UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2008 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission File Number 0-52423 |
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AECOM TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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61-1088522 |
(State or other
jurisdiction of |
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(I.R.S. Employer |
555 South Flower Street, Suite 3700
Los Angeles, California 90071
(Address of principal executive office and zip code)
(213) 593-8000
(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.
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Yes x No o |
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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 |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes o No x |
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As of May 2, 2008, 101,240,332 shares of the registrants common stock were outstanding.
AECOM TECHNOLOGY CORPORATION
INDEX
AECOM Technology Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share data)
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March 31, 2008 |
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September 30, 2007 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
194,127 |
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$ |
180,339 |
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Cash in consolidated joint ventures |
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23,548 |
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36,572 |
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Total cash and cash equivalents |
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217,675 |
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216,911 |
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Marketable securities |
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200,783 |
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Accounts receivable net |
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1,335,191 |
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1,091,682 |
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Prepaid expenses and other current assets |
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56,348 |
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67,087 |
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TOTAL CURRENT ASSETS |
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1,609,214 |
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1,576,463 |
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PROPERTY AND EQUIPMENT: |
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Equipment, furniture and fixtures |
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138,275 |
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120,633 |
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Leasehold improvements |
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65,676 |
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48,504 |
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Total |
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203,951 |
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169,137 |
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Accumulated depreciation and amortization |
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(67,610 |
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(50,935 |
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PROPERTY AND EQUIPMENTNET |
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136,341 |
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118,202 |
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DEFERRED TAX ASSETSNET |
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61,563 |
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61,594 |
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INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES |
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26,280 |
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23,551 |
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GOODWILLNET |
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663,110 |
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592,233 |
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INTANGIBLE ASSETSNET |
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44,497 |
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30,928 |
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OTHER NON-CURRENT ASSETS |
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160,928 |
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88,850 |
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TOTAL ASSETS |
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$ |
2,701,933 |
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$ |
2,491,821 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Short-term debt |
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$ |
2,065 |
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$ |
1,926 |
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Accounts payable and other current liabilities |
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257,250 |
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228,350 |
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Accrued expenses |
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528,293 |
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491,989 |
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Billings in excess of costs on uncompleted contracts |
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232,562 |
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192,400 |
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Income taxes payable |
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2,794 |
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42,664 |
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Deferred tax liability net |
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23,119 |
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14,641 |
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Current portion of long-term debt |
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16,577 |
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6,838 |
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TOTAL CURRENT LIABILITIES |
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1,062,660 |
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978,808 |
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OTHER LONG-TERM LIABILITIES |
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192,945 |
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174,253 |
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LONG-TERM DEBT |
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32,906 |
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39,186 |
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MINORITY INTEREST |
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26,284 |
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21,089 |
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STOCKHOLDERS EQUITY: |
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Convertible preferred stockauthorized, 7,799,780; issued and outstanding, 29,367 and 49,779 shares at March 31, 2008 and September 30, 2007; respectively, $100 liquidation preference value |
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2,937 |
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4,978 |
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Preferred stock, Class Cauthorized, 200 shares; issued and outstanding, 71 and 72 shares as of March 31, 2008 and September 30, 2007, respectively; no par value, $1.00 liquidation preference value |
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Preferred stock, Class Eauthorized, 20 shares; issued and outstanding, 5 shares as of March 31, 2008 and September 30, 2007; no par value, $1.00 liquidation preference value |
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Common stockauthorized, 150,000,000 shares of $0.01 par value; issued and outstanding, 101,171,737 and 99,061,692, as of March 31, 2008 and September 30, 2007, respectively |
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1,011 |
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991 |
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Additional paid-in capital |
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1,269,252 |
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1,224,164 |
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Accumulated other comprehensive loss |
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(25,693 |
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(26,211 |
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Retained earnings |
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139,631 |
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74,563 |
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TOTAL STOCKHOLDERS EQUITY |
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1,387,138 |
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1,278,485 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
2,701,933 |
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$ |
2,491,821 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
1
AECOM Technology Corporation
Condensed Consolidated Statements of Income
(unaudited - in thousands, except per share data)
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Three Months Ended March 31, |
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Six Months Ended March 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenue |
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$ |
1,164,121 |
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$ |
1,083,709 |
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$ |
2,244,371 |
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$ |
2,022,258 |
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Cost of revenue |
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794,726 |
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799,838 |
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1,548,384 |
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1,489,968 |
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Gross profit |
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369,395 |
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283,871 |
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695,987 |
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532,290 |
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Equity in earnings of joint ventures |
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4,008 |
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2,219 |
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6,850 |
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3,636 |
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General and administrative expenses |
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314,444 |
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248,146 |
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599,346 |
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467,974 |
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Income from operations |
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58,959 |
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37,944 |
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103,491 |
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67,952 |
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Minority interest in share of earnings |
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4,798 |
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3,648 |
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6,077 |
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5,234 |
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Other expense |
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813 |
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1,628 |
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Gain on sale of equity investment |
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11,286 |
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Interest income (expense), net |
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2,061 |
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(2,228 |
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4,309 |
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(3,303 |
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Income before income tax expense |
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55,409 |
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32,068 |
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100,095 |
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70,701 |
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Income tax expense |
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19,580 |
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10,870 |
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34,773 |
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23,983 |
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Net income |
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$ |
35,829 |
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$ |
21,198 |
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$ |
65,322 |
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$ |
46,718 |
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Net income allocation: |
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Preferred stock dividend |
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$ |
39 |
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$ |
87 |
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$ |
95 |
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$ |
116 |
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Net income available for common stockholders |
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35,790 |
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21,111 |
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65,227 |
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46,602 |
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Net income |
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$ |
35,829 |
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$ |
21,198 |
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$ |
65,322 |
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$ |
46,718 |
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Net income per share: |
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Basic |
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$ |
0.36 |
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$ |
0.37 |
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$ |
0.65 |
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$ |
0.82 |
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Diluted |
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$ |
0.35 |
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$ |
0.27 |
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$ |
0.63 |
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$ |
0.60 |
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Weighted average shares outstanding: |
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Basic |
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100,571 |
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56,331 |
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100,108 |
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56,965 |
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Diluted |
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103,454 |
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77,964 |
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103,240 |
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78,500 |
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Condensed Consolidated Statements of Comprehensive Income
(unauditedin thousands)
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Three Months Ended March 31, |
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Six Months Ended March 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net income |
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$ |
35,829 |
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$ |
21,198 |
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$ |
65,322 |
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$ |
46,718 |
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Other comprehensive income: |
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Foreign currency translation adjustments |
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(160 |
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4,199 |
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(1,070 |
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7,174 |
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Pension adjustments |
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1,588 |
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1,588 |
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Comprehensive income |
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$ |
37,257 |
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$ |
25,397 |
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$ |
65,840 |
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$ |
53,892 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
2
AECOM Technology Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
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Six Months Ended March 31, |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
65,322 |
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$ |
46,718 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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21,340 |
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18,972 |
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Equity in earnings of unconsolidated joint ventures |
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(6,850 |
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(3,636 |
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Distribution of earnings from unconsolidated joint ventures |
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9,068 |
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4,068 |
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Stock based compensation |
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11,456 |
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13,143 |
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Excess tax benefit from share based payment |
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(8,552 |
) |
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Interest income on notes from stockholders |
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(754 |
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Foreign currency translation |
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(475 |
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1,490 |
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Gain on sale of equity investment |
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(11,286 |
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Changes in operating assets and liabilities, net of effects of acquisitions: |
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Accounts receivable |
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(165,609 |
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(75,211 |
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Prepaid expenses and other assets |
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33,112 |
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(11,869 |
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Accounts payable |
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18,400 |
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(11,395 |
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Accrued expenses and other current liabilities |
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10,303 |
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31,928 |
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Billings in excess of costs on uncompleted contracts |
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28,262 |
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51,903 |
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Other long-term liabilities |
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(13,811 |
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(170 |
) |
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Income taxes receivable/payable |
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1,301 |
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(171 |
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Net cash provided by operating activities |
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3,267 |
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53,730 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Payments for business acquisitions, net of cash acquired |
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(102,750 |
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(125,797 |
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Net investment in unconsolidated affiliates |
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(1,247 |
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712 |
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Proceeds from sales of investment securities |
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129,234 |
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Purchases of investment securities |
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(9,900 |
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Payments for capital expenditures |
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(23,807 |
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(18,642 |
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Proceeds from sale of equity investment |
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14,683 |
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Net cash used in investing activities |
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(8,470 |
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(129,044 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from borrowings under credit agreements |
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51,858 |
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Repayments of borrowings under long-term obligations |
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(5,184 |
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(8,500 |
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Proceeds from issuance of common stock |
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5,979 |
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42,157 |
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Proceeds from exercise of stock options |
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4,979 |
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2,933 |
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Payments to repurchase common stock |
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(8,650 |
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(48,455 |
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Proceeds from payment of notes receivable from stockholders |
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22,663 |
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Excess tax benefit from share based payment |
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8,552 |
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Net cash provided by financing activities |
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5,676 |
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62,656 |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH |
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291 |
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1,052 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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764 |
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(11,606 |
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CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
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216,911 |
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127,870 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
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$ |
217,675 |
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$ |
116,264 |
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NON-CASH INVESTING AND FINANCING ACTIVITY |
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$ |
20,850 |
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$ |
800 |
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
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 Companys 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 Companys Form 10-K/A for the fiscal year ended September 30, 2007.
The results of operations for the three and six months ended March 31, 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. Adoption of Change in Accounting Principle
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies 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. 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. FIN 48 became effective for the Company in the first quarter of the fiscal year ending September 30, 2008. The adoption of FIN 48 did not have a material effect on the Companys financial statements. For additional information on the adoption of FIN 48, see Note 13 Income Taxes.
3. 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 in the Companys stock purchase plan.
4. Business Acquisitions
The Company announced in February 2008 that it had entered into an agreement to acquire substantially all of Earth Tech, Inc., an engineering services unit of Tyco International, Ltd. for approximately $510 million in cash. The transaction is described in more detail in a current report on Form 8-K filed by the Company on February 12, 2008.
During the quarter ended March 31, 2008, the Company completed the acquisition of Tecsult Inc., a Montreal, Canada based engineering services firm.
4
Also, during the quarter ended March 31, 2008, the Company announced that it had entered into an agreement to acquire Boyle Engineering Corporation (Boyle), a Newport Beach, California based engineering services firm. As discussed in Note 15 Subsequent Events, subsequent to the quarter ended March 31, 2008, the Company completed the acquisitions of Boyle and Totten Sims Hubicki Associates (TSH), an Ontario, Canada based engineering services firm.
5. 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. In the past, these marketable securities have included 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 Companys holding in these investments, since auctions for these securities have failed to settle 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 Companys 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 impairment is deemed to exist at March 31, 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 market conditions.
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 March 31, 2008. At March 31, 2008, $81.5 million in auction rate securities were classified within other non-current assets.
6. Accounts ReceivableNet
Net accounts receivable consisted of the following as of March 31, 2008 and September 30, 2007:
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March 31, 2008 |
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September 30, 2007 |
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(in thousands) |
|
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Billed |
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$ |
788,964 |
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$ |
635,996 |
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Unbilled |
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567,076 |
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466,612 |
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Contract retentions |
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39,303 |
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40,522 |
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Total accounts receivablegross |
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1,395,343 |
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1,143,130 |
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Allowance for doubtful accounts |
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(60,152 |
) |
(51,448 |
) |
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Total accounts receivablenet |
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$ |
1,335,191 |
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$ |
1,091,682 |
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|
|
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Billings in excess of costs on uncompleted contracts |
|
$ |
232,562 |
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$ |
192,400 |
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Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end. Substantially all unbilled receivables as of March 31, 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 Companys accounts receivable as of March 31, 2008 or September 30, 2007.
5
7. Goodwill and Acquired Intangible Assets
The changes in the carrying value of goodwill by reporting segment for the six months ended March 31, 2008 were as follows:
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September 30, |
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Post-Acquisition |
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Acquired |
|
March 31, |
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(in thousands) |
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Professional Technical Services |
|
$ |
583,807 |
|
$ |
5,600 |
|
$ |
70,877 |
|
$ |
660,284 |
|
Management Support Services |
|
8,426 |
|
(5,600 |
) |
|
|
2,826 |
|
||||
Total |
|
$ |
592,233 |
|
$ |
|
|
$ |
70,877 |
|
$ |
663,110 |
|
The gross amounts and accumulated amortization of the Companys acquired identifiable intangible assets with finite useful lives as of March 31, 2008 and September 30, 2007, included in intangible and other assetsnet in the accompanying condensed consolidated balance sheets, were as follows:
|
|
March 31, 2008 |
|
September 30, 2007 |
|
||||||||
|
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
|
||||
|
|
(in thousands) |
|
||||||||||
Backlog |
|
$ |
37,569 |
|
$ |
24,950 |
|
$ |
28,669 |
|
$ |
24,849 |
|
Customer Relationships |
|
36,669 |
|
6,337 |
|
30,478 |
|
4,645 |
|
||||
Trade-Names |
|
2,519 |
|
973 |
|
1,764 |
|
489 |
|
||||
Total |
|
$ |
76,757 |
|
$ |
32,260 |
|
$ |
60,911 |
|
$ |
29,983 |
|
At the time of an acquisition, the Company 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 for the remainder of fiscal 2008 and for the succeeding years:
Fiscal Year |
|
(in thousands) |
|
|
2008 |
|
$ |
6,933 |
|
2009 |
|
9,170 |
|
|
2010 |
|
4,323 |
|
|
2011 |
|
4,180 |
|
|
2012 |
|
3,987 |
|
|
Thereafter |
|
15,904 |
|
|
Total |
|
$ |
44,497 |
|
8. Disclosures About Pension Benefit Obligations
The Companys pension cost for the three and six months ended March 31, 2008 and 2007 includes the following components:
U.S. Plans |
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
(in thousands) |
|
||||||||||
Service costs |
|
$ |
563 |
|
$ |
651 |
|
$ |
1,126 |
|
$ |
1,302 |
|
Interest cost on projected benefit obligation |
|
1,912 |
|
1,876 |
|
3,824 |
|
3,752 |
|
||||
Expected return on plan assets |
|
(1,778 |
) |
(1,719 |
) |
(3,556 |
) |
(3,438 |
) |
||||
Amortization of prior service costs |
|
(290 |
) |
(289 |
) |
(580 |
) |
(578 |
) |
||||
Amortization of net loss |
|
833 |
|
982 |
|
1,666 |
|
1,964 |
|
||||
Net periodic benefit cost |
|
$ |
1,240 |
|
$ |
1,501 |
|
$ |
2,480 |
|
$ |
3,002 |
|
6
Non U.S. Plans |
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
(in thousands) |
|
||||||||||
Service costs |
|
$ |
1,086 |
|
$ |
1,245 |
|
$ |
2,173 |
|
$ |
2,463 |
|
Interest cost on projected benefit obligation |
|
4,848 |
|
4,378 |
|
9,746 |
|
8,660 |
|
||||
Expected return on plan assets |
|
(5,252 |
) |
(4,047 |
) |
(10,555 |
) |
(8,007 |
) |
||||
Amortization of prior service costs |
|
(102 |
) |
(428 |
) |
(205 |
) |
(525 |
) |
||||
Amortization of net loss |
|
794 |
|
970 |
|
1,589 |
|
1,919 |
|
||||
Curtailment (gain)/loss recognized |
|
|
|
(2,646 |
) |
|
|
(2,646 |
) |
||||
Net periodic benefit cost |
|
$ |
1,374 |
|
$ |
(528 |
) |
$ |
2,748 |
|
$ |
1,864 |
|
The total amounts of employer contributions paid for the six months ended March 31, 2008 were $0.1 million for U.S. plans and $7.7 million for non-U.S. plans. The expected remaining scheduled annual employer contributions for the fiscal year ending September 30, 2008 are $3.5 million for U.S. plans and $7.5 million for non-U.S. plans.
9. Reportable Segments
The Companys 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.
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 obtained by subtracting subcontractor fees and related costs from revenue.
The following tables set forth summarized financial information concerning the Companys reportable segments:
Reportable Segments: |
|
Professional |
|
Management |
|
Corporate |
|
Total |
|
||||
|
|
(in thousands) |
|
||||||||||
Three Months Ended March 31, 2008: |
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
955,067 |
|
$ |
209,054 |
|
$ |
|
|
$ |
1,164,121 |
|
Revenue, net of other direct costs |
|
710,631 |
|
40,121 |
|
|
|
750,752 |
|
||||
Gross profit |
|
350,687 |
|
18,708 |
|
|
|
369,395 |
|
||||
Gross profit as a % of revenue |
|
36.7 |
% |
8.9 |
% |
|
|
31.7 |
% |
||||
Gross profit as a % of revenue, net of other direct costs |
|
49.3 |
% |
46.6 |
% |
|
|
49.2 |
% |
||||
Equity in earnings of joint ventures |
|
2,676 |
|
1,332 |
|
|
|
4,008 |
|
||||
General and administrative expenses |
|
292,809 |
|
6,052 |
|
15,583 |
|
314,444 |
|
||||
Operating income |
|
60,554 |
|
13,988 |
|
(15,583 |
) |
58,959 |
|
||||
Segment assets |
|
2,246,431 |
|
198,919 |
|
256,583 |
|
2,701,933 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Three Months Ended March 31, 2007: |
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
843,218 |
|
$ |
240,491 |
|
$ |
|
|
$ |
1,083,709 |
|
Revenue, net of other direct costs |
|
560,859 |
|
28,623 |
|
|
|
589,482 |
|
||||
Gross profit |
|
271,029 |
|
12,842 |
|
|
|
283,871 |
|
||||
Gross profit as a % of revenue |
|
32.1 |
% |
5.3 |
% |
|
|
26.2 |
% |
||||
Gross profit as a % of revenue, net of other direct costs |
|
48.3 |
% |
44.9 |
% |
|
|
48.2 |
% |
||||
Equity in earnings of joint ventures |
|
681 |
|
1,538 |
|
|
|
2,219 |
|
||||
General and administrative expenses |
|
232,264 |
|
6,035 |
|
9,847 |
|
248,146 |
|
||||
Operating income |
|
39,446 |
|
8,345 |
|
(9,847 |
) |
37,944 |
|
7
Reportable Segments: |
|
Professional |
|
Management |
|
Corporate |
|
Total |
|
||||
|
|
(in thousands) |
|
||||||||||
Six Months Ended March 31, 2008: |
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
1,848,508 |
|
$ |
395,863 |
|
$ |
|
|
$ |
2,244,371 |
|
Revenue, net of other direct costs |
|
1,359,156 |
|
67,182 |
|
|
|
1,426,338 |
|
||||
Gross profit |
|
669,975 |
|
26,012 |
|
|
|
695,987 |
|
||||
Gross profit as a % of revenue |
|
36.2 |
% |
6.6 |
% |
|
|
31.0 |
% |
||||
Gross profit as a % of revenue, net of other direct costs |
|
49.3 |
% |
38.7 |
% |
|
|
48.8 |
% |
||||
Equity in earnings of joint ventures |
|
3,708 |
|
3,142 |
|
|
|
6,850 |
|
||||
General and administrative expenses |
|
561,907 |
|
11,742 |
|
25,697 |
|
599,346 |
|
||||
Operating income |
|
111,776 |
|
17,412 |
|
(25,697 |
) |
103,491 |
|
||||
Segment assets |
|
2,246,431 |
|
198,919 |
|
256,583 |
|
2,701,933 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Six Months Ended March 31, 2007: |
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
1,597,087 |
|
$ |
425,171 |
|
$ |
|
|
$ |
2,022,258 |
|
Revenue, net of other direct costs |
|
1,043,906 |
|
48,710 |
|
|
|
1,092,616 |
|
||||
Gross profit |
|
511,331 |
|
20,959 |
|
|
|
532,290 |
|
||||
Gross profit as a % of revenue |
|
32.0 |
% |
4.9 |
% |
|
|
26.3 |
% |
||||
Gross profit as a % of revenue, net of other direct costs |
|
49.0 |
% |
43.0 |
% |
|
|
48.7 |
% |
||||
Equity in earnings of joint ventures |
|
(104 |
) |
3,740 |
|
|
|
3,636 |
|
||||
General and administrative expenses |
|
435,943 |
|
11,806 |
|
20,225 |
|
467,974 |
|
||||
Operating income |
|
75,284 |
|
12,893 |
|
(20,225 |
) |
67,952 |
|
10. 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 fair 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 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 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 has only recently become publicly-traded, expected volatility was based on a historical
8
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 six months ended March 31, 2008 and 2007 were determined using the following weighted average assumptions:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||
|
|
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 Companys net income for the six months ended March 31, 2008 and 2007 was $0.6 million and $0.3 million lower than under the Companys previous accounting method, as a result of recognizing the fair value of stock options as an expense.
Stock option activity for the six months ended March 31, 2008 and 2007 was as follows:
|
|
Six Months Ended March 31, 2008 |
|
Six Months Ended March 31, 2007 |
|
||||||
|
|
Shares of stock |
|
Weighted average |
|
Shares of stock |
|
Weighted average |
|
||
|
|
(in thousands) |
|
|
|
(in thousands) |
|
|
|
||
Outstanding at September 30 |
|
7,728 |
|
$ |
9.27 |
|
8,929 |
|
$ |
8.42 |
|
Options granted |
|
464 |
|
27.38 |
|
549 |
|
14.13 |
|
||
Options exercised |
|
1,107 |
|
7.27 |
|
383 |
|
7.60 |
|
||
Options forfeited or expired |
|
38 |
|
15.90 |
|
25 |
|
13.62 |
|
||
Outstanding at March 31 |
|
7,047 |
|
10.75 |
|
9,070 |
|
8.79 |
|
||
|
|
|
|
|
|
|
|
|
|
||
Vested and expected to vest in the future as of March 31 |
|
7,024 |
|
$ |
10.72 |
|
9,059 |
|
$ |
8.78 |
|
The weighted average grant-date fair value of stock options granted during the six months ended March 31, 2008 was $8.76.
11. 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 3 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 |
|
Six Months Ended |
|
||||
|
|
March 31, |
|
March 31, |
|
March 31, |
|
March 31, |
|
|
|
(in thousands, except per share data) |
|
||||||
Denominator for basic earnings per share |
|
100,571 |
|
56,331 |
|
100,108 |
|
56,965 |
|
Potential common shares: |
|
|
|
|
|
|
|
|
|
Preferred stock, Class F and G |
|
|
|
18,747 |
|
|
|
18,747 |
|
Stock options |
|
2,780 |
|
2,462 |
|
3,008 |
|
2,348 |
|
Other |
|
103 |
|
424 |
|
124 |
|
440 |
|
Denominator for diluted earnings per share |
|
103,454 |
|
77,964 |
|
103,240 |
|
78,500 |
|
For the six months ended March 31, 2008 and 2007, no stock options were excluded from the calculation or were considered anti-dilutive.
9
12. 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. 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.
At March 31, 2008, the Company was contingently liable in the amount of approximately $83.5 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 sub-consultant and would be liable to the sub-consultant if the third-party customer fails to make payments due the joint venture for sub-consultant services.
13. Income Taxes
On October 1, 2007, the Company adopted the provisions of FIN 48. Under FIN 48, differences between the amounts recognized in the consolidated financial statements prior to the adoption of FIN 48 and the amounts reported as a result of adoption are to be accounted for as a cumulative effect adjustment recorded to retained earnings. The adoption of FIN 48 did not have a material impact on the Companys 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 Companys 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 March 31, 2008, the liability for income tax associated with uncertain tax positions was $36.3 million and the related interest on the liability was $2.3 million (net of related tax benefits). If recognized, $35.2 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 Companys 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.
The Companys 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 $1.0 million tax benefit) related to uncertain tax positions and, as of March 31, 2008, the Company had accrued $2.3 million of interest and penalties (net of $1.4 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 Companys uncertain tax position balance by approximately $2.3 million.
10
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 circumstance.
14. Recently Issued Accounting Pronouncements
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 Companys fiscal year ending September 30, 2010. The Company is currently evaluating the impact of SFAS 141R on its financial statements.
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 parents ownership interest in a subsidiary that do not result in deconsolidation. 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 Companys 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 Statement of Financial Accounting Standard (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 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 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 Generally Accepted Accounting Principles (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.
15. Subsequent Events
As discussed in Note 4 Business Acquisitions, subsequent to the second fiscal quarter 2008, the Company completed the acquisitions of Boyle and TSH.
11
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 regulations or legislation that could affect us. Accordingly, actual results could differ materially from those contemplated by any forward-looking statement. In addition to the other risks and uncertainties mentioned in connection with certain forward-looking statements throughout this Quarterly Report, please review Part II, Item 1A Risk Factors in this Quarterly Report for a discussion of the factors, risks and uncertainties that could affect our future results.
Overview
We are a leading global provider of professional technical and management support services for commercial and government clients around the world. We provide our services in a broad range of end markets and strategic geographic markets through a global network of operating offices and more than 35,000 employees and staff employed in the field on projects.
Our business focuses primarily on providing fee-based professional technical and support services and we 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, 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 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 operations using several non-GAAP measures. A significant portion of our revenue relates to services provided by subcontractors and other non-employees that the Company categorizes 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 cost of revenue resulting in revenue, net of other direct costs, which is a
12
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.
The following table presents, for the periods indicated, a presentation of the non-GAAP financial measures reconciled to the closest GAAP measures:
|
|
Six Months |
|
Year Ended September 30, |
|
|||||||||||||||||
|
|
2008 |
|
2007 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||||
|
|
(in millions) |
|
|||||||||||||||||||
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Revenue |
|
$ |
2,244 |
|
$ |
2,022 |
|
$ |
4,237 |
|
$ |
3,421 |
|
$ |
2,395 |
|
$ |
2,012 |
|
$ |
1,915 |
|
Other direct costs |
|
818 |
|
929 |
|
1,832 |
|
1,521 |
|
933 |
|
776 |
|
725 |
|
|||||||
Revenue, net of other direct costs |
|
1,426 |
|
1,093 |
|
2,405 |
|
1,900 |
|
1,462 |
|
1,236 |
|
1,190 |
|
|||||||
Cost of revenue, net of other direct costs |
|
730 |
|
561 |
|
1,244 |
|
994 |
|
785 |
|
667 |
|
656 |
|
|||||||
Gross profit |
|
696 |
|
532 |
|
1,161 |
|
906 |
|
677 |
|
569 |
|
534 |
|
|||||||
Equity in earnings of joint ventures |
|
6 |
|
4 |
|
12 |
|
6 |
|
2 |
|
3 |
|
2 |
|
|||||||
Amortization expense of acquired intangible assets |
|
2 |
|
6 |
|
12 |
|
15 |
|
3 |
|
|
|
|
|
|||||||
Other general and administrative expenses |
|
597 |
|
462 |
|
1,005 |
|
794 |
|
578 |
|
485 |
|
467 |
|
|||||||
General and administrative expenses |
|
599 |
|
468 |
|
1,017 |
|
809 |
|
581 |
|
485 |
|
467 |
|
|||||||
Income from operations |
|
$ |
103 |
|
$ |
68 |
|
$ |
156 |
|
$ |
103 |
|
$ |
98 |
|
$ |
87 |
|
$ |
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Reconciliation of Cost of Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other direct costs |
|
$ |
818 |
|
$ |
929 |
|
$ |
1,832 |
|
$ |
1,521 |
|
$ |
933 |
|
$ |
776 |
|
$ |
725 |
|
Cost of revenue, net of other direct costs |
|
730 |
|
561 |
|
1,244 |
|
994 |
|
785 |
|
667 |
|
656 |
|
|||||||
Cost of revenue |
|
$ |
1,548 |
|
$ |
1,490 |
|
$ |
3,076 |
|
$ |
2,515 |
|
$ |
1,718 |
|
$ |
1,443 |
|
$ |
1,381 |
|
Results of Operations
Consolidated Results
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||||||||||
|
|
March 31, |
|
March 31, |
|
Change |
|
March 31, |
|
March 31, |
|
Change |
|
||||||||||
|
|
2008 |
|
2007 |
|
$ |
|
% |
|
2008 |
|
2007 |
|
$ |
|
% |
|
||||||
|
|
(in thousands) |
|
||||||||||||||||||||
Revenue |
|
$ |
1,164,121 |
|
$ |
1,083,709 |
|
$ |
80,412 |
|
7.4 |
% |
$ |
2,244,371 |
|
$ |
2,022,258 |
|
$ |
222,113 |
|
11.0 |
% |
Other direct costs |
|
413,369 |
|
494,227 |
|
(80,858 |
) |
(16.4 |
) |
818,033 |
|
929,642 |
|
(111,609 |
) |
(12.0 |
) |
||||||
Revenue, net of other direct costs |
|
750,752 |
|
589,482 |
|
161,270 |
|
27.4 |
|
1,426,338 |
|
1,092,616 |
|
333,722 |
|
30.5 |
|
||||||
Cost of revenue, net of other direct costs |
|
381,357 |
|
305,611 |
|
75,746 |
|
24.8 |
|
730,351 |
|
560,326 |
|
170,025 |
|
30.3 |
|
||||||
Gross profit |
|
369,395 |
|
283,871 |
|
85,524 |
|
30.1 |
|
695,987 |
|
532,290 |
|
163,697 |
|
30.8 |
|
||||||
Equity in earnings of joint ventures |
|
4,008 |
|
2,219 |
|
1,789 |
|
80.6 |
|
6,850 |
|
3,636 |
|
3,214 |
|
88.4 |
|
||||||
General and administrative expenses |
|
314,444 |
|
248,146 |
|
66,298 |
|
26.7 |
|
599,346 |
|
467,974 |
|
131,372 |
|
28.1 |
|
||||||
Income from operations |
|
58,959 |
|
37,944 |
|
21,015 |
|
55.4 |
|
103,491 |
|
67,952 |
|
35,539 |
|
52.3 |
|
||||||
Minority interest in share of earnings |
|
4,798 |
|
3,648 |
|
1,150 |
|
31.5 |
|
6,077 |
|
5,234 |
|
843 |
|
16.1 |
|
||||||
Other expense |
|
813 |
|
|
|
813 |
|
n/a |
|
1,628 |
|
|
|
1,628 |
|
n/a |
|
||||||
Gain on sale of equity investment |
|
|
|
|
|
|
|
n/a |
|
|
|
11,286 |
|
(11,286 |
) |
(100.0 |
) |
||||||
Interest income (expense) and other, net |
|
2,061 |
|
(2,228 |
) |
4,289 |
|
(192.5 |
) |
4,309 |
|
(3,303 |
) |
7,612 |
|
(230.5 |
) |
||||||
Income before income tax expense |
|
55,409 |
|
32,068 |
|
23,341 |
|
72.8 |
|
100,095 |
|
70,701 |
|
29,394 |
|
41.6 |
|
||||||
Income tax expense |
|
19,580 |
|
10,870 |
|
8,710 |
|
80.1 |
|
34,773 |
|
23,983 |
|
10,790 |
|
45.0 |
|
||||||
Net income |
|
$ |
35,829 |
|
$ |
21,198 |
|
$ |
14,631 |
|
69.0 |
% |
$ |
65,322 |
|
$ |
46,718 |
|
$ |
18,604 |
|
39.8 |
% |
13
The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
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 |
|
51.8 |
|
51.2 |
|
51.3 |
|
Gross profit |
|
49.2 |
|
48.2 |
|
48.8 |
|
48.7 |
|
Equity in earnings of joint ventures |
|
0.5 |
|
0.4 |
|
0.5 |
|
0.3 |
|
General and administrative expense |
|
41.8 |
|
42.2 |
|
42.0 |
|
42.8 |
|
Income from operations |
|
7.9 |
|
6.4 |
|
7.3 |
|
6.2 |
|
Minority interest in share of earnings |
|
0.6 |
|
0.6 |
|
0.4 |
|
0.5 |
|
Gain on sale of equity investment |
|
0.0 |
|
0.0 |
|
0.0 |
|
1.0 |
|
Interest income (expense) and other net |
|
0.1 |
|
(0.4 |
) |
0.1 |
|
(0.2 |
) |
Income before income tax expense |
|
7.4 |
|
5.4 |
|
7.0 |
|
6.5 |
|
Income tax expense |
|
2.6 |
|
1.8 |
|
2.4 |
|
2.2 |
|
Net income |
|
4.8 |
% |
3.6 |
% |
4.6 |
% |
4.3 |
% |
Revenue
Our revenue for the three months ended March 31, 2008 increased $80.4 million, or 7.4%, to $1.2 billion as compared to $1.1 billion for the corresponding period last year. Of this increase, $69.6 million, or 86.6%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $10.8 million, or 1.0%.
Our revenue for the six months ended March 31, 2008 increased $222.1 million, or 11.0%, to $2.2 billion as compared to $2.0 billion for the corresponding period last year. Of this increase, $122.0 million, or 54.9%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $100.1 million, or 5.0%.
These increases were primarily attributable to growth in our Professional Technical Services segment due 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, and continued strength in our engineering design services business in the United Arab Emirates. Increased demand in these markets was largely 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 and a decrease in activity on our Global Maintenance and Supply Services task order in Iraq.
Revenue, Net of Other Direct Costs
Our revenue, net of other direct costs for the three months ended March 31, 2008 increased $161.3 million, or 27.4%, to $750.8 million as compared to $589.5 million in the corresponding period last year. Of this increase, $54.5 million, or 33.8%, 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 $106.8 million, or 18.1%.
Our revenue, net of other direct costs for the six months ended March 31, 2008 increased $333.7 million, or 30.5%, to $1.4 billion as compared to $1.1 billion in the corresponding period last year. Of this increase, $95.3 million, or 28.6%, 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 $238.4 million, or 21.8%.
These increases 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 results from a lower offsetting effect of the decline in demand for our design/build services business which contain a proportionately higher component of subcontractor costs.
Cost of Revenue, Net of Other Direct Costs
For the three months ended March 31, 2008, our cost of revenue, net of other direct costs increased $75.7 million, or 24.8%, to $381.3 million as compared to $305.6 million in the corresponding period last year. Of this increase, $24.4 million, or 32.2%, was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of
14
other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased $51.3 million, or 16.8%. For the three months ended March 31, 2008, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 50.8% as compared to 51.8% in the corresponding period last year.
For the six months ended March 31, 2008, our cost of revenue, net of other direct costs increased $170.0 million, or 30.3%, to $730.3 million as compared to $560.3 million in the corresponding period last year. Of this increase, $42.0 million, or 24.7%, was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased $128.0 million, or 22.9%. For the six months ended March 31, 2008, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 51.2% as compared to 51.3% in the corresponding period last year.
Gross Profit
Our gross profit for the three months ended March 31, 2008 increased $85.5 million, or 30.1%, to $369.4 million as compared to $283.9 million in the corresponding period last year. Of this increase, $30.0 million, or 35.1% was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $55.5 million, or 19.5%. For the three months ended March 31, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 49.2% as compared to 48.2% in the corresponding period last year.
Our gross profit for the six months ended March 31, 2008 increased $163.7 million, or 30.8%, to $696.0 million as compared to $532.3 million in the corresponding period last year. Of this increase, $53.4 million, or 32.6% was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $110.3 million, or 20.7%. For the six months ended March 31, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 48.8% as compared to 48.7% in the corresponding period last year.
These increases in gross profit for the three and six months ended March 31, 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 U.S. government project, partially offset by lower margins in our design/build services business resulting from a decline in revenue.
Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the three months ended March 31, 2008 increased $1.8 million, or 80.6%, to $4.0 million as compared to $2.2 million in the corresponding period last year.
Our equity in earnings of joint ventures for the six months ended March 31, 2008 increased $3.2 million, or 88.4%, to $6.8 million as compared to $3.6 million in the corresponding period last year.
The 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 years corresponding period.
General and Administrative Expenses
Our general and administrative expenses for the three months ended March 31, 2008 increased $66.3 million, or 26.7%, to $314.4 million as compared to $248.1 million in the corresponding period last year. Of this increase, $23.8 million, or 35.9%, was incurred by companies acquired in the past twelve months. Excluding general and administrative expenses associated with acquired companies, general and administrative expenses increased $42.5 million, or 17.1%. For the three months ended March 31, 2008, general and administrative expenses, as a percentage of revenue, net of other direct costs was 41.8% as compared to 42.2% in the corresponding period last year.
Our general and administrative expenses for the six months ended March 31, 2008 increased $131.4 million, or 28.1%, to $599.3 million as compared to $467.9 million in the corresponding period last year. Of this increase, $43.7 million, or 33.2%, was incurred by companies acquired in the past twelve months. Excluding general and administrative expenses associated with acquired companies, general and administrative expenses increased $87.7 million, or 18.7%. For the six months ended March 31, 2008, general and administrative expenses, as a percentage of revenue, net of other direct costs was 42.0% as compared to 42.8% in the corresponding period last year.
15
These increases in general and administrative expenses were primarily attributable to the growth in revenue 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, reflects 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. Related to this sale, we recorded a gain on the sale of $11.3 million.
Other Expense
Other expense of $0.8 million and $1.6 million for the three and six months ended March 31, 2008, respectively, includes net losses on investments that we hold to offset our exposure related to employees investment elections in a deferred compensation plan.
Interest Income / Expense
Our net interest income for the three months ended March 31, 2008 was $2.1 million as compared to $2.2 million of net interest expense in the corresponding period last year.
Our net interest income for the six months ended March 31, 2008 was $4.3 million as compared to $3.3 million of net interest expense in the corresponding period last year.
The increase in interest income for both periods was primarily attributable to the reduced interest expense due to the repayment of borrowings and increased interest income from investing activity which were both the result of proceeds received in our initial public offering completed in May 2007.
Income Tax Expense
For the three and six months ended March 31, 2008, income tax expense increased $8.7 million, or 80.1%, and $10.8 million, or 45.0%, compared to the same periods last year, respectively. The increase in our income tax expense related primarily to higher income and non-deductible investment losses.
The effective tax rate for the three and six months ended March 31, 2008 was 35.3% and 34.7%, respectively, as compared to 33.9% for each respective corresponding period last year due to the factors discussed above.
Net Income
Net income for the three and six months ended March 31, 2008 increased $14.6 million, or 69.0%, to $35.8 million and $18.6 million, or 39.8%, to $65.3 million, respectively, as compared to the corresponding periods last year.
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 |
|
|||||||||||||||
|
|
2008 |
|
2007 |
|
$ |
|
% |
|
2008 |
|
2007 |
|
$ |
|
% |
|
|||||||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
Revenue |
|
$ |
955,067 |
|
$ |
843,218 |
|
$ |
111,849 |
|
13.3 |
% |
$ |
1,848,508 |
|
$ |
1,597,087 |
|
$ |
251,421 |
|
15.7 |
% |
|||||
Other direct costs |
|
244,436 |
|
282,359 |
|
(37,923 |
) |
(13.4 |
) |
489,352 |
|
553,181 |
|
(63,829 |
) |
(11.5 |
) |
|||||||||||
Revenue, net of other direct costs |
|
710,631 |
|
560,859 |
|
149,772 |
|
26.7 |
|
1,359,156 |
|
1,043,906 |
|
315,250 |
|
30.2 |
|
|||||||||||
Cost of revenue, net of other direct costs |
|
359,944 |
|
289,830 |
|
70,114 |
|
24.2 |
|
689,181 |
|
532,575 |
|
156,606 |
|
29.4 |
|
|||||||||||
Gross profit |
|
$ |
350,687 |
|
$ |
271,029 |
|
$ |
79,658 |
|
29.4 |
% |
$ |
669,975 |
|
$ |
511,331 |
|
$ |
158,644 |
|
31.0 |
% |
|||||
16
The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
Revenue, net of other direct costs |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Cost of revenue, net of other direct costs |
|
50.7 |
|
51.7 |
|
50.7 |
|
51.0 |
|
Gross profit |
|
49.3 |
% |
48.3 |
% |
49.3 |
% |
49.0 |
% |
Revenue
Revenue for our PTS segment for the three months ended March 31, 2008 increased $111.8 million, or 13.3%, to $955.0 million as compared to $843.2 million in the corresponding period last year. Of this increase, $69.6 million, or 62.3%, was provided by companies acquired in the past twelve months. Excluding revenue provided by acquired companies, PTS revenue increased $42.2 million, or 5.0%.
Revenue for our PTS segment for the six months ended March 31, 2008 increased $251.4 million, or 15.7%, to $1.8 billion as compared to $1.6 billion in the corresponding period last year. Of this increase, $122.0 million, or 48.5%, was provided by companies acquired in the past twelve months. Excluding revenue provided by acquired companies, PTS revenue increased $129.4 million, or 8.1%.
These increases 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, 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.
Revenue, Net of Other Direct Costs
Revenue, net of other direct costs for our PTS segment for the three months ended March 31, 2008 increased $149.8 million, or 26.7%, to $710.6 million as compared to $560.8 million in the corresponding period last year. Of this increase, $54.5 million, or 36.4%, 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 $95.3 million, or 17.0%.
Revenue, net of other direct costs for our PTS segment for the six months ended March 31, 2008 increased $315.2 million, or 30.2%, to $1.4 billion as compared to $1.0 billion in the corresponding period last year. Of this increase, $95.3 million, or 30.2%, 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 $219.9 million, or 21.1%.
These increases were primarily attributable to the revenue growth factors mentioned above, partially offset by the decline in design/build services business in the United States.
Cost of Revenue, Net of Other Direct Costs
Cost of revenue, net of other direct costs for our PTS segment for the three months ended March 31, 2008 increased $70.1 million, or 24.2%, to $359.9 million as compared to $289.8 million in the corresponding period last year. Of this increase, $24.4 million, or 34.8%, was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased by $45.7 million, or 15.8%. For the three months ended March 31, 2008, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 50.7% as compared to 51.7% in the corresponding period last year.
Cost of revenue, net of other direct costs for our PTS segment for the six months ended March 31, 2008 increased $156.6 million, or 29.4%, to $689.2 million as compared to $532.6 million in the corresponding period last year. Of this increase, $42.0 million, or 26.8%, was incurred by companies acquired in the past twelve months. Excluding cost of revenue, net of other direct costs associated with acquired companies, cost of revenue, net of other direct costs increased by $114.6 million, or 21.5%. For the six months ended March 31, 2008, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 50.7% as compared to 51.0% in the corresponding period last year.
17
Gross Profit
Gross profit for our PTS segment for the three months ended March 31, 2008 increased $79.7 million, or 29.4%, to $350.7 million as compared to $271.0 million in the corresponding period last year. Of this increase, $30.1 million, or 37.7%, was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $49.6 million, or 18.3%. For the three months ended March 31, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 49.3% as compared to 48.3% in the corresponding period last year.
Gross profit for our PTS segment for the six months ended March 31, 2008 increased $158.6 million, or 31.0%, to $669.9 million as compared to $511.3 million in the corresponding period last year. Of this increase, $53.3 million, or 33.6%, was provided by companies acquired in the past 12 months. Excluding gross profit provided by acquired companies, gross profit increased $105.3 million, or 20.6%. For the six months ended March 31, 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.
These increases in gross profit for the three and six months ended March 31, 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.
Equity in Earnings of Joint Ventures
Equity in earnings of joint ventures for our PTS segment for the three months ended March 31, 2008 increased $2.0 million to $2.7 million as compared to $0.7 million in the corresponding period last year.
Equity in earnings of joint ventures for our PTS segment for the six months ended March 31, 2008 increased $3.8 million to $3.7 million as compared to losses of $0.1 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 years corresponding period.
Management Support Services
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||||||||||||
|
|
March 31, |
|
March 31, |
|
Change |
|
March 31, |
|
March 31, |
|
Change |
|
||||||||||
|
|
2008 |
|
2007 |
|
$ |
|
% |
|
2008 |
|
2007 |
|
$ |
|
% |
|
||||||
|
|
(in thousands) |
|
||||||||||||||||||||
Revenue |
|
$ |
209,054 |
|
$ |
240,491 |
|
$ |
(31,437 |
) |
(13.1 |
)% |
$ |
395,863 |
|
$ |
425,171 |
|
$ |
(29,308 |
) |
(6.9 |
)% |
Other direct costs |
|
168,933 |
|
211,868 |
|
(42,935 |
) |
(20.3 |
) |
328,681 |
|
376,461 |
|
(47,780 |
) |
(12.7 |
) |
||||||
Revenue, net of other direct costs |
|
40,121 |
|
28,623 |
|
11,498 |
|
40.2 |
|
67,182 |
|
48,710 |
|
18,472 |
|
37.9 |
|
||||||
Cost of revenue, net of other direct costs |
|
21,413 |
|
15,781 |
|
5,632 |
|
35.7 |
|
41,170 |
|
27,751 |
|
13,419 |
|
48.4 |
|
||||||
Gross profit |
|
$ |
18,708 |
|
$ |
12,842 |
|
$ |
5,866 |
|
45.7 |
% |
$ |
26,012 |
|
$ |
20,959 |
|
$ |
5,053 |
|
24.1 |
% |
The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
|
|
Three Months Ended March 31, |
|
Six Months Ended March 31, |
|
||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
Revenue, net of other direct costs |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Cost of revenue, net of other direct costs |
|
53.4 |
|
55.1 |
|
61.3 |
|
57.0 |
|
Gross profit |
|
46.6 |
% |
44.9 |
% |
38.7 |
% |
43.0 |
% |
Revenue
Revenue for our MSS segment for the three months ended March 31, 2008, decreased $31.4 million, or 13.1%, to $209.1 million as compared to $240.5 million in the corresponding period last year.
18
Revenue for our MSS segment for the six months ended March 31, 2008, decreased $29.3 million, or 6.9%, to $395.9 million as compared to $425.2 million in the corresponding period last year.
The decreases for the three and six months ended March 31, 2008 were primarily attributable to a decrease in activity on our Global Maintenance and Supply Services task order in Iraq, which contained a proportionally higher component of subcontractor costs.
Revenue, Net of Other Direct Costs
Revenue, net of other direct costs for our MSS segment for the three months ended March 31, 2008 increased $11.5 million, or 40.2%, to $40.1 million as compared to $28.6 million in the corresponding period last year.
Revenue, net of other direct costs for our MSS segment for the six months ended March 31, 2008 increased $18.5 million, or 37.9%, to $67.2 million as compared to $48.7 million in the corresponding period last year.
The increase was primarily attributable to an increase in personnel and task orders received related to U.S. government activities in the Middle East.
Cost of Revenue, Net of Other Direct Costs
Cost of revenue, net of other direct costs for our MSS segment for the three months ended March 31, 2008, increased $5.6 million, or 35.7%, to $21.4 million as compared to $15.8 million in the corresponding period last year. For the three months ended March 31, 2008, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 53.4% as compared to 55.1% in the corresponding period last year.
Cost of revenue, net of other direct costs for our MSS segment for the six months ended March 31, 2008, increased $13.4 million, or 48.4%, to $41.2 million as compared to $27.8 million in the corresponding period last year. For the six months ended March 31, 2008, cost of revenue, net of other direct costs, as a percentage of revenue, net of other direct costs, was 61.3% as compared to 57.0% in the corresponding period last year.
Gross Profit
Gross profit for our MSS segment for the three months ended March 31, 2008, increased $5.9 million, or 45.7%, to $18.7 million as compared to $12.8 million in the corresponding period last year. For the three months ended March 31, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 46.6% as compared to 44.9% in the corresponding period last year.
Gross profit for our MSS segment for the six months ended March 31, 2008, increased $5.1 million, or 24.1%, to $26.0 million as compared to $20.9 million in the corresponding period last year. For the six months ended March 31, 2008, gross profit, as a percentage of revenue, net of other direct costs, was 38.7% as compared to 43.0% in the corresponding period last year.
The increases in gross profit are 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 decrease in gross profit, as a percentage of revenue, net of other direct costs in the six month period ended March 31, 2008 was primarily due to increased personnel and services provided for a contract with the U.S government in the Middle East. This contract contributed to a greater increase in revenue, net of other direct costs as compared to gross profit.
Equity in Earnings of Joint Ventures
Equity in earnings of joint ventures for our MSS segment for the three months ended March 31, 2008 decreased $0.2 million, or 13.4%, to $1.3 million as compared to $1.5 million in the corresponding period last year.
Equity in earnings of joint ventures for our MSS segment for the six months ended March 31, 2008 decreased $0.6 million, or 16.0%, to $3.1 million as compared to $3.7 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.
19
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 Companys 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 March 31, 2008, cash and cash equivalents were $217.7 million, an increase of $0.8 million, or 0.4%, 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 $3.3 million for the six months ended March 31, 2008, a decrease of $50.4 million from net cash provided by operating activities of $53.7 million for the six months ended March 31, 2007. The decrease was primarily attributable to a reduced rate of collections of accounts receivable, as evidenced by increased days sales outstanding, which was partially offset by a reduced rate of payments of accounts payable.
Net cash used in investing activities was $8.5 million for the six months ended March 31, 2008, a decrease of $120.5 million from net cash used in investing activities of $129.0 million in the six months ended March 31, 2007. The decrease in net cash used was primarily due to the net proceeds we received from the sale of securities. Also, net cash used in business combinations was $102.8 million as compared to $125.8 million for the comparable period last year.
Net cash provided by financing activities was $5.7 million for the six months ended March 31, 2008, a decrease of $57.0 million from cash provided by financing activities of $62.7 million in the comparable period last year, primarily a result of reduced borrowings under credit agreements and proceeds from the issuance of stock, partially offset by reduced payments to repurchase stock.
Working Capital
Working capital, or current assets less current liabilities, decreased $51.1 million, or 8.6%, to $546.6 million at March 31, 2008 from $597.7 million at September 30, 2007, primarily as a result of increased net accounts receivable and a reclassification of income taxes payable to other long-term liabilities resulting from the adoption of FIN48, offset by cash used in business combinations and a change in classification of auction rate securities. Net accounts receivable, which includes billed and unbilled costs and fees, net of billings in excess of costs on uncompleted contracts, increased $203.3 million, or 22.6%, to $1.1 billion at March 31, 2008 from $899.3 million at September 30, 2007. This increase was due to business acquisitions, increased revenue, and the reduced rate of accounts receivable collections noted above.
20
Because our revenue depends to a great extent on billable labor hours, most of our charges are invoiced following the end of the month in which the hours were worked, the majority usually within 15 days. Other direct costs are normally billed along with labor hours. However, as opposed to salary costs, which are generally paid on either a bi-weekly or monthly basis, other direct costs are generally not paid until we receive payment (in some cases in the form of advances) from our customers.
Borrowings and Lines of Credit
At March 31, 2008 and September 30, 2007, our long-term debt consisted of the following:
|
|
March 31, 2008 |
|
September 30, 2007 |
|
||
|
|
(in thousands of dollars) |
|
||||
Senior Notes |
|
$ |
8,333 |
|
$ |
8,333 |
|
Term credit agreement |
|
34,639 |
|
37,015 |
|
||
Other debt |
|
8,576 |
|
2,602 |
|
||
Total long-term debt |
|
51,548 |
|
47,950 |
|
||
Less: Current portion of long-term debt |
|
(18,642 |
) |
(8,764 |