Edgar Filing: AECOM TECHNOLOGY CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

		For the quarterly period ended June 30, 2008

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)

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

555 South Flower Street, Suite 3700

Los Angeles, California 90071

(Address of principal executive office and zip code)

(213) 593-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

Large accelerated filer o		Accelerated filer o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 1, 2008, 102,518,732 shares of the registrant’s common stock were outstanding.

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AECOM TECHNOLOGY CORPORATION

INDEX

PART I.		FINANCIAL INFORMATION

	Item 1.	Financial Statements

			Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited) and
			September 30, 2007

			Condensed Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2008 and 2007 (unaudited)

			Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2008 and 2007 (unaudited)

			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
			June 30, 2008 and 2007 (unaudited)

			Notes to Condensed Consolidated Financial Statements (unaudited)

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

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk

	Item 4T.	Controls and Procedures

PART II.		OTHER INFORMATION

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

SIGNATURES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AECOM Technology Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share data)

	June 30, 2008			September 30, 2007
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	141,490		$	180,339
Cash in consolidated joint ventures	31,618			36,572
Total cash and cash equivalents	173,108			216,911
Marketable securities	—			200,783
Accounts receivable – net	1,405,388			1,091,682
Prepaid expenses and other current assets	80,666			67,087
TOTAL CURRENT ASSETS	1,659,162			1,576,463
PROPERTY AND EQUIPMENT—NET	184,347			118,202
DEFERRED TAX ASSETS—NET	56,639			61,594
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES	34,089			23,551
GOODWILL—NET	766,068			592,233
INTANGIBLE ASSETS—NET	58,420			30,928
OTHER NON-CURRENT ASSETS	162,266			88,850
TOTAL ASSETS	$	2,920,991		$	2,491,821

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	12,942		$	1,926
Accounts payable and other current liabilities	269,157			228,350
Accrued expenses	591,277			491,989
Billings in excess of costs on uncompleted contracts	267,360			192,400
Income taxes payable	12,558			42,664
Deferred tax liability – net	27,124			14,641
Current portion of long-term debt	17,004			6,838
TOTAL CURRENT LIABILITIES	1,197,422			978,808
OTHER LONG-TERM LIABILITIES	194,446			174,253
LONG-TERM DEBT	58,894			39,186
MINORITY INTEREST	21,478			21,089
STOCKHOLDERS’ EQUITY:
Convertible preferred stock—authorized, 7,799,780; issued and outstanding, 26,842 and 49,779 shares at June 30, 2008 and September 30, 2007, respectively; $100 liquidation preference value	2,684			4,978
Preferred stock, Class C—authorized, 200 shares; issued and outstanding, 69 and 72 shares as of June 30, 2008 and September 30, 2007, respectively; no par value, $1.00 liquidation preference value	—			—
Preferred stock, Class E—authorized, 20 shares; issued and outstanding, 5 shares as of June 30, 2008 and September 30, 2007; no par value, $1.00 liquidation preference value	—			—
Common stock—authorized, 150,000,000 shares of $0.01 par value; issued and outstanding, 102,310,043 and 99,061,692, as of June 30, 2008 and September 30, 2007, respectively	1,023			991
Additional paid-in capital	1,285,186			1,224,164
Accumulated other comprehensive loss	(18,157		)	(26,211		)
Retained earnings	178,015			74,563
TOTAL STOCKHOLDERS’ EQUITY	1,448,751			1,278,485
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,920,991		$	2,491,821

See accompanying Notes to Condensed Consolidated Financial Statements.

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AECOM Technology Corporation

Condensed Consolidated Statements of Income

(unaudited—in thousands, except per share data)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2008			2007			2008			2007

Revenue	$	1,321,203		$	1,100,656		$	3,565,574		$	3,122,914

Cost of revenue	905,182			788,565			2,453,566			2,278,533
Gross profit	416,021			312,091			1,112,008			844,381

Equity in earnings of joint ventures	5,313			3,992			12,163			7,628
General and administrative expenses	357,152			270,401			956,498			738,375
Income from operations	64,182			45,682			167,673			113,634

Minority interest in share of earnings	4,862			3,824			10,939			9,058
Other income (expense)	756			—			(872		)	—
Gain on sale of equity investment	—			—			—			11,286
Interest income (expense), net	(198		)	(6,312		)	4,111			(9,615		)
Income before income tax expense	59,878			35,546			159,973			106,247

Income tax expense	21,424			11,360			56,197			35,343

Net income	$	38,454		$	24,186		$	103,776		$	70,904

Net income allocation:
Preferred stock dividend	$	36		$	68		$	131		$	184
Net income available for common stockholders	38,418			24,118			103,645			70,720
Net income	$	38,454		$	24,186		$	103,776		$	70,904

Net income per share:
Basic	$	0.38		$	0.30		$	1.03		$	1.09
Diluted	$	0.37		$	0.26		$	1.00		$	0.85

Weighted average shares outstanding:
Basic	102,020			80,915			100,745			64,948
Diluted	104,563			92,037			103,681			83,013

Condensed Consolidated Statements of Comprehensive Income

(unaudited—in thousands)

	Three Months Ended June 30,				Nine Months Ended June 30,
	2008		2007		2008		2007

Net income	$	38,454	$	24,186	$	103,776	$	70,904

Other comprehensive income:
Foreign currency translation adjustments	3,957		9,122		3,798		16,297
Pension adjustments	2,668		—		4,256		—
Comprehensive income	$	45,079	$	33,308	$	111,830	$	87,201

See accompanying Notes to Condensed Consolidated Financial Statements.

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AECOM Technology Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited—in thousands)

	Nine Months Ended June 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	103,776		$	70,904
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	40,078			30,980
Equity in earnings of unconsolidated joint ventures	(12,163		)	(7,628		)
Distribution of earnings from unconsolidated joint ventures	13,175			6,284
Stock based compensation	17,103			19,648
Make-whole premium	—			3,166
Excess tax benefit from share based payment	(14,978		)	—
Interest income on notes from stockholders	—			(754		)
Foreign currency translation	3,082			5,110
Gain on sale of equity investment	—			(11,286		)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(204,306		)	(78,880		)
Prepaid expenses and other assets	15,536			(46,285		)
Accounts payable	15,505			(31,139		)
Accrued expenses and other current liabilities	67,688			44,476
Billings in excess of costs on uncompleted contracts	63,060			22,126
Other long-term liabilities	(23,051		)	(6,170		)
Income taxes receivable/payable	7,505			(213		)
Net cash provided by operating activities	92,010			20,339

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for business acquisitions, net of cash acquired	(231,400		)	(137,460		)
Net investment in unconsolidated affiliates	(6,250		)	(237		)
Proceeds from sales of investment securities	129,234			136,085
Purchases of investment securities	(9,900		)	(283,230		)
Payments for capital expenditures	(47,734		)	(32,941		)
Proceeds from sale of equity investment	—			14,683
Net cash used in investing activities	(166,050		)	(303,100		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under credit agreements	13,524			55,726
Repayments of borrowings under credit agreements	(8,816		)	(133,611		)
Proceeds from issuance of stock	7,735			54,561
Net proceeds from the issuance of common stock in initial public offering	—			469,378
Funding of stock purchase plan rabbi trust	—			(75,413		)
Proceeds from exercise of stock options	10,895			4,102
Payments to repurchase common stock	(8,929		)	(48,581		)
Proceeds from payment of notes receivable from stockholders	—			22,663
Excess tax benefit from share based payment	14,978			—
Net cash provided by financing activities	29,387			348,825

EFFECT OF EXCHANGE RATE CHANGES ON CASH	850			1,994

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(43,803		)	68,058
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	216,911			127,870
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	173,108		$	195,928

NON-CASH INVESTING AND FINANCING ACTIVITY
Common stock issued in acquisitions	$	23,850		$	9,052

See accompanying Notes to Condensed Consolidated Financial Statements.

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AECOM Technology Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying condensed 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 condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K/A for the fiscal year ended September 30, 2007.

The results of operations for the three and nine months ended June 30, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2008.

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.

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

2. Initial Public Offering

In May 2007, the Company completed the initial public offering (IPO) of 40.4 million shares of common stock, which included the exercise of the underwriters’ over-allotment option to purchase 5.3 million shares, at $20.00 per share, before underwriting discounts and commissions. Of the total shares sold in the offering, 15.3 million were sold by stockholders of the Company. Proceeds to AECOM, net of underwriting discounts, commissions, and other offering related costs, were approximately $468.3 million, of which $75.4 million was used to fund elections by employees to diversify their holdings of AECOM stock units in the Company’s stock purchase plan.

3. Business Acquisitions

During the quarter ended June 30, 2008, the Company completed the acquisitions of Boyle Engineering Corporation, a Newport Beach, California based engineering services firm that focuses on the environmental market, and Totten Sims Hubicki Associates, an Ontario, Canada based diversified engineering services firm. Aggregate consideration for acquisitions during the three and nine months ended June 30, 2008 was approximately $145 million and $225 million, respectively, in cash and stock. See also Note 6 regarding goodwill and acquired intangible assets.

As discussed in Note 14 – Subsequent Events, subsequent to the quarter ended June 30, 2008, the Company announced in July 2008 that it had completed the acquisition of substantially all of Earth Tech, Inc., an engineering services unit of Tyco International, Ltd. The transaction is described in more detail in current reports on Form 8-K filed by the Company on February 12, 2008 and July 31, 2008.

4. Cash and Cash Equivalents and Marketable Securities

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

From time to time, the Company invests its excess cash in financial instruments. These financial instruments include auction rate securities. Auction rate securities held by the Company are primarily AAA rated, long-term debt obligations secured by student loans and have interest rates which are reset every 7 to 35 days. The recent uncertainties in the credit markets have affected the Company’s holdings in these investments, since auctions for these securities have failed on their respective settlement dates. The Company continues to earn interest on its auction rate securities and there has been no change in the ratings of these securities to date. Based on the Company’s ability and intent to hold these investments to their expected recovery, the financial strength of the issuers and guarantors of the securities (including the U.S. government) and valuations performed by the Company, no material impairment is deemed to exist at June 30, 2008. The Company will continue to monitor the auction rate securities market and the liquidity and value of the securities it holds. Adjustments to the fair value may be required in the future to reflect changes in impairment due to market conditions.

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Due to the current illiquidity of these investments and the uncertainty regarding the auction rate securities market, the Company has classified these investments within non-current assets as of June 30, 2008. At June 30, 2008, $81.5 million in auction rate securities were classified within other non-current assets.

5. Accounts Receivable—Net

Net accounts receivable consisted of the following as of June 30, 2008 and September 30, 2007:

	June 30, 2008			September 30, 2007
	(in thousands)
Billed	$	829,891		$	635,996
Unbilled	593,383			466,612
Contract retentions	43,765			40,522
Total accounts receivable—gross	1,467,039			1,143,130
Allowance for doubtful accounts	(61,651		)	(51,448		)
Total accounts receivable—net	$	1,405,388		$	1,091,682

Billings in excess of costs on uncompleted contracts	$	267,360		$	192,400

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, 2008 and September 30, 2007 are expected to be billed and collected within twelve months of such date. Contract retentions represent amounts invoiced to clients where payments have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project. These retention agreements vary from project to project and could be outstanding 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 a non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experience.

Other than the U.S. government, no single client accounted for more than 10% of the Company’s accounts receivable as of June 30, 2008 or September 30, 2007.

6. Goodwill and Acquired Intangible Assets

The changes in the carrying value of goodwill by reporting segment for the nine months ended June 30, 2008 were as follows:

	September 30, 2007		Post-Acquisition Adjustments			Acquired		June 30, 2008
	(in thousands)
Professional Technical Services	$	583,807	$	5,600		$	173,835	$	763,242
Management Support Services	8,426		(5,600		)	—		2,826
Total	$	592,233	$	—		$	173,835	$	766,068

The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of June 30, 2008 and September 30, 2007, included in intangible and other assets—net in the accompanying condensed consolidated balance sheets, were as follows:

	June 30, 2008				September 30, 2007
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
	(in thousands)
Backlog	$	47,669	$	29,445	$	28,669	$	24,849
Customer Relationships	45,273		7,477		30,478		4,645
Trade-Names	3,619		1,219		1,764		489
Total	$	96,561	$	38,141	$	60,911	$	29,983

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

The following table presents estimated amortization expense of existing intangible assets for the remainder of fiscal 2008 and for the succeeding years:

Fiscal Year	(in thousands)
2008	$	5,765
2009	16,511
2010	5,403
2011	5,260
2012	5,067
Thereafter	20,414
Total	$	58,420

7. Disclosures About Pension Benefit Obligations

The Company’s pension cost for the three and nine months ended June 30, 2008 and 2007 includes the following components:

	Three Months Ended June 30,						Nine Months Ended June 30,
U.S. Plans	2008			2007			2008			2007
	(in thousands)
Service costs	$	563		$	651		$	1,689		$	1,953
Interest cost on projected benefit obligation	1,912			1,876			5,736			5,629
Expected return on plan assets	(1,778		)	(1,719		)	(5,334		)	(5,157		)
Amortization of prior service costs	(290		)	(289		)	(870		)	(867		)
Amortization of net loss	833			982			2,499			2,946
Settlement (gain) / loss recognized	357			—			357			—
Net periodic benefit cost	$	1,597		$	1,501		$	4,077		$	4,504

	Three Months Ended June 30,						Nine Months Ended June 30,
Non-U.S. Plans	2008			2007			2008			2007
	(in thousands)
Service costs	$	1,071		$	1,170		$	3,244		$	3,633
Interest cost on projected benefit obligation	4,781			4,499			14,527			13,160
Expected return on plan assets	(5,175		)	(4,267		)	(15,730		)	(12,275		)
Amortization of prior service costs	(98		)	(101		)	(303		)	(624		)
Amortization of net gain	783			979			2,372			2,897
Curtailment (gain) / loss recognized	—			—			—			(2,646		)
Settlement (gain) / loss recognized	2,221			—			2,221			—
Net periodic benefit cost	$	3,583		$	2,280		$	6,331		$	4,145

The total amounts of employer contributions paid for the nine months ended June 30, 2008 were $3.6 million for U.S. plans and $11.5 million for non-U.S. plans. The expected remaining scheduled annual employer contributions for the fiscal year ending September 30, 2008 are $0.5 million for U.S. plans and $3.7 million for non-U.S. plans.

8. Reportable Segments

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

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

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

Reportable Segments:	Professional Technical Services			Management Support Services			Corporate		Total
	($ in thousands)
Three Months Ended June 30, 2008:
Revenue	$	1,096,986		$	224,217		$		$	1,321,203
Revenue, net of other direct costs	809,715			43,569					853,284
Gross profit	398,299			17,722					416,021
Gross profit as a % of revenue	36.3		%	7.9		%			31.5		%
Gross profit as a % of revenue, net of other direct costs	49.2		%	40.7		%			48.8		%
Equity in earnings of joint ventures	2,922			2,391					5,313
General and administrative expenses	330,714			9,466			16,972		357,152
Operating income	70,507			10,647			(16,972	)	64,182
Segment assets	2,561,708			210,721			148,562		2,920,991

Three Months Ended June 30, 2007:
Revenue	$	904,349		$	196,307		$		$	1,100,656
Revenue, net of other direct costs	612,550			31,141					643,691
Gross profit	300,354			11,737					312,091
Gross profit as a % of revenue	33.2		%	6.0		%			28.4		%
Gross profit as a % of revenue, net of other direct costs	49.0		%	37.7		%			48.5		%
Equity in earnings of joint ventures	1,064			2,928					3,992
General and administrative expenses	252,598			5,394			12,409		270,401
Operating income	48,820			9,271			(12,409	)	45,682

Reportable Segments:	Professional Technical Services			Management Support Services			Corporate		Total
	($ in thousands)
Nine Months Ended June 30, 2008:
Revenue	$	2,945,494		$	620,080		$		$	3,565,574
Revenue, net of other direct costs	2,168,871			110,751					2,279,622
Gross profit	1,068,274			43,734					1,112,008
Gross profit as a % of revenue	36.3		%	7.1		%			31.2		%
Gross profit as a % of revenue, net of other direct costs	49.3		%	39.5		%			48.8		%
Equity in earnings of joint ventures	6,630			5,533					12,163
General and administrative expenses	892,621			21,208			42,669		956,498
Operating income	182,283			28,059			(42,669	)	167,673
Segment assets	2,561,708			210,721			148,562		2,920,991

Nine Months Ended June 30, 2007:
Revenue	$	2,501,436		$	621,478		$		$	3,122,914
Revenue, net of other direct costs	1,656,456			79,851					1,736,307
Gross profit	811,685			32,696					844,381
Gross profit as a % of revenue	32.4		%	5.3		%			27.0		%
Gross profit as a % of revenue, net of other direct costs	49.0		%	40.9		%			48.6		%
Equity in earnings of joint ventures	960			6,668					7,628
General and administrative expenses	688,541			17,200			32,634		738,375
Operating income	124,104			22,164			(32,634	)	113,634

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9. Stock-Based Compensation

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

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

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

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

The fair value of the Company’s stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model. The expected term of awards granted represents the period of time the awards are expected to be outstanding. As the Company’s common stock has only recently 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 the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the option on the grant date. The Company uses historical data as a basis to estimate the probability of forfeitures.

The fair value of options granted during the three and nine months ended June 30, 2008 and 2007 were determined using the following weighted average assumptions:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2008		2007		2008		2007
Dividend yield	—		—		—		—
Expected volatility	33	%	25	%	33	%	25	%
Risk-free interest rate	3.5	%	4.6	%	3.5	%	4.6	%
Term (in years)	4.5		7		4.5		7

Under SFAS 123R, the Company’s expense related to stock options for the nine months ended June 30, 2008 and 2007 was $1.8 million and $0.5 million.

Stock option activity for the nine months ended June 30, 2008 and 2007 was as follows:

	Nine Months Ended June 30, 2008				Nine Months Ended June 30, 2007
	Shares of stock under options		Weighted average exercise price		Shares of stock under options		Weighted average exercise price
	(in thousands)				(in thousands)
Outstanding at September 30	7,728		$	9.27	8,929		$	8.42
Options granted	504		27.61		676		14.79
Options exercised	(2,388	)	7.74		(1,367	)	7.81
Options forfeited or expired	(67	)	17.23		(29	)	13.68
Outstanding at June 30	5,777		$	11.42	8,209		$	9.03

Vested and expected to vest in the future as of June 30	5,747		$	11.40	8,196		$	9.02

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The weighted average grant-date fair value of stock options granted during the nine months ended June 30, 2008 was $8.78.

10. Earnings Per Share

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

See also Note 2 regarding the effects of the IPO on outstanding shares.

The following table sets forth a reconciliation of the denominators for basic and diluted EPS:

	Three Months Ended		Nine Months Ended
	June 30, 2008	June 30, 2007	June 30, 2008	June 30, 2007
	(in thousands)
Denominator for basic earnings per share	102,020	80,915	100,745	64,948
Potential common shares:
Preferred stock, Class F and G	—	7,829	—	15,108
Stock options	2,464	2,988	2,827	2,562
Other	79	305	109	395
Denominator for diluted earnings per share	104,563	92,037	103,681	83,013

For the nine months ended June 30, 2008 and 2007, no stock options were excluded from the calculation or were considered anti-dilutive.

11. Commitments and Contingencies

The Company is subject to certain claims and lawsuits typically filed against the engineering and consulting profession, alleging primarily professional errors or omissions. The Company carries professional liability insurance against such claims, subject to certain deductibles and policy limits. From time to time, the Company establishes reserves for litigation that is considered a probable loss.

At June 30, 2008, the Company was contingently liable in the amount of approximately $89.8 million under standby letters of credit issued primarily in connection with general and professional liability insurance programs and for payment and performance guarantees relating to domestic and overseas contracts. In addition, in some instances the Company guarantees that a project, when complete, will achieve specified performance standards. If the project subsequently fails to meet guaranteed performance standards, the Company may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.

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

In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the financial position or results of operations of the Company.

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12. Income Taxes

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–An Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 is intended to clarify the accounting for uncertainty in recognizing income taxes in accordance with FASB Statement No. 109 by providing detailed guidance for financial statement recognition, measurement and disclosure involving uncertain tax positions. FIN 48 requires an uncertain tax position to meet a “more-likely-than-not” recognition threshold at the effective date to be recognized both upon the adoption of FIN 48 and subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006, and became effective for the Company in the first quarter of the fiscal year ending September 30, 2008. As the provisions of FIN 48 are to be applied to all tax positions upon initial adoption, the cumulative effect of applying the provisions of FIN 48 was reported as an adjustment to the opening balance of retained earnings as of October 1, 2007. Additionally, FIN 48 provides guidance on recognition or de-recognition of interest and penalties, changes in judgment in interim periods, and disclosures of uncertain tax positions. The adoption of FIN 48 did not have a material effect on the Company’s financial statements.

As of the adoption date, the liability for income taxes associated with uncertain tax positions was $34.8 million and the related interest on the liability was $1.6 million, net of related tax benefits. If recognized, $33.0 million of these amounts would be recorded as a benefit to income taxes on the Condensed Consolidated Statement of Income and, therefore, would reduce the Company’s future effective tax rate. The remaining $3.4 million would reduce deferred tax balances and amounts primarily arising from business combinations which, if recognized, would be recorded as reductions to goodwill.

As of June 30, 2008, the liability for income tax associated with uncertain tax positions was $43.0 million and the related interest on the liability was $3.0 million, net of related tax benefits. If recognized, $39.2 million of these amounts would be recorded as a benefit to income taxes on the Condensed Consolidated Statement of Income and, therefore, would reduce the Company’s future effective tax rate. The remaining $6.8 million would reduce deferred tax balances and amounts primarily arising from business combinations which, if recognized, would be recorded as reductions to goodwill.

The Company’s continuing practice is to recognize interest and penalties related to uncertain tax positions in tax expense. At adoption, the Company had accrued $1.6 million of interest and penalties, net of a $1.0 million tax benefit related to uncertain tax positions and, as of June 30, 2008, the Company had accrued $3.0 million of interest and penalties, net of a $1.9 million tax benefit related to uncertain tax positions.

The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2000. The expiration of the statutes of limitation within the next twelve months for various jurisdictions is expected to reduce the Company’s uncertain tax position balance by approximately $6.1 million, including $0.7 million of associated interest.

While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes reserves for income taxes represent the most probable outcome. The Company adjusts these reserves, including those for the related interest, in light of changing facts and circumstances.

13. Recently Issued Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (SFAS 161), which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS 161 is effective beginning in the Company’s fiscal second quarter ending March 31, 2009. The Company is currently evaluating the impact of SFAS 161 on its financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141R). SFAS 141R significantly changes the way companies account for business combinations and will generally require more assets acquired and liabilities assumed to be measured at their acquisition-date fair value. Under SFAS 141R, legal fees and other transaction-related costs are expensed as incurred and are no longer included in goodwill as a cost of acquiring the business. SFAS 141R 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 expected, but was not obligated to incur, will be recognized separately from the business acquisition. This accounting standard is effective for the Company’s fiscal year ending September 30, 2010. The Company is currently evaluating the impact of SFAS 141R on its financial statements.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS 160). SFAS 160 requires all entities to report noncontrolling interests in subsidiaries as a separate component of equity in the consolidated financial statements. SFAS 160 establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. Under SFAS 160, companies will no longer recognize a gain or loss on partial disposals of a subsidiary where control is retained. In addition, in partial acquisitions, where control is obtained, the acquiring company will recognize and measure at fair value 100 percent of the assets and liabilities, including goodwill, as if the entire target company had been acquired. SFAS 160 is effective for the Company’s fiscal year ending September 30, 2010. The Company is currently evaluating the impact of SFAS 160 on its financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits entities to choose to measure eligible assets and liabilities at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 will be effective for the Company as of October 1, 2008. The Company is currently evaluating the potential impact of the provisions of SFAS 159 on its financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The provisions of SFAS 157 will be effective for the Company as of October 1, 2008. The Company is currently evaluating the potential impact of the provisions of SFAS 157 on its financial statements.

14. Subsequent Events

As discussed in Note 3 — Business Acquisitions, subsequent to the quarter ended June 30, 2008, the Company announced in July 2008 that it had completed a transaction to acquire a substantial portion of Earth Tech from Tyco International. Earth Tech provides consulting and engineering services to the environmental, transportation and facilities markets. The parties agreed to delay the transfer of Earth Tech’s United Kingdom businesses to the Company until certain third party consents to the transaction are obtained. Concurrent with the close of the purchase of Earth Tech, the Company divested Earth Tech’s Water & Power Technologies (WPT) and North American Contract Operations (NACO) businesses and Earth Tech’s Mexican operations. The consideration paid for businesses retained by the Company and the United Kingdom businesses, net of amounts received for the divested WPT, NACO and Mexico assets and other purchase price adjustments, was approximately $335 million. In addition, the Company intends to divest certain other non-core Earth Tech assets and operations.

In connection with the acquisition of Earth Tech, the Company borrowed approximately $400 million under its existing revolving credit facility, which was then partially repaid with proceeds from the divestitures discussed above.

These transactions are described in more detail in current reports on Form 8-K filed by the Company on February 12, 2008 and July 31, 2008.

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

Forward-Looking Statements

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

Overview

We are a leading global provider of professional technical and management support services for commercial and government clients around the world. Through our network of approximately 41,000 employees, we provide our services in a broad range of end markets, including the transportation, facilities, environmental, and energy markets.

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

Our PTS segment delivers planning, consulting, architecture and engineering design, and program and construction management services to commercial and government clients worldwide in major end markets such as transportation, facilities environmental, and energy and power markets. PTS revenue is primarily derived from fees from services that we provide, as opposed to pass-through fees from subcontractors, or other direct costs.

Our MSS segment provides program and 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, or other direct costs.

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

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

Components of Income and Expense

Our management internally 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 pass-through costs are typically paid to service providers upon our receipt of payment from the client. Other direct costs are segregated from revenue resulting in 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 revenue, exclusive of costs associated with external service providers.

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

	Nine Months Ended June 30,				Year Ended September 30,
	2008		2007		2007		2006		2005		2004		2003
	(in millions)
Other Financial Data:
Revenue	$	3,566	$	3,123	$	4,237	$	3,421	$	2,395	$	2,012	$	1,915
Other direct costs	1,286		1,387		1,832		1,521		933		776		725
Revenue, net of other direct costs	2,280		1,736		2,405		1,900		1,462		1,236		1,190
Cost of revenue, net of other direct costs	1,168		892		1,244		994		785		667		656
Gross profit	1,112		844		1,161		906		677		569		534
Equity in earnings of joint ventures	12		8		12		6		2		3		2
Amortization expense of acquired intangible assets	8		8		12		15		3		—		—
Other general and administrative expenses	948		730		1,005		794		578		485		467
General and administrative expenses	956		738		1,017		809		581		485		467
Income from operations	$	168	$	114	$	156	$	103	$	98	$	87	$	69

Reconciliation of Cost of Revenue:
Other direct costs	$	1,286	$	1,387	$	1,832	$	1,521	$	933	$	776	$	725
Cost of revenue, net of other direct costs	1,168		892		1,244		994		785		667		656
Cost of revenue	$	2,454	$	2,279	$	3,076	$	2,515	$	1,718	$	1,443	$	1,381

Results of Operations

Consolidated Results

	Three Months Ended										Nine Months Ended
	June 30,			June 30,			Change				June 30,			June 30,			Change
	2008			2007			$		%		2008			2007			$			%
	($ in thousands)
Revenue	$	1,321,203		$	1,100,656		$	220,547	20.0	%	$	3,565,574		$	3,122,914		$	442,660		14.2	%
Other direct costs	467,919			456,965			10,954		2.4		1,285,952			1,386,607			(100,655		)	(7.3	)
Revenue, net of other direct costs	853,284			643,691			209,593		32.6		2,279,622			1,736,307			543,315			31.3
Cost of revenue, net of other direct costs	437,263			331,600			105,663		31.9		1,167,614			891,926			275,688			30.9
Gross profit	416,021			312,091			103,930		33.3		1,112,008			844,381			267,627			31.7
Equity in earnings of joint ventures	5,313			3,992			1,321		33.1		12,163			7,628			4,535			59.5
General and administrative expenses	357,152			270,401			86,751		32.1		956,498			738,375			218,123			29.5
Income from operations	64,182			45,682			18,500		40.5		167,673			113,634			54,039			47.6
Minority interest in share of earnings	4,862			3,824			1,038		27.1		10,939			9,058			1,881			20.8
Other income (expense)	756			—			756		—		(872		)	—			(872		)	—
Gain on sale of equity investment	—			—			—		—		—			11,286			(11,286		)	(100.0	)
Interest income (expense) net	(198		)	(6,312		)	6,114		(96.9	)	4,111			(9,615		)	13,726			(142.8	)
Income before income tax expense	59,878			35,546			24,332		68.5		159,973			106,247			53,726			50.6
Income tax expense	21,424			11,360			10,064		88.6		56,197			35,343			20,854			59.0
Net income	$	38,454		$	24,186		$	14,268	59.0	%	$	103,776		$	70,904		$	32,872		46.4	%

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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, 2008		June 30, 2007		June 30, 2008		June 30, 2007
Revenue, net of other direct costs	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue, net of other direct costs	51.2		51.5		51.2		51.4
Gross profit	48.8		48.5		48.8		48.6
Equity in earnings of joint ventures	0.6		0.6		0.5		0.4
General and administrative expense	41.9		42.0		41.9		42.5
Income from operations	7.5		7.1		7.4		6.5
Minority interest in share of earnings	0.6		0.6		0.5		0.5
Gain on sale of equity investment	0.0		0.0		0.0		0.7
Non-operating income (expense)	0.1		0.0		0.0		0.0
Interest income (expense) and other — net	0.0		(1.0	)	0.1		(0.6	)
Income before income tax expense	7.0		5.5		7.0		6.1
Income tax expense	2.5		1.7		2.4		2.0
Net income	4.5	%	3.8	%	4.6	%	4.1	%

Revenue

Our revenue for the three months ended June 30, 2008 increased $220.5 million, or 20.0%, to $1.3 billion as compared to $1.1 billion for the corresponding period last year. Of this increase, $102.8 million, or 46.6%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $117.7 million, or 10.7%.

Our revenue for the nine months ended June 30, 2008 increased $442.7 million, or 14.2%, to $3.6 billion as compared to $3.1 billion for the corresponding period last year. Of this increase, $166.3 million, or 37.6%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $276.4 million, or 8.9%.

The increases in the three and nine month periods ended June 30, 2008 were primarily attributable to higher government spending for highway and transit infrastructure projects in Australia, an increase in demand for work performed in our planning and urban design business, greater volumes of work performed in our environmental management services business in all of our geographic markets, and continued strength in our engineering design services business in the United Arab Emirates. Increased demand in these markets was partially offset by a decline in our design/build services business due to the completion of a significant educational facility project in the fourth quarter of fiscal 2007. The increase for the three months ended June 30, 2008 as compared to the corresponding period last year was further attributable to growth in our combat support and global maintenance and supply services for the United States government in the Middle East.

Revenue, Net of Other Direct Costs

Our revenue, net of other direct costs for the three months ended June 30, 2008 increased $209.6 million, or 32.6%, to $853.3 million as compared to $643.7 million in the corresponding period last year. Of this increase, $81.1 million, or 38.7%, was provided by companies acquired in the past twelve months. Excluding the revenue, net of other direct costs provided by acquired companies, revenue, net of other direct costs increased $128.5 million, or 20.0%.

Our revenue, net of other direct costs for the nine months ended June 30, 2008 increased $543.3 million, or 31.3%, to $2.3 billion as compared to $1.7 billion in the corresponding period last year. Of this increase, $131.8 million, or 24.3%, was provided by companies acquired in the past twelve months. Excluding the revenue, net of other direct costs provided by acquired companies, revenue, net of other direct costs increased $411.5 million, or 23.7%.

The increases for both periods were primarily due to strong demand in the markets noted above, resulting in increased project staffing. The larger percentage increases in revenue, net of other direct costs, compared to the increases in revenue during the same period resulted from the decline in our design/build services business which contains a proportionately higher component of subcontractor costs.

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Gross Profit

Our gross profit for the three months ended June 30, 2008 increased $103.9 million, or 33.3%, to $416.0 million as compared to $312.1 million in the corresponding period last year. Of this increase, $40.6 million, or 39.1% was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $63.3 million, or 20.3%. For the three months ended June 30, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 48.8% as compared to 48.5% in the corresponding period last year.

Our gross profit for the nine months ended June 30, 2008 increased $267.6 million, or 31.7%, to $1.1 billion as compared to $844.4 million in the corresponding period last year. Of this increase, $69.3 million, or 25.9% was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $198.3 million, or 23.5%. For the nine months ended June 30, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 48.8% as compared to 48.6% in the corresponding period last year.

The increases for both periods in gross profit for the three and nine months ended June 30, 2008 were primarily attributable to the increases in revenue, net of other direct costs for the respective periods. The increases in gross profit, as a percentage of revenue, net of other direct costs, were primarily attributable to the increased demand for our environmental management and planning and urban design services which typically experience higher gross profit margins, and the favorable resolution in March 2008 of a claim on a United States government project, partially offset by lower margins in our design/build services business resulting from a decline in revenue for that business.

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended June 30, 2008 increased $1.3 million, or 33.1%, to $5.3 million as compared to $4.0 million in the corresponding period last year.

Our equity in earnings of joint ventures for the nine months ended June 30, 2008 increased $4.6 million, or 59.5%, to $12.2 million as compared to $7.6 million in the corresponding period last year.

The increases for both periods were primarily attributable to increased joint venture activity in the Middle East and improved performance in a European joint venture that was in its initial phase in the prior year’s corresponding periods.

General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2008 increased $86.8 million, or 32.1%, to $357.2 million as compared to $270.4 million in the corresponding period last year. Of this increase, $35.7 million, or 41.1%, was incurred by companies acquired in the past twelve months. Excluding general and administrative expenses associated with acquired companies, general and administrative expenses increased $51.1 million, or 18.9%. For the three months ended June 30, 2008, general and administrative expenses, as a percentage of revenue, net of other direct costs was 41.9% as compared to 42.0% in the corresponding period last year.

Our general and administrative expenses for the nine months ended June 30, 2008 increased $218.1 million, or 29.5%, to $956.5 million as compared to $738.4 million in the corresponding period last year. Of this increase, $59.1 million, or 27.1%, was incurred by companies acquired in the past twelve months. Excluding general and administrative expenses associated with acquired companies, general and administrative expenses increased $159.0 million, or 21.5%. For the nine months ended June 30, 2008, general and administrative expenses, as a percentage of revenue, net of other direct costs was 41.9% as compared to 42.5% in the corresponding period last year.

These increases in general and administrative expenses for both periods were primarily attributable to increased staffing and other expenses related to the growth in our business noted above, continued investments throughout the organization to support strategic initiatives and expenses incurred related to our becoming a public reporting company, including compliance efforts related to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The decreases in general and administrative expenses, as a percentage of revenue, net of other direct costs, reflect the benefits realized from our continuing cost efficiency initiatives.

Gain on Sale of Equity Investment

In December 2006, we sold our minority interest in an equity investment in the United Kingdom for 7.5 million GBP, or approximately $14.7 million. We recorded a gain on the sale of $11.3 million.

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Interest Income / Expense

Our net interest expense for the three months ended June 30, 2008 decreased to $0.2 million as compared to $6.3 million in the corresponding period last year.

Our net interest income for the nine months ended June 30, 2008 was $4.1 million as compared to $9.6 million of net interest expense in the corresponding period last year.

The decrease in net interest expense for the three months ended June 30, 2008 as compared to the corresponding period last year is primarily due to lower borrowings. The increase in net interest income in the nine months ended June 30, 2008 was primarily attributable to higher investment balances and lower borrowings. These changes resulted from the use of proceeds received in our initial public offering completed in May 2007.

Income Tax Expense

For the three and nine months ended June 30, 2008, income tax expense increased $10.1 million, or 88.6%, and $20.9 million, or 59.0%, compared to the same periods last year, respectively. The effective tax rate for the three and nine months ended June 30, 2008 was 35.8% and 35.1%, respectively, as compared to 32.0% and 33.3% for each respective corresponding period last year. The increases in the effective tax rate for both periods was due to proportionately less income in tax exempt jurisdictions and the expiration of federal research and development credits during the current periods.

Net Income

Net income for the three and nine months ended June 30, 2008 increased $14.3 million, or 59.0%, to $38.5 million and $32.9 million, or 46.4%, to $103.8 million, respectively, as compared to the corresponding periods last year.

Results of Operations by Reportable Segment:

Professional Technical Services

	Three Months Ended									Nine Months Ended
	June 30,		June 30,		Change					June 30,		June 30,		Change
	2008		2007		$			%		2008		2007		$			%
	($ in thousands)
Revenue	$	1,096,986	$	904,349	$	192,637		21.3	%	$	2,945,494	$	2,501,436	$	444,058		17.8	%
Other direct costs	287,271		291,799		(4,528		)	(1.6	)	776,623		844,980		(68,357		)	(8.1	)
Revenue, net of other direct costs	809,715		612,550		197,165			32.2		2,168,871		1,656,456		512,415			30.9
Cost of revenue, net of other direct costs	411,416		312,196		99,220			31.8		1,100,597		844,771		255,826			30.3
Gross profit	$	398,299	$	300,354	$	97,945		32.6	%	$	1,068,274	$	811,685	$	256,589		31.6	%

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, 2008		June 30, 2007		June 30, 2008		June 30, 2007
Revenue, net of other direct costs	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue, net of other direct costs	50.8		51.0		50.7		51.0
Gross profit	49.2	%	49.0	%	49.3	%	49.0	%

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Revenue

Revenue for our PTS segment for the three months ended June 30, 2008 increased $192.6 million, or 21.3%, to $1.1 billion as compared to $904.3 million in the corresponding period last year. Of this increase, $102.7 million, or 53.3%, was provided by companies acquired in the past twelve months. Excluding revenue provided by acquired companies, PTS’ revenue increased $89.9 million, or 9.9%.

Revenue for our PTS segment for the nine months ended June 30, 2008 increased $444.1 million, or 17.8%, to $2.9 billion as compared to $2.5 billion in the corresponding period last year. Of this increase, $166.3 million, or 37.4%, was provided by companies acquired in the past twelve months. Excluding revenue provided by acquired companies, PTS’ revenue increased $277.8 million, or 11.1%.

The increases for both periods were primarily attributable to higher government spending for highway and transit infrastructure projects in Australia, an increase in demand for our environmental management services in all of our geographic markets, greater volumes of work performed in our planning and urban design business continued strength in our engineering design services business in the United Arab Emirates, and the start up of program management services on the Libya Housing and Infrastructure Board project. Increased demand in these markets was partially offset by a decline in our design/build services business due to the completion of a significant educational facility project in the fourth quarter of fiscal 2007.

Revenue, Net of Other Direct Costs

Revenue, net of other direct costs for our PTS segment for the three months ended June 30, 2008 increased $197.1 million, or 32.2%, to $809.7 million as compared to $612.6 million in the corresponding period last year. Of this increase, $81.1 million, or 41.1%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by acquired companies, PTS’ revenue, net of other direct costs increased $116.0 million, or 18.9%.

Revenue, net of other direct costs for our PTS segment for the nine months ended June 30, 2008 increased $512.4 million, or 30.9%, to $2.2 billion as compared to $1.7 billion in the corresponding period last year. Of this increase, $131.8 million, or 25.7%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by acquired companies, PTS’ revenue, net of other direct costs increased $380.6 million, or 23.0%.

The increases for both periods were primarily attributable to the revenue growth factors mentioned above, partially offset by the decline in design/build services business in the United States.

Gross Profit

Gross profit for our PTS segment for the three months ended June 30, 2008 increased $97.9 million, or 32.6%, to $398.3 million as compared to $300.4 million in the corresponding period last year. Of this increase, $40.6 million, or 41.5%, was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $57.3 million, or 19.1%. For the three months ended June 30, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 49.2% as compared to 49.0% in the corresponding period last year.

Gross profit for our PTS segment for the nine months ended June 30, 2008 increased $256.6 million, or 31.6%, to $1.1 billion as compared to $811.7 million in the corresponding period last year. Of this increase, $69.3 million, or 27.0%, was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $187.3 million, or 23.1%. For the nine months ended June 30, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 49.3% as compared to 49.0% in the corresponding period last year.

The increases for both periods in gross profit for the three and nine months ended June 30, 2008 were primarily attributable to the increases in revenue, net of other direct costs for the respective periods. The increases in gross profit, as a percentage of revenue, net of other direct costs, were primarily attributable to the increased demand for our environmental management and planning and urban design services which typically experience higher gross profit margins, partially offset by lower margins in our design/build services business in the United States resulting from a decline in revenue in that business.

Equity in Earnings of Joint Ventures

Equity in earnings of joint ventures for our PTS segment for the three months ended June 30, 2008 increased $1.8 million to $2.9 million as compared to $1.1 million in the corresponding period last year.

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Equity in earnings of joint ventures for our PTS segment for the nine months ended June 30, 2008 increased $5.6 million to $6.6 million as compared to $1.0 million in the corresponding period last year.

These increases were primarily attributable to increased joint venture activity in the Middle East and improved performance in a European joint venture that was in its initial phase in the prior year’s corresponding periods.

Management Support Services

	Three Months Ended								Nine Months Ended
	June 30,		June 30,		Change				June 30,		June 30,		Change
	2008		2007		$		%		2008		2007		$			%
	($ in thousands)
Revenue	$	224,217	$	196,307	$	27,910	14.2	%	$	620,080	$	621,478	$	(1,398	)	(0.2	)%
Other direct costs	180,648		165,166		15,482		9.4		509,329		541,627		(32,298		)	(6.0	)
Revenue, net of other direct costs	43,569		31,141		12,428		39.9		110,751		79,851		30,900			38.7
Cost of revenue, net of other direct costs	25,847		19,404		6,443		33.2		67,017		47,155		19,862			42.1
Gross profit	$	17,722	$	11,737	$	5,985	51.0	%	$	43,734	$	32,696	$	11,038		33.8	%

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, 2008		June 30, 2007		June 30, 2008		June 30, 2007
Revenue, net of other direct costs	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue, net of other direct costs	59.3		62.3		60.5		59.1
Gross profit	40.7	%	37.7	%	39.5	%	40.9	%

Revenue

Revenue for our MSS segment for the three months ended June 30, 2008, increased $27.9 million, or 14.2%, to $224.2 million as compared to $196.3 million in the corresponding period last year.

Revenue for our MSS segment for the nine months ended June 30, 2008, decreased $1.4 million, or 0.2%, to $620.1 million as compared to $621.5 million in the corresponding period last year.

The increase for the three months ended June 30, 2008 was primarily attributable to growth in our combat support and global maintenance and supply services for the United States government in the Middle East.

Revenue, Net of Other Direct Costs

Revenue, net of other direct costs for our MSS segment for the three months ended June 30, 2008 increased $12.5 million, or 39.9%, to $43.6 million as compared to $31.1 million in the corresponding period last year.

Revenue, net of other direct costs for our MSS segment for the nine months ended June 30, 2008 increased $30.9 million, or 38.7%, to $110.8 million as compared to $79.9 million in the corresponding period last year.

The increases for both periods were primarily attributable to an increase in our personnel associated with additional task orders received in support of United States government activities in the Middle East, and the definitization of certain contract modifications on our combat support project in the third quarter of fiscal 2008.

Gross Profit

Gross profit for our MSS segment for the three months ended June 30, 2008, increased $6.0 million, or 51.0%, to $17.7 million as compared to $11.7 million in the corresponding period last year. For the three months ended June 30, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 40.7% as compared to 37.7% in the corresponding period last year.

Gross profit for our MSS segment for the nine months ended June 30, 2008, increased $11.0 million, or 33.8%, to $43.7 million as compared to $32.7 million in the corresponding period last year. For the nine months ended June 30, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 39.5% as compared to 40.9% in the corresponding period last year.

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These increases in gross profit were primarily due to the increases in revenue, net of other direct costs, and the favorable resolution in March 2008 of a claim on a U.S. government project. The increase in gross profit, as a percentage of revenue, net of other direct costs in the three month period ended June 30, 2008 was primarily due to the definitization of the contract modifications noted above which resulted in an increase in award fees. The decrease in gross profit, as a percentage of revenue, net of other direct costs in the nine month period ended June 30, 2008 was primarily attributable to the start of a project for the United States government in fiscal 2008 that had a proportionately higher amount of revenue, net of other direct costs.

Equity in Earnings of Joint Ventures

Equity in earnings of joint ventures for our MSS segment for the three months ended June 30, 2008 decreased $0.5 million, or 18.3%, to $2.4 million as compared to $2.9 million in the corresponding period last year.

Equity in earnings of joint ventures for our MSS segment for the nine months ended June 30, 2008 decreased $1.2 million, or 17.0%, to $5.5 million as compared to $6.7 million in the corresponding period last year.

The decreases for both periods were primarily due to reduced activities in two joint ventures that provide training support services for international civilian police officers and peacekeepers, and operations and maintenance services at a military facility in the United States.

Seasonality

We experience seasonal trends in our business. Our revenue is typically lower in the first quarter of our fiscal year, primarily due to lower utilization rates attributable to holidays recognized around the world. Our revenue is typically higher in the last half of the fiscal year. Many U.S. state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available. In addition, we find that the U.S. Federal government tends to authorize more work during the period preceding the end of its fiscal year, September 30. Further, our construction management revenue typically increases during the high construction season of the summer months. Within the United States, as well as other parts of the world, our business generally benefits from milder weather conditions in our fiscal fourth quarter, which allows for more productivity from our on-site civil services. For these reasons, coupled with the number and significance of client contracts commenced and completed during a period, as well as the time of expenses incurred for corporate initiatives, it is not unusual for us to experience seasonal changes or fluctuations in our quarterly operating results.

Liquidity and Capital Resources

Cash Flows

In May 2007, we completed the initial public offering of 40.4 million shares of our common stock, which included the exercise of the underwriters’ over-allotment option to purchase 5.3 million shares, at $20.00 per share. Of the total shares sold in the offering, 15.3 million were sold by stockholders of the Company. Proceeds to the Company, net of underwriting discounts, commissions, and other offering related costs were approximately $468.3 million, of which $75.4 million was used to fund employees’ elections to diversify their holdings in the Company’s stock purchase plan.

Our principal source of liquidity is cash flows from operations, and our principal uses of cash are for operating expenses, capital expenditures, working capital requirements, acquisitions, and repayment of debt. We believe our anticipated sources of liquidity, including operating cash flows, existing cash, cash equivalents and borrowing capacity under our revolving credit facility, will be sufficient to meet our anticipated cash requirements for at least the next 12 months.

At June 30, 2008, cash and cash equivalents were $173.1 million, a decrease of $43.8 million, or 20.2%, from September 30, 2007, as a result of operating, investing and financing activities, including acquisitions, as described below.

Net cash provided by operating activities was $92.0 million for the nine months ended June 30, 2008, an increase of $71.7 million from net cash provided by operating activities of $20.3 million for the nine months ended June 30, 2007. The increase was primarily attributable to increased net income, a reduced rate of payments of accounts payable, increased billings in excess of costs on uncompleted contracts, and the timing of insurance premium payments.

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Net cash used in investing activities was $166.1 million for the nine months ended June 30, 2008, a decrease of $137.0 million from net cash used in investing activities of $303.1 million in the nine months ended June 30, 2007. The decrease in net cash used was primarily due to the net proceeds from the sale of investment securities. Also, net cash used in business combinations was $231.4 million as compared to $137.5 million for the comparable period last year.

Net cash provided by financing activities was $29.4 million for the nine months ended June 30, 2008, a decrease of $319.4 million from cash provided by financing activities of $348.8 million in the comparable period last year, primarily a result of the initial public offering of our common stock in May 2007, as described above.

Working Capital

Working capital, or current assets less current liabilities, decreased $136.0 million, or 22.7%, to $461.7 million at June 30, 2008 from $597.7 million at September 30, 2007, primarily as a result of cash used in business combinations and a change in classification of our auction rate security holdings from current assets to non-current assets, offset by increased net accounts receivable and a reclassification of income taxes payable to other long-term liabilities resulting from the adoption of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes–An Interpretation of FASB Statement No. 109” (FIN 48). Net accounts receivable, which includes billed and unbilled costs and fees, net of billings in excess of costs on uncompleted contracts, increased $238.7 million, or 26.5%, to $1.1 billion at June 30, 2008 from $899.3 million at September 30, 2007. This increase was due to business acquisitions and increased revenue.

Borrowings and Lines of Credit

At June 30, 2008 and September 30, 2007, our long-term debt consisted of the following:

	June 30, 2008			September 30, 2007
	(in thousands)
Unsecured credit facility	$	10,000		$	—
Senior notes	8,333			8,333
Term credit agreement	33,792			37,015
Other debt	36,715			2,602
Total long-term debt	88,840			47,950
Less: Current portion of long-term debt	(29,946		)	(8,764		)
Long-term debt, less current portion	$	58,894		$	39,186

Unsecured Credit Facility

We have an unsecured revolving credit facility with a syndicate of banks to support our working capital and acquisition needs. The borrowing capacity under our unsecured revolving credit facility is $600 million, and pursuant to the terms of the associated credit agreement, has an expiration date of August 31, 2012. We may also, at our option, request increase in the commitments under the facility up to a total of $750 million, subject to lender approval. The credit agreement contains customary representations and warranties, affirmative and negative covenants and events of default and includes a sub-limit for financial and commercial standby letters of credit. We may borrow, at our option, at either (a) a base rate (the greater of the federal funds rate plus 0.50% or the bank’s reference rate), or (b) an offshore, or LIBOR, rate plus a margin which ranges from 0.50% to 1.375%. In addition to these borrowing rates, there is a commitment fee which ranges from 0.10% to 0.25% on any unused commitment. Borrowings under the credit facility are limited by certain financial covenants. At June 30, 2008, $10.0 million was outstanding, and at September 30, 2007 there were no borrowings under the credit facility. At June 30, 2008 and September 30, 2007, outstanding standby letters of credit totaled $24.9 million and $24.3 million, respectively, under the credit facility. At June 30, 2008, we had $565.1 million available for borrowing under the credit facility.

Senior Notes

At June 30, 2008, $8.3 million in unsecured senior notes due October 15, 2008 were outstanding.

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Term Credit Agreement

In September 2006, through certain of our wholly-owned subsidiaries, we entered into an unsecured term credit agreement with a syndicate of banks to facilitate dividend repatriations under Section 965 of the American Jobs Creation Act, which provided for a limited time opportunity to repatriate foreign earnings to the U.S. at a 5.25% tax rate. The term credit agreement provides for a $65.0 million, five-year term loan among four subsidiary borrowers and one subsidiary guarantor. In order to obtain favorable pricing, we also provided a parent company guarantee. The terms and conditions of the term credit agreement are similar to those contained in our revolving credit facility. At June 30, 2008 and September 30, 2007, outstanding borrowings under this agreement were $33.7 and $37.0 million, respectively.

Other Debt

Other debt includes $27 million in notes payable to a bank, collateralized by real property, which was assumed in connection with a business acquired during the quarter ended June 30, 2008. These notes payable bear interest at 6.04% and mature in December 2028.

In addition to the credit facility discussed above, at June 30, 2008, we had $157.2 million available under 30 primarily non-U.S. unsecured credit facilities to cover periodic overdrafts and letters of credit. At June 30, 2008 we also had a $50 million U.S. bank facility that expires in December 2008.

Commitments and Contingencies

Planned capital expenditures include payments for recently announced acquisitions, property and equipment additions and replacements, expenditures to further the implementation of our enterprise resource planning system and commitments under our incentive compensation programs. As we embark on other capital-intensive initiatives, additional working capital may be required.

As of June 30, 2008, there was approximately $89.8 million outstanding under standby letters of credit issued, primarily in connection with general and professional liability insurance programs and for contract performance guarantees. In addition, in some instances we guarantee that a project, whe