 |
|
2.2 |
|
|
Income from operations |
|
8.7 |
|
7.6 |
|
7.9 |
|
7.5 |
|
|
Other income (expense) |
|
— |
|
0.3 |
|
0.1 |
|
(0.1 |
) |
|
Interest expense, net |
|
(0.1 |
) |
(0.3 |
) |
(0.2 |
) |
(0.3 |
) |
|
Income before income tax expense |
|
8.6 |
|
7.6 |
|
7.8 |
|
7.1 |
|
|
Income tax expense |
|
2.1 |
|
2.1 |
|
1.9 |
|
2.0 |
|
|
Income from continuing operations |
|
6.5 |
|
5.5 |
|
5.9 |
|
5.1 |
|
|
Discontinued operations, net of tax |
|
— |
|
0.1 |
|
— |
|
0.1 |
|
|
Net income |
|
6.5 |
|
5.6 |
|
5.9 |
|
5.2 |
|
|
Noncontrolling interests in income of consolidated subsidiaries, net of tax |
|
(0.4 |
) |
(0.3 |
) |
(0.4 |
) |
(0.4 |
) |
|
Net income attributable to AECOM |
|
6.1 |
% |
5.3 |
% |
5.5 |
% |
4.8 |
% |
Revenue
Our revenue for the three months ended June 30, 2010 increased $93.9 million, or 6.1%, to $1.6 billion as compared to $1.5 billion for the corresponding period last year. $65.8 million of our revenue growth for the three months ended June 30, 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 $28.1 million, or 1.8%, from the three months ended June 30, 2009.
Our revenue for the nine months ended June 30, 2010 increased $225.2 million, or 5.0%, to $4.7 billion as compared to $4.5 billion for the corresponding period last year. $174.5 million of this growth was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $50.7 million, or 1.1%.
The increase in revenue, excluding acquired companies, for the three months ended June 30, 2010 was primarily attributable to stronger foreign currencies (primarily the Australian dollar and Canadian dollar) of approximately $40 million, and increased demand for our engineering and program management services on infrastructure projects in Asia, Australia, and Canada. These increases were partially offset by a decrease in demand for our architecture, engineering, and environmental management services primarily in the privately financed facilities market of approximately $22 million.
The increase in revenue, excluding acquired companies, for the nine months ended June 30, 2010 was primarily attributable to a $30 million increase in our MSS segment, excluding an acquired company, primarily resulting from increased volume on our Contract Field Teams and global maintenance and supply services projects for the United States Army in the Middle East, including Afghanistan, stronger foreign currencies (primarily the Australian dollar and Canadian dollar) of approximately $170 million and increased demand for our engineering and program management services on infrastructure projects in Asia of approximately $30 million. Increases for these services were partially offset by the decrease in demand for our services in the privately financed facilities market, and reduced activity in our United States infrastructure business resulting in declines in revenue of approximately $135 million and $50 million, respectively.
Revenue, Net of Other Direct Costs
Our revenue, net of other direct costs, for the three months ended June 30, 2010 increased $92.0 million, or 9.5%, to $1.1 billion as compared to $1.0 billion for the corresponding period last year. Of this increase, $45.3 million, or 49.2%, 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 $46.7 million, or 4.8% over the three months ended June 30, 2009.
Our revenue, net of other direct costs, for the nine months ended June 30, 2010 increased $249.2 million, or 8.8%, to $3.1 billion as compared to $2.8 billion for the corresponding period last year. Of this increase, $119.4 million, or 47.9%, 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 $129.8 million, or 4.6% over the nine months ended June 30, 2009.
The increases in revenue, net of other direct costs, excluding revenue net of other direct costs provided by acquired companies, for the three and nine months ended June 30, 2010 were primarily due to reasons noted above under “Revenue.”
Gross Profit
Our gross profit for the three months ended June 30, 2010 increased $27.6 million, or 31.5%, to $115.1 million as compared to $87.5 million for the corresponding period last year. Of this increase, $3.7 million, or 13.4%, was provided by companies acquired in the past twelve months. Excluding gross profit provided by acquired companies, gross profit increased $23.9 million, or 27.3%, from the three months ended June 30, 2009. For the three months ended June 30, 2010, gross profit, as a percentage of revenue, net of other direct costs, increased to 10.8% from 9.0% in the three months ended June 30, 2009.
Our gross profit for the nine months ended June 30, 2010 increased $49.8 million, or 19.5%, to $305.9 million as compared to $256.1 million in the corresponding period last year. Of this increase, $11.8 million, or 23.7%, was provided by companies acquired in the past twelve months. Excluding gross profit provided by acquired companies, gross profit increased $38.0 million, or 14.8%. For the nine months ended June 30, 2010, gross profit, as a percentage of revenue, net of other direct costs, increased to 9.9% 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.
Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the three months ended June 30, 2010 decreased $0.3 million, or 3.4%, to $5.9 million as compared to $6.2 million in the corresponding period last year.
Our equity in earnings of joint ventures for the nine months ended June 30, 2010 decreased $3.0 million, or 18.0%, to $13.8 million as compared to $16.8 million in the corresponding period last year.
The decrease for the nine months ended June 30, 2010 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 June 30, 2010 increased $8.2 million, or 41.1%, to $28.3 million as compared to $20.1 million for the corresponding period last year. For the three months ended June 30, 2010, general and administrative expenses, as a percentage of revenue, net of other direct costs was 2.7% as compared to 2.0% in the corresponding period last year.
Our general and administrative expenses for the nine months ended June 30, 2010 increased $16.9 million, or 27.5%, to $78.1 million as compared to $61.2 million in the corresponding period last year. For the nine months ended June 30, 2010, general and administrative expenses, as a percentage of revenue, net of other direct costs was 2.4% as compared to 2.2% 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, including merger and acquisition activities, and continued investments to support our strategic initiatives, such as the launch of our new branding campaign.
Other Income / Expense
Our other expense for the three months ended June 30, 2010 was $0.3 million compared to other income of $3.2 million for the three months ended June 30, 2009.
Our other income for the nine months ended June 30, 2010 was $3.3 million compared to other expense of $3.0 million for the nine months ended June 30, 2009.
Other income and expense is primarily comprised of net gains and losses on investments we hold to offset our exposure related to employees’ investments in a deferred compensation plan. The changes in other income and expense noted above were primarily due to the net gains and losses associated with these investments.
Interest Income / Expense
Our net interest expense for the three months ended June 30, 2010 decreased $1.5 million, or 57.0% to $1.1 million as compared to $2.6 million for the three months ended June 30, 2009.
Our net interest expense for the nine months ended June 30, 2010 decreased $3.6 million, or 44.9% to $4.5 million as compared to $8.1 million in the corresponding period last year.
The decrease in net interest expense for the nine months ended June 30, 2010 as compared to last year was primarily due to higher borrowings in the prior period associated with the funding of acquisitions, including Earth Tech.
Income Tax Expense
Our income tax expense for the three months ended June 30, 2010 increased $1.5 million, or 7.0%, to $22.7 million as compared to $21.2 million for the three months ended June 30, 2009. The effective tax rate was 24.8% and 28.5% for the three months ended June 30, 2010 and 2009, respectively.
Our income tax expense for the nine months ended June 30, 2010 increased $3.1 million, or 5.4%, to $60.2 million as compared to $57.1 million in the corresponding period last year. The effective tax rate for the nine months ended June 30, 2010 was 25.0% as compared to 28.5% for the corresponding period last year.
The decrease in the 2010 tax rate is primarily due to the recognition of tax benefits discrete to specific quarters. During the first quarter ended December 31, 2009, $3.2 million benefit was recognized related to the favorable settlement of IRS research and experimentation credits for the audit years 2006 and 2007. In the second quarter ended March 31, 2010, a $2.2 million benefit was recognized related to the remeasurement of the Canadian Scientific Research and Experimental Development credit uncertain tax positions for years prior to 2009, as well as, a $4.3 million benefit associated with the restructuring of our Australian operations. The second quarter benefits were partially offset by a $2.9 million increase to tax expense for items raised during the examination of years 2006 and 2007 which previously had not met the more likely than not threshold for recognition. During the third quarter ended June 30, 2010, a $7.4 million benefit was recognized due to the effective settlement of uncertain tax positions relating to audit years currently under examination by the Internal Revenue Service. Additionally, approximately 50% of the Company’s operations is conducted in jurisdictions with a tax rate lower than the U.S. statutory tax rate of 35%.
Net Income Attributable to AECOM
The factors described above resulted in net income of $64.8 million and $169.1 million for the three and nine months ended June 30, 2010, as compared to net income of $51.1 million and $135.4 million for the three and nine months ended June 30, 2009.
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 |
|
||||||||||
|
|
|
2010 |
|
2009 |
|
$ |
|
% |
|
2010 |
|
2009 |
|
$ |
|
% |
|
||||||
|
|
|
(in thousands, except percentages) |
|
||||||||||||||||||||
|
Revenue |
|
$ |
1,337,803 |
|
$ |
1,255,039 |
|
$ |
82,764 |
|
6.6 |
% |
$ |
3,859,190 |
|
$ |
3,724,520 |
|
$ |
134,670 |
|
3.6 |
% |