Table of Contents

 

 

 

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.

 

 

 



Table of Contents

 

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

 

2



Table of Contents

 

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.

 

3



Table of Contents

 

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.

 

4



Table of Contents

 

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.

 

5



Table of Contents

 

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.

 

6



Table of Contents

 

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

 

 

7



Table of Contents

 

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.

 

8



Table of Contents

 

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

 

 

9



Table of Contents

 

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

 

 

10



Table of Contents

 

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.

 

11



Table of Contents

 

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.

 

12



Table of Contents

 

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.

 

13



Table of Contents

 

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.

 

14



Table of Contents

 

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

%

 

15



Table of Contents

 

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.

 

16



Table of Contents

 

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.

 

17



Table of Contents

 

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

%

 

18



Table of Contents

 

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.

 

19



Table of Contents

 

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.

 

20



Table of Contents

 

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.

 

21



Table of Contents

 

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.

 

22



Table of Contents

 

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