UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
AECOM TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
|
61-1088522 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification Number) |
555 South Flower Street, Suite 3700
Los Angeles, California 90071
(Address of principal executive office and zip code)
(213) 593-8000
(Registrants 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 o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of May 4, 2007, 57,460,002 shares of the registrants common stock were outstanding.
AECOM
TECHNOLOGY CORPORATION
INDEX
2
AECOM
Technology Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share data)
|
|
September 30, |
|
March 31, |
|
||
|
|
|
|
(Unaudited) |
|
||
ASSETS |
|
|
|
|
|
||
CURRENT ASSETS: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
118,427 |
|
$ |
84,472 |
|
Cash in consolidated joint ventures |
|
9,393 |
|
31,742 |
|
||
Short-term investments |
|
50 |
|
50 |
|
||
Total cash and cash equivalents |
|
127,870 |
|
116,264 |
|
||
|
|
|
|
|
|
||
Accounts receivablenet |
|
913,178 |
|
1,040,079 |
|
||
Prepaid expenses and other current assets |
|
52,827 |
|
56,665 |
|
||
TOTAL CURRENT ASSETS |
|
1,093,875 |
|
1,213,008 |
|
||
|
|
|
|
|
|
||
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
||
Equipment, furniture and fixtures |
|
85,201 |
|
109,214 |
|
||
Leasehold improvements |
|
31,539 |
|
38,147 |
|
||
Total |
|
116,740 |
|
147,361 |
|
||
Accumulated depreciation and amortization |
|
(26,417 |
) |
(38,276 |
) |
||
PROPERTY AND EQUIPMENTNET |
|
90,323 |
|
109,085 |
|
||
|
|
|
|
|
|
||
DEFERRED INCOME TAXES |
|
98,449 |
|
110,178 |
|
||
DEFERRED LOAN COSTS |
|
1,444 |
|
1,404 |
|
||
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES |
|
19,943 |
|
20,589 |
|
||
GOODWILL |
|
466,508 |
|
534,575 |
|
||
INTANGIBLE AND OTHER ASSETSNET |
|
18,168 |
|
44,068 |
|
||
OTHER NON-CURRENT ASSETS |
|
37,064 |
|
43,289 |
|
||
|
|
|
|
|
|
||
TOTAL ASSETS |
|
$ |
1,825,774 |
|
$ |
2,076,196 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
||
|
|
|
|
|
|
||
CURRENT LIABILITIES: |
|
|
|
|
|
||
Short-term debt |
|
$ |
2,716 |
|
$ |
9,725 |
|
Accounts payable |
|
265,192 |
|
264,930 |
|
||
Accrued expenses and other current liabilities |
|
365,548 |
|
413,323 |
|
||
Billings in excess of costs on uncompleted contracts |
|
143,283 |
|
200,891 |
|
||
Income taxes payable |
|
35,646 |
|
40,977 |
|
||
Deferred tax liabilitynet |
|
12,824 |
|
11,551 |
|
||
Share purchase liability |
|
55,394 |
|
56,634 |
|
||
Current portion of long-term obligations |
|
11,949 |
|
23,533 |
|
||
TOTAL CURRENT LIABILITIES |
|
892,552 |
|
1,021,564 |
|
||
|
|
|
|
|
|
||
OTHER LONG-TERM LIABILITIES |
|
112,970 |
|
115,160 |
|
||
LONG-TERM OBLIGATIONS |
|
122,790 |
|
153,118 |
|
||
|
|
|
|
|
|
||
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
||
|
|
|
|
|
|
||
MINORITY INTEREST |
|
18,701 |
|
16,904 |
|
||
REDEEMABLE COMMON AND PREFERRED STOCK AND STOCK UNITS |
|
771,207 |
|
832,624 |
|
||
NOTES RECEIVABLE FROM STOCKHOLDERS |
|
(36,552 |
) |
|
|
||
REDEEMABLE PREFERRED STOCK, Class F47,000 authorized, issued and outstanding as of September 30, 2006 and March 31, 2007, $2,500 liquidation preference value per share |
|
117,500 |
|
117,500 |
|
||
REDEEMABLE PREFERRED STOCK, Class G47,000 authorized, issued and outstanding as of September 30, 2006 and March 31, 2007, $2,500 liquidation preference value per share |
|
117,500 |
|
117,500 |
|
||
|
|
|
|
|
|
||
STOCKHOLDERS DEFICIT: |
|
|
|
|
|
||
Additional paid-in capital |
|
(254,225 |
) |
(289,790 |
) |
||
Accumulated other comprehensive loss |
|
(36,669 |
) |
(29,495 |
) |
||
Retained earnings |
|
|
|
21,111 |
|
||
TOTAL STOCKHOLDERS DEFICIT |
|
(290,894 |
) |
(298,174 |
) |
||
|
|
|
|
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT |
|
$ |
1,825,774 |
|
$ |
2,076,196 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)
3
AECOM Technology Corporation
Condensed Consolidated Statements of Income
(unauditedin thousands, except per share data)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
858,930 |
|
$ |
1,083,709 |
|
$ |
1,605,727 |
|
$ |
2,022,258 |
|
Cost of revenue |
|
629,907 |
|
799,838 |
|
1,176,665 |
|
1,489,968 |
|
||||
Gross profit |
|
229,023 |
|
283,871 |
|
429,062 |
|
532,290 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings of joint ventures |
|
893 |
|
2,219 |
|
2,563 |
|
3,636 |
|
||||
General and administrative expenses |
|
204,838 |
|
248,146 |
|
381,821 |
|
467,974 |
|
||||
Income from operations |
|
25,078 |
|
37,944 |
|
49,804 |
|
67,952 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Minority interest in share of earnings |
|
3,530 |
|
3,648 |
|
5,481 |
|
5,234 |
|
||||
Gain on the sale of equity investment |
|
|
|
|
|
|
|
11,286 |
|
||||
Interest expense net |
|
4,067 |
|
2,228 |
|
7,790 |
|
3,303 |
|
||||
Income before income tax expense |
|
17,481 |
|
32,068 |
|
36,533 |
|
70,701 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income tax expense |
|
5,594 |
|
10,870 |
|
11,691 |
|
23,983 |
|
||||
Net income |
|
$ |
11,887 |
|
$ |
21,198 |
|
$ |
24,842 |
|
$ |
46,718 |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocation: |
|
|
|
|
|
|
|
|
|
||||
Preferred stock dividend |
|
$ |
663 |
|
$ |
87 |
|
$ |
2,047 |
|
$ |
116 |
|
Net income available for common stockholders |
|
11,224 |
|
21,111 |
|
22,795 |
|
46,602 |
|
||||
Net income |
|
$ |
11,887 |
|
$ |
21,198 |
|
$ |
24,842 |
|
$ |
46,718 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.21 |
|
$ |
0.37 |
|
$ |
0.43 |
|
$ |
0.82 |
|
Diluted |
|
$ |
0.17 |
|
$ |
0.27 |
|
$ |
0.37 |
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
53,676 |
|
56,331 |
|
53,482 |
|
56,965 |
|
||||
Diluted |
|
70,306 |
|
77,964 |
|
67,765 |
|
78,500 |
|
Condensed
Consolidated Statements of Comprehensive Income
(unauditedin thousands)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
||||
Net income |
|
$ |
11,887 |
|
$ |
21,198 |
|
$ |
24,842 |
|
$ |
46,718 |
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustments |
|
2,509 |
|
4,199 |
|
786 |
|
7,174 |
|
||||
Other comprehensive income |
|
2,509 |
|
4,199 |
|
786 |
|
7,174 |
|
||||
Comprehensive income |
|
$ |
14,396 |
|
$ |
25,397 |
|
$ |
25,628 |
|
$ |
53,892 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)
4
AECOM
Technology Corporation
Condensed Consolidated Statements of Cash Flows
(unauditedin thousands)
|
|
Six Months Ended |
|
||||
|
|
2006 |
|
2007 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
Net income |
|
$ |
24,842 |
|
$ |
46,718 |
|
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
17,982 |
|
18,972 |
|
||
Equity in earnings of unconsolidated joint ventures |
|
(2,563 |
) |
(3,636 |
) |
||
Distribution of earnings from unconsolidated joint ventures |
|
4,809 |
|
4,068 |
|
||
Stock match and other non-cash stock compensation |
|
6,350 |
|
13,143 |
|
||
Write-off of deferred financing costs |
|
2,100 |
|
|
|
||
Interest income on notes from stockholders |
|
(1,036 |
) |
(754 |
) |
||
Foreign currency translation |
|
2,360 |
|
1,490 |
|
||
Gain on sale of equity investment |
|
|
|
(11,286 |
) |
||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
||
Accounts receivable |
|
(101,821 |
) |
(75,211 |
) |
||
Prepaid expenses and other assets |
|
2,099 |
|
(11,869 |
) |
||
Accounts payable |
|
49,103 |
|
(11,395 |
) |
||
Accrued expenses and other current liabilities |
|
(4,730 |
) |
31,928 |
|
||
Billings in excess of costs on uncompleted contracts |
|
(2,116 |
) |
51,903 |
|
||
Income taxes payable |
|
(3,291 |
) |
(171 |
) |
||
Other long-term obligations |
|
4,279 |
|
(170 |
) |
||
Net cash (used in)/provided by operating activities |
|
(1,633 |
) |
53,730 |
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
Payments for business acquisitions, net of cash acquired |
|
(34,089 |
) |
(125,797 |
) |
||
Proceeds from the sale of equity investment |
|
|
|
14,683 |
|
||
Net investments in unconsolidated joint ventures |
|
687 |
|
712 |
|
||
Payments for capital expenditures |
|
(13,210 |
) |
(18,642 |
) |
||
Proceeds on sale of property and equipment |
|
416 |
|
|
|
||
Net cash used in investing activities |
|
(46,196 |
) |
(129,044 |
) |
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
Proceeds from borrowings under credit agreements |
|
142,014 |
|
51,858 |
|
||
Repayments of borrowings under other long-term obligations |
|
(175,316 |
) |
(8,500 |
) |
||
Proceeds from issuance of common stock and preferred stock |
|
31,132 |
|
42,157 |
|
||
Proceeds from issuance of stock upon exercise of stock options |
|
4,646 |
|
2,933 |
|
||
Net proceeds from the issuance of Class F and Class G preferred stock |
|
232,120 |
|
|
|
||
Repurchase of Class D preferred stock |
|
(116,486 |
) |
|
|
||
Repayment of notes receivable from stockholders |
|
1,039 |
|
22,663 |
|
||
Payments to repurchase common stock and common stock units |
|
(47,056 |
) |
(48,455 |
) |
||
Payments of dividends on convertible preferred stock |
|
(1,900 |
) |
|
|
||
Net cash provided by financing activities |
|
70,193 |
|
62,656 |
|
||
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
(383 |
) |
1,052 |
|
||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
21,981 |
|
(11,606 |
) |
||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
54,352 |
|
127,870 |
|
||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
76,333 |
|
$ |
116,264 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)
5
AECOM
Technology Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying condensed consolidated balance sheet as of March 31, 2007, the condensed consolidated statements of income for the three and six months ended March 31, 2006 and 2007, and the condensed consolidated statements of cash flows for the six months ended March 31, 2006 and 2007 of AECOM Technology Corporation, or the Company, are unaudited, and, in the opinion of management, include all adjustments necessary for a fair statement of the financial position and the results of operations for the periods presented.
The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Amendment No. 3 to Form S-1 as filed with the Securities and Exchange Commission on May 7, 2007 for the fiscal year ended September 30, 2006. Certain prior year amounts have been reclassified to conform to the current year presentation.
The results of operations for the three and six months ended March 31, 2007 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2007.
All share and per share amounts reflect, on a retroactive basis, the 2-for-1 stock split effected in the form of a 100% stock dividend wherein one additional share of stock was issued effective May 4, 2007 for each share outstanding as of the record date of May 4, 2007.
2. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents, including cash in consolidated joint ventures, totaled $127.9 million and $116.3 million as of September 30, 2006 and March 31, 2007, respectively.
3. Accounts ReceivableNet
Net accounts receivable consisted of the following as of September 30, 2006 and March 31, 2007:
|
September 30, |
|
March 31, |
|
|||
|
|
(in thousands) |
|
||||
Billed |
|
$ |
543,606 |
|
$ |
600,120 |
|
Unbilled |
|
372,034 |
|
439,435 |
|
||
Contract retentions |
|
38,921 |
|
46,568 |
|
||
Total accounts receivablegross |
|
954,561 |
|
1,086,123 |
|
||
Allowance for doubtful accounts |
|
(41,383 |
) |
(46,044 |
) |
||
Total accounts receivablenet |
|
$ |
913,178 |
|
$ |
1,040,079 |
|
Billings in excess of costs on uncompleted contracts |
|
$ |
143,283 |
|
$ |
200,891 |
|
Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the fiscal period end. Substantially all unbilled receivables as of September 30, 2006 and March 31, 2007 are expected to be billed and collected within twelve months. Contract retentions represent amounts invoiced to clients; however payments have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project. These retention agreements vary from project to project and could be outstanding several months or years.
Allowances for doubtful accounts have been determined through specific identification of amounts determined to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss is determined to be probable based on current and historical events and circumstances.
Other than the U.S. government, no single client accounted for more than 10% of the Companys accounts receivable as of September 30, 2006 or March 31, 2007.
6
4. Goodwill and Acquired Intangible Assets
The changes in the carrying value of goodwill by reporting unit for the six months ended March 31, 2007 were as follows:
|
|
September 30, |
|
Post- |
|
Acquired |
|
March 31, |
|
||||
|
|
(in thousands) |
|
||||||||||
Professional Technical Services |
|
$ |
457,575 |
|
$ |
1,239 |
|
$ |
67,328 |
|
$ |
526,142 |
|
Management Support Services |
|
8,933 |
|
(500 |
) |
|
|
8,433 |
|
||||
Total |
|
$ |
466,508 |
|
$ |
739 |
|
$ |
67,328 |
|
$ |
534,575 |
|
The gross amounts and accumulated amortization of the Companys acquired identifiable intangible assets with finite useful lives as of September 30, 2006 and March 31, 2007 included in intangible and other assetsnet in the accompanying condensed consolidated balance sheets, were as follows:
|
|
September 30, 2006 |
|
March 31, 2007 |
|
||||||||
|
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
|
||||
|
|
(in thousands) |
|
||||||||||
Backlog |
|
$ |
16,687 |
|
$ |
15,254 |
|
$ |
34,916 |
|
$ |
20,125 |
|
Customer Relationships |
|
18,179 |
|
2,180 |
|
31,228 |
|
3,410 |
|
||||
Trade-Names |
|
899 |
|
163 |
|
1,762 |
|
303 |
|
||||
Total |
|
$ |
35,765 |
|
$ |
17,597 |
|
$ |
67,906 |
|
$ |
23,838 |
|
At the time of acquisition, the Company estimates the amount of the identifiable intangible assets aquired based upon historical valuations and the facts and circumstances available at the time. The Company concludes the value of the identifiable intangible assets during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition. However, based upon the date of acquision, the purchase allocation period may cross into subsequent fiscal periods.
The following table presents estimated amortization expense for the remainder of fiscal 2007 and for the succeeding years:
|
(in thousands) |
|
||
2007 |
|
$ |
11,068 |
|
2008 |
|
8,952 |
|
|
2009 |
|
3,481 |
|
|
2010 |
|
3,471 |
|
|
2011 |
|
3,328 |
|
|
Thereafter |
|
13,768 |
|
|
Total |
|
$ |
44,068 |
|
5. Disclosures About Pension Benefit Obligations
The Companys pension cost for the three and six months ended March 31, 2006 and 2007 includes the following components (in thousands):
U.S. Plans |
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
||||
Service costs |
|
$ |
765 |
|
$ |
651 |
|
$ |
1,530 |
|
$ |
1,302 |
|
Interest cost on projected benefit obligation |
|
1,678 |
|
1,876 |
|
3,356 |
|
3,752 |
|
||||
Expected return on plan assets |
|
(1,621 |
) |
(1,719 |
) |
(3,242 |
) |
(3,438 |
) |
||||
Amortization of prior service costs |
|
(290 |
) |
(289 |
) |
(580 |
) |
(578 |
) |
||||
Amortization of net loss |
|
1,433 |
|
982 |
|
2,866 |
|
1,964 |
|
||||
Net periodic benefit cost |
|
$ |
1,965 |
|
$ |
1,501 |
|
$ |
3,930 |
|
$ |
3,002 |
|
7
Non-U.S. Plans |
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
||||
Service costs |
|
$ |
1,316 |
|
$ |
1,245 |
|
$ |
2,632 |
|
$ |
2,463 |
|
Interest cost on projected benefit obligation |
|
3,812 |
|
4,378 |
|
7,624 |
|
8,660 |
|
||||
Expected return on plan assets |
|
(3,427 |
) |
(4,047 |
) |
(6,854 |
) |
(8,007 |
) |
||||
Amortization of prior service costs |
|
(220 |
) |
(428 |
) |
(440 |
) |
(525 |
) |
||||
Amortization of net gain |
|
1,459 |
|
970 |
|
2,918 |
|
1,919 |
|
||||
Curtailment gain recognized |
|
|
|
(2,646 |
) |
|
|
(2,646 |
) |
||||
Net periodic benefit cost |
|
$ |
2,940 |
|
$ |
(528 |
) |
$ |
5,880 |
|
$ |
1,864 |
|
The total amounts of employer contributions paid for the three and six months ended March 31, 2007 were $0.0 and $0.1 million, respectively, for U.S. subsidiaries and $3.9 and $7.7 million, respectively for non-U.S. subsidiaries. The expected remaining scheduled annual employer contributions for fiscal year September 30, 2007 are $3.2 million for U.S. subsidiaries and $7.6 million for non-U.S. subsidiaries.
6. Reportable Segments
The Companys management has organized the Companys operations 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.
Management internally analyzes the results of the Companys 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. All inter-company balances and transactions are eliminated in consolidation.
The following tables set forth summarized financial information concerning the Companys reportable segments:
Reportable Segments: |
|
Professional |
|
Management |
|
Total |
|
|||
|
|
(in thousands) |
|
|||||||
Three Months Ended March 31, 2006: |
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
707,357 |
|
$ |
151,168 |
|
$ |
858,525 |
|
Revenue, net of other direct costs |
|
455,424 |
|
32,683 |
|
488,107 |
|
|||
Gross profit |
|
219,761 |
|
10,741 |
|
230,502 |
|
|||
Gross profit as a % of revenue |
|
31.1 |
% |
7.1 |
% |
26.8 |
% |
|||
Gross profit as a % of revenue, net of other direct costs |
|
48.3 |
% |
32.9 |
% |
47.2 |
% |
|||
Equity in earnings of joint ventures |
|
656 |
|
236 |
|
892 |
|
|||
General and administrative expenses |
|
191,153 |
|
4,196 |
|
195,349 |
|
|||
Segment income from operations |
|
29,264 |
|
6,781 |
|
36,045 |
|
|||
Three Months Ended March 31, 2007: |
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
841,019 |
|
$ |
240,491 |
|
$ |
1,081,510 |
|
Revenue, net of other direct costs |
|
558,978 |
|
28,624 |
|
587,602 |
|
|||
Gross profit |
|
273,193 |
|
12,842 |
|
286,035 |
|
|||
Gross profit as a % of revenue |
|
32.5 |
% |
5.3 |
% |
26.4 |
% |
|||
Gross profit as a % of revenue, net of other direct costs |
|
48.9 |
% |
44.9 |
% |
48.7 |
% |
|||
Equity in earnings of joint ventures |
|
622 |
|
1,538 |
|
2,160 |
|
|||
General and administrative expenses |
|
232,264 |
|
6,035 |
|
238,299 |
|
|||
Segment income from operations |
|
41,551 |
|
8,345 |
|
49,896 |
|
|||
Segment assets |
|
1,875,898 |
|
125,420 |
|
2,001,318 |
|
8
Reportable Segments: |
|
Professional |
|
Management |
|
Total |
|
|||
|
|
(in thousands) |
|
|||||||
Six Months Ended March 31, 2006: |
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
1,319,621 |
|
$ |
285,647 |
|
$ |
1,605,268 |
|
Revenue, net of other direct costs |
|
855,024 |
|
46,257 |
|
901,281 |
|
|||
Gross profit |
|
411,892 |
|
17,361 |
|
429,253 |
|
|||
Gross profit as a % of revenue |
|
31.2 |
% |
6.1 |
% |
26.7 |
% |
|||
Gross profit as a % of revenue, net of other direct costs |
|
48.2 |
% |
37.5 |
% |
47.6 |
% |
|||
Equity in earnings of joint ventures |
|
1,405 |
|
1,157 |
|
2,562 |
|
|||
General and administrative expenses |
|
359,546 |
|
8,310 |
|
367,856 |
|
|||
Segment income from operations |
|
53,751 |
|
10,208 |
|
63,959 |
|
|||
Six Months Ended March 31, 2007: |
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
1,594,564 |
|
$ |
425,171 |
|
$ |
2,019,735 |
|
Revenue, net of other direct costs |
|
1,041,760 |
|
48,710 |
|
1,090,470 |
|
|||
Gross profit |
|
513,229 |
|
20,959 |
|
534,188 |
|
|||
Gross profit as a % of revenue |
|
32.2 |
% |
4.9 |
% |
26.4 |
% |
|||
Gross profit as a % of revenue, net of other direct costs |
|
49.3 |
% |
43.0 |
% |
49.0 |
% |
|||
Equity in earnings of joint ventures |
|
1,014 |
|
3,740 |
|
4,754 |
|
|||
General and administrative expenses |
|
435,943 |
|
11,806 |
|
447,749 |
|
|||
Segment income from operations |
|
78,300 |
|
12,893 |
|
91,193 |
|
|||
Segment assets |
|
1,875,898 |
|
125,420 |
|
2,001,318 |
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
Reconciliations: |
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
||||
|
|
(in thousands) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
||||
Revenue from reportable segments |
|
$ |
858,525 |
|
$ |
1,081,510 |
|
$ |
1,605,268 |
|
$ |
2,019,735 |
|
Other revenue |
|
405 |
|
2,199 |
|
459 |
|
2,523 |
|
||||
Total consolidated revenue |
|
$ |
858,930 |
|
$ |
1,083,709 |
|
$ |
1,605,727 |
|
$ |
2,022,258 |
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit: |
|
|
|
|
|
|
|
|
|
||||
Gross profit from reportable segments |
|
$ |
230,502 |
|
$ |
286,035 |
|
$ |
429,253 |
|
$ |
534,188 |
|
Other |
|
(1,479 |
) |
(2,164 |
) |
(191 |
) |
(1,898 |
) |
||||
Total consolidated gross profit |
|
$ |
229,023 |
|
$ |
283,871 |
|
$ |
429,062 |
|
$ |
532,290 |
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings of joint ventures: |
|
|
|
|
|
|
|
|
|
||||
Equity in earnings of joint ventures from reportable Segments |
|
$ |
892 |
|
$ |
2,160 |
|
$ |
2,562 |
|
$ |
4,754 |
|
Other equity in earnings of joint ventures |
|
1 |
|
59 |
|
1 |
|
(1,118 |
) |
||||
Total consolidated equity in earnings of joint ventures |
|
$ |
893 |
|
$ |
2,219 |
|
$ |
2,563 |
|
$ |
3,636 |
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses: |
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses of reportable segments |
|
$ |
195,349 |
|
$ |
238,299 |
|
$ |
367,856 |
|
$ |
447,749 |
|
Unallocated corporate general and administrative expense |
|
9,489 |
|
9,847 |
|
13,965 |
|
20,225 |
|
||||
Total consolidated general and administrative expense |
|
$ |
204,838 |
|
$ |
248,146 |
|
$ |
381,821 |
|
$ |
467,974 |
|
|
|
|
|
|
|
|
|
|
|
||||
Income from operations: |
|
|
|
|
|
|
|
|
|
||||
Segment income from operations |
|
$ |
36,045 |
|
$ |
49,896 |
|
$ |
63,959 |
|
$ |
91,193 |
|
Loss from operations not allocated to reportable segments |
|
(10,967 |
) |
(11,952 |
) |
(14,156 |
) |
(23,241 |
) |
||||
Total consolidated income from operations |
|
$ |
25,078 |
|
$ |
37,944 |
|
$ |
49,804 |
|
$ |
67,952 |
|
9
Reconciliations (continued): |
|
March 31, |
|
|
Segment assets: |
|
|
|
|
Total assets of reportable segments |
|
$ |
2,001,318 |
|
Other assets not allocated to reportable segments and eliminations |
|
74,878 |
|
|
Total assets |
|
$ |
2,076,196 |
|
7. Recently Issued Accounting Pronouncements
In February 2007, Financial Accounting Standards Board, or 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 No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal year ending September 30, 2009. The Company is currently evaluating the impact of the provisions of SFAS 159 on its results of operations and financial position.
In September 2006, the FASB, issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). SFAS 158 requires employers to fully recognize the obligations associated with defined benefit pension plans in their financial statements. The Company will be required to recognize such obligations as of September 30, 2007. Additionally, the Company will be required to measure such obligations as of the ned of its fiscal year, rather than up to three months earlier as had been previously permitted, effective in its fiscal year ending September 30, 2009. The Company is currently evaluating the impact of the provisions of SFAS 158 on its results of operations and financial position.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the fiscal year ending September 30, 2009. The Company is currently evaluating the impact of the provisions of SFAS 157 on its results of operations and financial position.
In June 2006, the FASB issued FASB Interpretation FIN, No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements. FIN 48 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Additionally, FIN 48 provides guidance on recognition or de-recognition of interest and penalties, changes in judgment in interim periods, and disclosures of uncertain tax positions. FIN 48 becomes effective for the Company in fiscal year beginning October 1, 2007. The Company is in the process of determining the effect of the adoption of FIN 48 on its results of operations and financial position.
8. Stock-Based Compensation
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R) that requires the Company to expense the value of employee stock options and similar awards. Under SFAS 123R, share-based payment (SBP) awards result in a cost that will be measured at fair value on the awards grant date, based on the estimated number of awards that are expected to vest.
SFAS 123R became effective for the Company on October 1, 2006. Upon adoption of SFAS 123R, the Company adopted the prospective transition method. Under this method, prior periods were not restated to reflect the impact of SFAS 123R. Under SFAS 123R, options and similar awards result in a cost that will be measured at fair value on the SBP awards grant dates, based on the estimated number of awards that are expected to vest. This statement requires that the Company recognize as compensation expense the fair value of all stock-based awards, including stock options, granted to employees and directors
10
in exchange for services over the requisite service period, which is typically the vesting period. SFAS 123R also requires that cash flows resulting from tax benefits realized from stock option exercises or stock vesting events in excess of tax benefits recognized from stock-based compensation expenses be classified as cash flows from financing activities instead of cash flows from operating activities for awards subject to SFAS 123R.
Prior to October 1, 2006, the Company accounted for employee stock-based compensation using the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under the intrinsic value method, no compensation expense was reflected in the statement of income for stock options granted to employees, as all stock options had an exercise price equal to the fair value of the underlying common stock on the date of grant.
Under the prospective transition method, the Company continues to account for options granted prior to October 1, 2006 under the provisions of APB Opinion No. 25. Since all 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 cumulative effect on the Companys results of operations, financial position, or cash flows.
The fair value of the Companys 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 Companys common stock is not publicly-traded, expected volatility is based on a historical volatility, for a period consistent with the expected option term, of publicly-traded peer companies. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond with a maturity equal to the expected term of the option on the grant date. The Company uses historical data as a basis to estimate forfeitures.
The fair value of options granted during the three and six months ended March 31, 2007 was determined using the following weighted average assumptions:
|
Three |
|
Six |
|
|
Dividend yield |
|
|
|
|
|
Expected volatility |
|
25 |
% |
25 |
% |
Risk-free interest rate |
|
4.60 |
% |
4.58 |
% |
Term (in years) |
|
7 |
|
7 |
|
As a result of the adoption of SFAS 123R, the Companys net income for the three and six months ended March 31, 2007 was $0.2 million and $0.3 million, respectively, lower than under the Companys previous accounting method, as a result of recognizing as expense the fair value of stock options.
Stock option activity for the six months ended March 31, 2007 was as follows:
|
Shares of |
|
Weighted |
|
Aggregate |
|
|||
|
|
|
|
|
|
(in thousands) |
|
||
|
|
|
|
|
|
|
|
||
Outstanding at September 30, 2006 |
|
8,928,640 |
|
$ |
8.42 |
|
$ |
75,213 |
|
Options granted |
|
548,620 |
|
14.13 |
|
7,755 |
|
||
Options forfeited or expired |
|
24,466 |
|
13.62 |
|
333 |
|
||
Options exercised |
|
383,182 |
|
7.60 |
|
2,912 |
|
||
Outstanding at March 31, 2007 |
|
9,069,612 |
|
8.79 |
|
$ |
79,723 |
|
|
|
|
|
|
|
|
|
|
||
Vested and expected to vest in the future as of March 31, 2007 |
|
9,059,060 |
|
$ |
8.78 |
|
$ |
79,568 |
|
The weighted average grant-date fair value of stock options granted during the six months ended March 31, 2007 was $5.53.
11
9. Earnings Per Share
Basic earnings per share, or EPS, excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding and dilutive potential common shares for the period. The Company includes as potential common shares the weighted average dilutive effects of outstanding stock options using the treasury stock method.
The following table sets forth the number of weighted average shares used to compute basic and diluted EPS:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
||||
|
|
(in thousands, except per share data) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
11,887 |
|
$ |
21,198 |
|
$ |
24,842 |
|
$ |
46,718 |
|
Preferred stock dividends |
|
663 |
|
87 |
|
2,047 |
|
116 |
|
||||
Net income available for common stockholders |
|
$ |
11,224 |
|
$ |
21,111 |
|
$ |
22,795 |
|
$ |
46,602 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Weighted average shares |
|
53,676 |
|
56,331 |
|
53,482 |
|
56,965 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Numerator for diluted earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
11,887 |
|
$ |
21,198 |
|
$ |
24,842 |
|
$ |
46,718 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic earnings per share |
|
53,676 |
|
56,331 |
|
53,482 |
|
56,965 |
|
||||
Potential common shares: |
|
|
|
|
|
|
|
|
|
||||
Preferred stock, Class D |
|
3,701 |
|
|
|
6,331 |
|
|
|
||||
Preferred stock, Class F and G |
|
10,215 |
|
18,747 |
|
5,107 |
|
18,747 |
|
||||
Stock options |
|
2,150 |
|
2,462 |
|
2,176 |
|
2,348 |
|
||||
Preferred stock, other |
|
369 |
|
395 |
|
390 |
|
391 |
|
||||
Stock matches |
|
33 |
|
19 |
|
29 |
|
36 |
|
||||
Stock units |
|
16 |
|
10 |
|
14 |
|
13 |
|
||||
Stock warrants |
|
146 |
|
|
|
236 |
|
|
|
||||
Denominator for diluted earnings per share |
|
70,306 |
|
77,964 |
|
67,765 |
|
78,500 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.21 |
|
$ |
0.37 |
|
$ |
0.43 |
|
$ |
0.82 |
|
Diluted |
|
$ |
0.17 |
|
$ |
0.27 |
|
$ |
0.37 |
|
$ |
0.60 |
|
For the three and six months ended March 31, 2006 and 2007, no options were excluded from the calculation or were considered anti-dilutive.
10. Stock Plans
During the six months ended March 31, 2007, the Companys Global Stock Program, or GSP, sold to the Company 1.6 million shares for $21.4 million as compared to 1.7 million for $20.0 million during the six months ended March 31, 2006. During the six months ended March 31, 2007, the Companys Stock Purchase Plan, or SPP, sold to the Company 0.7 million shares for $10.0 million as compared to 0.6 million shares for $8.3 million during the six months ended March 31, 2006. During the six months ended March 31, 2007, direct shareholders sold to the Company 1.2 million shares for $16.1 million as compared to 1.3 million shares for $17.6 million during the six months ended March 31, 2006.
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
12
considered a probable loss. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the financial position of the Company.
At March 31, 2007, the Company was contingently liable in the amount of approximately $47.9 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 be required to complete those activities. The Company generally only enters into joint venture arrangements with partners who are reputable, financially sound and who carry appropriate levels of surety bonds for the project in order to adequately assure completion of their assignments. The Company is a partner in certain joint ventures where the joint venture has contracted with subconsultants for certain specialized professional services. The joint venture, or the Company to the extent that the joint venture partner(s) are unable to fulfill their responsibilities, is liable to the third-party customer for performance of the sub-consultant and would be liable to the sub-consultant if the third-party customer failed to make payments due the joint venture for sub-consultant services.
12. Subsequent Event
The Companys board of directors approved a two-for-one stock split, effected as a 100-percent dividend on the Companys common stock, effective May 4, 2007. All share and per share amounts presented have been adjusted accordingly, on a retroactive basis, to reflect this stock dividend.
On May 7, 2007, the Company filed Amendment No. 3 to its registration statement on Form S-1 for the initial public offering of its common stock. The amendment contained, among other things, financial information for the fiscal period ended March 31, 2007, information on the proposed offering, an indicative price range and the intended use of proceeds from the proposed offering, including repayment of certain existing debt obligations described in this Quarterly Report.
13
Item 2. Managements 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 governments 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 regulation 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, attention is directed to Part II, Item 1A Risk Factors in this Quarterly Report and the disclosure under the captions Risk Factors, Special Note Regarding Forward-Looking Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations in Amendment No. 3 to our previously filed Form S-1 for a discussion of the factors, risks and uncertainties that could affect our future results.
Overview
We are a leading global provider of professional technical and management support services for commercial and government clients around the world. We provide our services in a broad range of end markets and strategic geographic markets through a global network of operating offices and more than 30,000 employees and staff employed in the field on a project-by-project basis.
Our business focuses primarily on providing fee-based professional technical and support services and, as such, we are labor and not capital intensive. We derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees time and our ability to manage our costs. We operate our business through two segments: Professional Technical Services (PTS) and Management Support Services (MSS).
Our PTS segment delivers planning, consulting, architecture and engineering design, and program and construction management services to institutional, commercial and government clients worldwide in major end markets such as transportation, facilities and environmental markets. PTS revenue is primarily derived from fees from services that we provide, as opposed to pass-through fees from subcontractors and other direct costs. As a percentage of PTS revenue, our other direct costs, including subcontractor and consultant costs, typically range from 30% to 38%. Our gross margin as a percentage of PTS revenue typically ranges from 30% to 32%, depending on the nature and scope of the underlying projects.
Our MSS segment provides facilities management and maintenance, training, logistics, consulting, technical assistance and systems integration services, primarily for agencies of the U.S. government. MSS revenue typically includes a significant amount of pass-through fees from subcontractor and other direct costs. As a percentage of MSS revenue, other direct costs, including subcontractor, consultants and material costs typically range from 85% to 87%. Our gross margin as a percentage of MSS revenue typically ranges from 3% to 5%, depending on the level of other direct costs required, which can vary significantly from period to period.
In summary, our revenue is dependent on our ability to attract qualified and productive employees, identify business opportunities, allocate our labor resources to profitable markets, secure new contracts, renew existing client agreements and provide outstanding services. Moreover, as a professional services company, the quality of the work generated by our employees is integral to our revenue generation.
Our costs are driven primarily by the compensation we pay to our employees, including fringe benefits, the cost of hiring subcontractors and other project-related expenses, and sales and general and administrative overhead costs.
14
Components of Income and Expense
Our management analyzes the results of our operations using two financial measures that are not in accordance with generally accepted accounting principles in the United States (GAAP): revenue, net of other direct costs and cost of revenue, net of other direct costs.
The following table presents, for the periods indicated, a presentation of the non-GAAP financial measures reconciled to the closest GAAP measure:
|
|
Year Ended September 30, |
|
Six Months |
|
|||||||||||||||||
|
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2006 |
|
2007 |
|
|||||||
|
|
(in millions) |
|
|||||||||||||||||||
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Revenue |
|
$ |
1,747 |
|
$ |
1,915 |
|
$ |
2,012 |
|
$ |
2,395 |
|
$ |
3,421 |
|
$ |
1,606 |
|
$ |
2,022 |
|
Other direct costs |
|
671 |
|
725 |
|
776 |
|
933 |
|
1,521 |
|
701 |
|
929 |
|
|||||||
Revenue, net of other direct costs |
|
1,076 |
|
1,190 |
|
1,236 |
|
1,462 |
|
1,900 |
|
905 |
|
1,093 |
|
|||||||
Cost of revenue, net of other direct costs |
|
598 |
|
656 |
|
667 |
|
785 |
|
994 |
|
476 |
|
561 |
|
|||||||
Gross profit |
|
478 |
|
534 |
|
569 |
|
677 |
|
906 |
|
429 |
|
532 |
|
|||||||
Equity in earnings of joint ventures |
|
1 |
|
2 |
|
3 |
|
2 |
|
7 |
|
3 |
|
4 |
|
|||||||
Amortization expense of acquired intangible assets |
|
|
|
|
|
|
|
3 |
|
15 |
|
6 |
|
6 |
|
|||||||
Other general and administrative expenses |
|
430 |
|
467 |
|
485 |
|
578 |
|
795 |
|
376 |
|
462 |
|
|||||||
General and administrative expenses |
|
430 |
|
467 |
|
485 |
|
581 |
|
810 |
|
382 |
|
468 |
|
|||||||
Income from operations |
|
$ |
49 |
|
$ |
69 |
|
$ |
87 |
|
$ |
98 |
|
$ |
103 |
|
$ |
50 |
|
$ |
68 |
|
Reconciliation of Cost of Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other direct costs |
|
$ |
671 |
|
$ |
725 |
|
$ |
776 |
|
$ |
933 |
|
$ |
1,521 |
|
$ |
701 |
|
$ |
929 |
|
Cost of revenue, net of other direct costs |
|
598 |
|
656 |
|
667 |
|
785 |
|
994 |
|
476 |
|
561 |
|
|||||||
Cost of revenue |
|
$ |
1,269 |
|
$ |
1,381 |
|
$ |
1,443 |
|
$ |
1,718 |
|
$ |
2,515 |
|
$ |
1,177 |
|
$ |
1,490 |
|
Results of Operations
Consolidated Results
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||||||||||
|
|
March 31, |
|
March 31, |
|
Change |
|
March 31, |
|
March 31, |
|
Change |
|
||||||||||
|
|
2006 |
|
2007 |
|
$ |
|
% |
|
2006 |
|
2007 |
|
$ |
|
% |
|
||||||
|
|
($ in thousands) |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revenue |
|
$ |
858,930 |
|
$ |
1,083,709 |
|
$ |
224,779 |
|
26.2 |
% |
$ |
1,605,727 |
|
$ |
2,022,258 |
|
$ |
416,531 |
|
25.9 |
% |
Other direct costs |
|
369,089 |
|
494,225 |
|
125,136 |
|
33.9 |
|
700,538 |
|
929,642 |
|
229,104 |
|
32.7 |
|
||||||
Revenue, net of other direct costs |
|
489,841 |
|
589,484 |
|
99,643 |
|
20.3 |
|
905,189 |
|
1,092,616 |
|
187,427 |
|
20.7 |
|
||||||
Cost of revenue, net of other direct costs |
|
260,818 |
|
305,613 |
|
44,795 |
|
17.2 |
|
476,127 |
|
560,326 |
|
84,199 |
|
17.7 |
|
||||||
Gross profit |
|
229,023 |
|
283,871 |
|
54,848 |
|
23.9 |
|
429,062 |
|
532,290 |
|
103,228 |
|
24.1 |
|
||||||
Equity in earnings of joint ventures |
|
893 |
|
2,219 |
|
1,326 |
|
148.5 |
|
2,563 |
|
3,636 |
|
1,073 |
|
41.9 |
|
||||||
General and administrative expense |
|
204,838 |
|
248,146 |
|
43,308 |
|
21.1 |
|
381,821 |
|
467,974 |
|
86,153 |
|
22.6 |
|
||||||
Income from operations |
|
25,078 |
|
37,944 |
|
12,866 |
|
51.3 |
|
49,804 |
|
67,952 |
|
18,148 |
|
36.4 |
|
||||||
Minority interest in share of earnings |
|
3,530 |
|
3,648 |
|
118 |
|
3.3 |
|
5,481 |
|
5,234 |
|
(247 |
) |
(4.5 |
) |
||||||
Gain on sale of equity investment |
|
|
|
|
|
|
|
|
|
|
|
11,286 |
|
11,286 |
|
|
|
||||||
Interest expense net |
|
4,067 |
|
2,228 |
|
(1,839 |
) |
(45.2 |
) |
7,790 |
|
3,303 |
|
(4,487 |
) |
(57.6 |
) |
||||||
Income before income tax expense |
|
17,481 |
|
32,068 |
|
14,587 |
|
83.4 |
|
36,533 |
|
70,701 |
|
34,168 |
|
93.5 |
|
||||||
Income tax expense |
|
5,594 |
|
10,870 |
|
5,276 |
|
94.3 |
|
11,691 |
|
23,983 |
|
12,292 |
|
105.1 |
|
||||||
Net income |
|
$ |
11,887 |
|
$ |
21,198 |
|
$ |
9,311 |
|
78.3 |
% |
$ |
24,842 |
|
$ |
46,718 |
|
$ |
21,876 |
|
88.1 |
% |
15
The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||
|
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
Revenue, net of other direct costs |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Cost of revenue, net of other direct costs |
|
53.3 |
|
51.8 |
|
52.6 |
|
51.3 |
|
Gross profit |
|
46.7 |
|
48.2 |
|
47.4 |
|
48.7 |
|
Equity in earnings of joint ventures |
|
0.2 |
|
0.3 |
|
0.3 |
|
0.3 |
|
General and administrative expense |
|
41.8 |
|
42.1 |
|
42.2 |
|
42.8 |
|
Income from operations |
|
5.1 |
|
6.4 |
|
5.5 |
|
6.2 |
|
Minority interest in share of earnings |
|
0.7 |
|
0.6 |
|
0.6 |
|
0.5 |
|
Gain on sale of equity investment |
|
0.0 |
|
0.0 |
|
0.0 |
|
1.0 |
|
Interest expense net |
|
0.8 |
|
0.4 |
|
0.9 |
|
0.2 |
|
Income before income tax expense |
|
3.6 |
|
5.4 |
|
4.0 |
|
6.5 |
|
Income tax expense |
|
1.2 |
|
1.8 |
|
1.3 |
|
2.2 |
|
Net income |
|
2.4 |
% |
3.6 |
% |
2.7 |
% |
4.3 |
% |
Revenue
For the three months ended March 31, 2007, revenue increased $224.8 million, or 26.2%, to $1.1 billion as compared to $858.9 million for the three months ended March 31, 2006. Of this increase, $59.6 million, or 26.5% was provided by companies acquired in the past twelve months. Excluding revenue provided by companies acquired in the past 12 months, revenue increased $165.2 million, or 19.2%. This increase was primarily attributable to increased government and private sector spending for infrastructure development in Australia and Canada as a result of continued economic growth in these regions; growth in our building and transportation business in the United Kingdom and significant growth in our combat support and global maintenance and supply services for the Department of Defense.
For the six months ended March 31, 2007, revenue increased $416.5 million, or 25.9%, to $2.0 billion as compared to $1.6 billion for the six months ended March 31, 2006. Of this increase, $110.4 million, or 26.5% was provided by companies acquired in the past twelve months. Excluding revenue provided by companies acquired in the past 12 months, revenue increased $306.2 million, or 19.1%. This increase was primarily attributable to the factors mentioned above.
Revenue, Net of Other Direct Costs
For the three months ended March 31, 2007, revenue, net of other direct costs increased $99.6 million, or 20.3%, to $589.5 million as compared to $489.8 million for the three months ended March 31, 2006. Of this increase, $49.5 million, or 49.6% was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by companies acquired in the past 12 months, revenue, net of other direct costs increased $50.2 million, or 10.3%. This increase was primarily attributable to continued economic growth factors noted above.
For the six months ended March 31, 2007, revenue, net of other direct costs increased $187.4 million, or 20.7%, to $1.1 billion as compared to $905.2 million for the six months ended March 31, 2006. Of this increase, $87.0 million, or 46.4% was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by companies acquired in the past 12 months, revenue, net of other direct costs increased $100.4 million, or 11.1%. This increase was primarily attributable to the factors mentioned above.
Cost of Revenue, Net of Other Direct Costs
For the three months ended March 31, 2007, cost of revenue, net of other direct costs increased $44.8 million, or 17.2%, to $305.6 million as compared to $260.8 million for the three months ended March 31, 2006. Of this increase, $22.7 million, or 50.7% was incurred by companies acquired in the past 12 months. Excluding cost of revenue, net of other direct costs associated with companies acquired in the past twelve months, cost of revenue, net of other direct costs increased $22.1 million, or 8.5%. Included in cost of revenue, net of other direct costs is stock match expense of $2.3 million and $3.7 million for the three months ended March 31, 2007 and 2006, respectively. Most of our cost of revenue, net of other direct costs is employee and employee related costs. As we realize increases in our revenue, net of other direct costs, we will realize corresponding increases in our headcount and employee and related costs. To the extent we increase our billable hours without increasing our headcount, our margins should improve. For the three months ended March 31, 2007, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 51.8% as compared to 53.3% for the three months ended March 31, 2006.
For the six months ended March 31, 2007, cost of revenue, net of other direct costs increased $84.2 million, or 17.7%, to $560.3 million as compared to $476.1 million for the six months ended March 31, 2006. Of this increase, $41.5 million, or
16
49.3% was incurred by companies acquired in the past 12 months. Excluding cost of revenue, net of other direct costs associated with companies acquired in the past twelve months, cost of revenue, net of other direct costs increased $42.7 million, or 9.0%. Included in cost of revenue, net of other direct costs is stock match expense of $5.2 million and $4.7 million for the six months ended March 31, 2007 and March 31, 2006, respectively. For the six months ended March 31, 2007, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 51.3% as compared to 52.6% for the six months ended March 31, 2006.
Gross Profit
For the three months ended March 31, 2007, gross profit increased $54.8 million, or 23.9%, to $283.9 million as compared to $229.0 million for the three months ended March 31, 2006. Of this increase, gross profit provided by companies acquired in the past 12 months was $26.9 million, or 48.9%. Excluding gross profit provided by companies acquired in the past 12 months, gross profit increased $28.0 million, or 12.2%. This increase was primarily attributable to higher gross profit margins in our environmental compliance projects as well as higher margins in certain combat support and global maintenance and supply services. For the three months ended March 31, 2007, gross profit, as a percentage of revenue, net of other direct costs, was 48.2% as compared to 46.7% for the three months ended March 31, 2006.
For the six months ended March 31, 2007, gross profit increased $103.2 million, or 24.1%, to $532.3 million as compared to $429.1 million for the six months ended March 31, 2006. Of this increase, gross profit provided by companies acquired in the past 12 months was $45.5 million, or 44.1%. Excluding gross profit provided by companies acquired in the past 12 months, gross profit increased $57.7 million, or 13.5%. This increase was primarily attributable to the factors mentioned above. For the six months ended March 31, 2007, gross profit, as a percentage of revenue, net of other direct costs, was 48.7% as compared to 47.4% for the six months ended March 31, 2006.
Equity in Earnings of Joint Ventures
For the three months ended March 31, 2007, equity in earnings of joint ventures increased $1.3 million, or 148.5%, to $2.2 million as compared to $0.9 million for the three months ended March 31, 2006 as a result of higher activities in non-consolidated/non-controlled joint ventures.
For the six months ended March 31, 2007, equity in earnings of joint ventures increased $1.0 million, or 41.9%, to $3.6 million as compared to $2.6 million for the six months ended March 31, 2006.
General and Administrative Expenses
For the three months ended March 31, 2007, general and administrative expenses increased $43.3 million, or 21.1%, to $248.1 million as compared to $204.8 million for the three months ended March 31, 2006. For the three months ended March 31, 2007, general and administrative expenses, as a percentage of revenue, net of other direct costs was 42.1% as compared to 41.8% for the three months ended March 31, 2006. The increase was primarily attributable to growth in revenue noted above, increased headcount associated with acquired companies, continued investments throughout the organization to support strategic initiatives and expenses incurred related to our becoming a public reporting company, including Sarbanes-Oxley Act of 2002 (SOX) compliance efforts. Included in general and administrative expenses is amortization expense of acquired intangible assets of $5.6 million and $3.7 million for the three months ended March 31, 2007 and 2006, respectively. Included in general and administrative expenses is stock match expense of $0.7 million and $1.3 million for the three months ended March 31, 2007 and 2006, respectively.
For the six months ended March 31, 2007, general and administrative expenses increased $86.2 million, or 22.6%, to $468.0 million as compared to $381.8 million for the six months ended March 31, 2006. For the six months ended March 31, 2007, general and administrative expenses, as a percentage of revenue, net of other direct costs was 42.8% as compared to 42.2% for the six months ended March 31, 2006. The increase was primarily attributable to the factors mentioned above. Included in general and administrative expenses is amortization expense of acquired intangible assets of $6.3 million and $7.0 million for the six months ended March 31, 2007 and 2006, respectively. Included in general and administrative expenses is stock match expense of $1.7 million and $1.7 million for the six months ended March 31, 2007 and 2006, respectively.
Gain on Sale of Equity Investment
In the six months ended March 31, 2006, we sold our minority interest in an equity investment in the U.K. for 7.5 million GBP, or approximately $14.7 million. Related to this sale, we recorded a gain on the sale of $11.3 million.
Interest Expense Net
For the three months ended March 31, 2007, net interest expense decreased $1.8 million, or 45.2%, to $2.2 million as compared to $4.1 million for the three months ended March 31, 2006. This decrease was primarily attributable to lower borrowings in the three months ended March 31, 2007 as compared to the prior year. In three months ended March 31, 2006, we had higher borrowings under our senior credit facility associated with acquisitions completed in the latter part of fiscal year 2005 and the first quarter of fiscal year 2006, offset by repayment of such debt with the net proceeds from the issuance of our Class F and Class G redeemable preferred stock.
17
For the six months ended March 31, 2007, net interest expense decreased $4.5 million, or 57.6%, to $3.3 million as compared to $7.8 million for the six months ended March 31, 2006. This decrease was primarily attributable to factors described above.
Income Tax Expense
For the three months ended March 31, 2007, income tax expense increased $5.3 million, or 94.3%, to $10.9 million as compared to $5.6 million for the three months ended March 31, 2006. For the six months ended March 31, 2007, income tax expense increased $12.3 million, or 105.1%, to $24.0 million as compared to $11.7 million for the six months ended March 31, 2006. The effective tax rate for the three and six months ending March 31, 2007 was 33.9% as compared to 32.0% for the three and six months ended March 31, 2006.
Net Income
The factors described above resulted in net income of $21.2 million for the three months ended March 31, 2007 as compared to net income of $11.9 for the three months ended March 31, 2006 and $46.7 million for the six months ended March 31, 2007 as compared to net income of $24.8 million for the six months ended March 31, 2006.
Results of Operations by Reportable Segment:
Professional Technical Services
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||||||||||||||
|
|
March 31, |
|
March 31, |
|
Change |
|
March 31, |
|
March 31, |
|
Change |
|
||||||||||||||
|
|
2006 |
|
2007 |
|
$ |
|
% |
|
2006 |
|
2007 |
|
$ |
|
% |
|
||||||||||
|
|
($ in thousands) |
|
||||||||||||||||||||||||
Revenue |
|
$ |
707,357 |
|
$ |
841,019 |
|
$ |
133,662 |
|
|
18.9 |
% |
|
$ |
1,319,621 |
|
$ |
1,594,564 |
|
$ |
274,943 |
|
|
20.8 |
% |
|
Other direct costs |
|
251,933 |
|
282,041 |
|
30,108 |
|
|
12.0 |
|
|
464,597 |
|
552,804 |
|
88,207 |
|
|
19.0 |
|
|
||||||
Revenue, net of other direct costs |
|
455,424 |
|
558,978 |
|
103,554 |
|
|
22.7 |
|
|
855,024 |
|
1,041,760 |
|
186,736 |
|
|
21.8 |
|
|
||||||
Cost of revenue, net of other direct costs |
|
235,663 |
|
285,785 |
|
50,122 |
|
|
21.3 |
|
|
443,132 |
|
528,531 |
|
85,399 |
|
|
19.3 |
|
|
||||||
Gross profit |
|
$ |
219,761 |
|
$ |
273,193 |
|
$ |
53,432 |
|
|
24.3 |
% |
|
$ |
411,892 |
|
$ |
513,229 |
|
$ |
101,337 |
|
|
24.6 |
% |
|
The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
|
Three Months Ended |
|
Six Months Ended |
|
|||||
|
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
Revenue, net of other direct costs |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Cost of revenue, net of other direct costs |
|
51.7 |
|
51.1 |
|
51.8 |
|
50.7 |
|
Gross profit |
|
48.3 |
% |
48.9 |
% |
48.2 |
% |
49.3 |
% |
Revenue
For the three months ended March 31, 2007, PTS revenue increased $133.7 million, or 18.9%, to $841.1 million as compared to $707.4 million for the three months ended March 31, 2006. Of this increase, $59.6 million, or 44.6% was provided by companies acquired in the past twelve months. Excluding revenue provided by companies acquired in the past 12 months, PTS revenue increased $74.0 million, or 10.5%. This increase was primarily attributable to increased government and private sector spending for infrastructure development in Australia and Canada as a result of continued economic growth and growth in our building and transportation business in the U.K.
For the six months ended March 31, 2007, PTS revenue increased $274.9 million, or 20.8%, to $1.6 billion as compared to $1.3 billion for the six months ended March 31, 2006. Of this increase, $110.4 million, or 40.1% was provided by companies acquired in the past twelve months. Excluding revenue provided by companies acquired in the past 12 months, PTS revenue increased $164.6 million, or 12.5%. This increase was primarily attributable to the factors mentioned above.
18
Revenue, Net of Other Direct Costs
For the three months ended March 31, 2007, PTS revenue, net of other direct costs increased $103.6 million, or 22.7%, to $559.0 million as compared to $455.4 million for the three months ended March 31, 2006. Of this increase, $49.5 million, or 47.7% was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by companies acquired in the past 12 months, PTS revenue, net of other direct increased $54.1 million, or 11.9%. This increase was primarily attributable to the factors mentioned above.
For the six months ended March 31, 2007, PTS revenue, net of other direct costs increased $186.7 million, or 21.8%, to $1.0 billion as compared to