UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-Q

 

(Mark One)

 

 

x

 

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

 

 

 

 

 

For the quarterly period ended March 31, 2008

 

 

 

OR

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

For the transition period from                        to

 

 

 

Commission File Number 0-52423

 


 

AECOM TECHNOLOGY CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

61-1088522

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

555 South Flower Street, Suite 3700

Los Angeles, California  90071

(Address of principal executive office and zip code)

 

(213) 593-8000

(Registrant’s telephone number, including area code)

 


 

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

 

 

Yes  x     No  o

 

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

 

 

Yes  o    No  x

 

 

As of May 2, 2008, 101,240,332 shares of the registrant’s common stock were outstanding.

 

 



 

AECOM TECHNOLOGY CORPORATION

INDEX

 

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2008 (unaudited) and September 30, 2007

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three and Six Months Ended March 31, 2008 and 2007 (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2008 and 2007 (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2008 and 2007 (unaudited)

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

 

Item 4T.

Controls and Procedures

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

Item 1A.

Risk Factors

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

Item 6.

Exhibits

 

 

 

 

SIGNATURES

 

 

 

 



 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

AECOM Technology Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share data)

 

 

 

March 31, 2008

 

September 30, 2007

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

194,127

 

$

180,339

 

Cash in consolidated joint ventures

 

23,548

 

36,572

 

Total cash and cash equivalents

 

217,675

 

216,911

 

Marketable securities

 

 

200,783

 

Accounts receivable – net

 

1,335,191

 

1,091,682

 

Prepaid expenses and other current assets

 

56,348

 

67,087

 

TOTAL CURRENT ASSETS

 

1,609,214

 

1,576,463

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

Equipment, furniture and fixtures

 

138,275

 

120,633

 

Leasehold improvements

 

65,676

 

48,504

 

Total

 

203,951

 

169,137

 

Accumulated depreciation and amortization

 

(67,610

)

(50,935

)

PROPERTY AND EQUIPMENT—NET

 

136,341

 

118,202

 

DEFERRED TAX ASSETS—NET

 

61,563

 

61,594

 

INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

 

26,280

 

23,551

 

GOODWILL—NET

 

663,110

 

592,233

 

INTANGIBLE ASSETS—NET

 

44,497

 

30,928

 

OTHER NON-CURRENT ASSETS

 

160,928

 

88,850

 

TOTAL ASSETS

 

$

2,701,933

 

$

2,491,821

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Short-term debt

 

$

2,065

 

$

1,926

 

Accounts payable and other current liabilities

 

257,250

 

228,350

 

Accrued expenses

 

528,293

 

491,989

 

Billings in excess of costs on uncompleted contracts

 

232,562

 

192,400

 

Income taxes payable

 

2,794

 

42,664

 

Deferred tax liability – net

 

23,119

 

14,641

 

Current portion of long-term debt

 

16,577

 

6,838

 

TOTAL CURRENT LIABILITIES

 

1,062,660

 

978,808

 

OTHER LONG-TERM LIABILITIES

 

192,945

 

174,253

 

LONG-TERM DEBT

 

32,906

 

39,186

 

MINORITY INTEREST

 

26,284

 

21,089

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Convertible preferred stock—authorized, 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

 

2,937

 

4,978

 

Preferred stock, Class C—authorized, 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

 

 

 

Preferred stock, Class E—authorized, 20 shares; issued and outstanding, 5 shares as of March 31, 2008 and September 30, 2007; no par value, $1.00 liquidation preference value

 

 

 

Common stock—authorized, 150,000,000 shares of $0.01 par value; issued and outstanding, 101,171,737 and 99,061,692, as of March 31, 2008 and September 30, 2007, respectively

 

1,011

 

991

 

Additional paid-in capital

 

1,269,252

 

1,224,164

 

Accumulated other comprehensive loss

 

(25,693

)

(26,211

)

Retained earnings

 

139,631

 

74,563

 

TOTAL STOCKHOLDERS’ EQUITY

 

1,387,138

 

1,278,485

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

2,701,933

 

$

2,491,821

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1



 

AECOM Technology Corporation

Condensed Consolidated Statements of Income

(unaudited - in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

Six Months Ended March 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,164,121

 

$

1,083,709

 

$

2,244,371

 

$

2,022,258

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

794,726

 

799,838

 

1,548,384

 

1,489,968

 

Gross profit

 

369,395

 

283,871

 

695,987

 

532,290

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of joint ventures

 

4,008

 

2,219

 

6,850

 

3,636

 

General and administrative expenses

 

314,444

 

248,146

 

599,346

 

467,974

 

Income from operations

 

58,959

 

37,944

 

103,491

 

67,952

 

 

 

 

 

 

 

 

 

 

 

Minority interest in share of earnings

 

4,798

 

3,648

 

6,077

 

5,234

 

Other expense

 

813

 

 

1,628

 

 

Gain on sale of equity investment

 

 

 

 

11,286

 

Interest income (expense), net

 

2,061

 

(2,228

)

4,309

 

(3,303

)

Income before income tax expense

 

55,409

 

32,068

 

100,095

 

70,701

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

19,580

 

10,870

 

34,773

 

23,983

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

35,829

 

$

21,198

 

$

65,322

 

$

46,718

 

 

 

 

 

 

 

 

 

 

 

Net income allocation:

 

 

 

 

 

 

 

 

 

Preferred stock dividend

 

$

39

 

$

87

 

$

95

 

$

116

 

Net income available for common stockholders

 

35,790

 

21,111

 

65,227

 

46,602

 

Net income

 

$

35,829

 

$

21,198

 

$

65,322

 

$

46,718

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.36

 

$

0.37

 

$

0.65

 

$

0.82

 

Diluted

 

$

0.35

 

$

0.27

 

$

0.63

 

$

0.60

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

100,571

 

56,331

 

100,108

 

56,965

 

Diluted

 

103,454

 

77,964

 

103,240

 

78,500

 

 

Condensed Consolidated Statements of Comprehensive Income

(unaudited—in thousands)

 

 

 

Three Months Ended March 31,

 

Six Months Ended March 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

35,829

 

$

21,198

 

$

65,322

 

$

46,718

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(160

)

4,199

 

(1,070

)

7,174

 

Pension adjustments

 

1,588

 

 

1,588

 

 

Comprehensive income

 

$

37,257

 

$

25,397

 

$

65,840

 

$

53,892

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

2



 

AECOM Technology Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

 

 

 

Six Months Ended March 31,

 

 

 

2008

 

2007

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

65,322

 

$

46,718

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

21,340

 

18,972

 

Equity in earnings of unconsolidated joint ventures

 

(6,850

)

(3,636

)

Distribution of earnings from unconsolidated joint ventures

 

9,068

 

4,068

 

Stock based compensation

 

11,456

 

13,143

 

Excess tax benefit from share based payment

 

(8,552

)

 

Interest income on notes from stockholders

 

 

(754

)

Foreign currency translation

 

(475

)

1,490

 

Gain on sale of equity investment

 

 

(11,286

)

Changes in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

(165,609

)

(75,211

)

Prepaid expenses and other assets

 

33,112

 

(11,869

)

Accounts payable

 

18,400

 

(11,395

)

Accrued expenses and other current liabilities

 

10,303

 

31,928

 

Billings in excess of costs on uncompleted contracts

 

28,262

 

51,903

 

Other long-term liabilities

 

(13,811

)

(170

)

Income taxes receivable/payable

 

1,301

 

(171

)

Net cash provided by operating activities

 

3,267

 

53,730

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Payments for business acquisitions, net of cash acquired

 

(102,750

)

(125,797

)

Net investment in unconsolidated affiliates

 

(1,247

)

712

 

Proceeds from sales of investment securities

 

129,234

 

 

Purchases of investment securities

 

(9,900

)

 

Payments for capital expenditures

 

(23,807

)

(18,642

)

Proceeds from sale of equity investment

 

 

14,683

 

Net cash used in investing activities

 

(8,470

)

(129,044

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from borrowings under credit agreements

 

 

51,858

 

Repayments of borrowings under long-term obligations

 

(5,184

)

(8,500

)

Proceeds from issuance of common stock

 

5,979

 

42,157

 

Proceeds from exercise of stock options

 

4,979

 

2,933

 

Payments to repurchase common stock

 

(8,650

)

(48,455

)

Proceeds from payment of notes receivable from stockholders

 

 

22,663

 

Excess tax benefit from share based payment

 

8,552

 

 

Net cash provided by financing activities

 

5,676

 

62,656

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

291

 

1,052

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

764

 

(11,606

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

216,911

 

127,870

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

217,675

 

$

116,264

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITY
Common stock issued in acquisitions

 

$

20,850

 

$

800

 

 

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 Company’s financial position and results of operations for the periods presented.  All inter-company balances and transactions are eliminated in consolidation.

 

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

 

The results of operations for the three and 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 Taxes–An 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 Company’s 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 Company’s 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 Company’s 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 Company’s ability and intent to hold these investments to their expected recovery, the financial strength of the issuers and guarantors of the securities (including the U.S. government) and valuations performed by the Company, no 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 Receivable—Net

 

Net accounts receivable consisted of the following as of March 31, 2008 and September 30, 2007:

 

 

 

March 31, 2008

 

September 30, 2007

 

 

 

(in thousands)

 

Billed

 

$

788,964

 

$

635,996

 

Unbilled

 

567,076

 

466,612

 

Contract retentions

 

39,303

 

40,522

 

Total accounts receivable—gross

 

1,395,343

 

1,143,130

 

Allowance for doubtful accounts

 

(60,152

)

(51,448

)

Total accounts receivable—net

 

$

1,335,191

 

$

1,091,682

 

 

 

 

 

 

 

Billings in excess of costs on uncompleted contracts

 

$

232,562

 

$

192,400

 

 

Billed accounts receivable represent amounts billed to clients that have yet to be collected.  Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end.  Substantially all unbilled receivables as of 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 Company’s 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:

 

 

 

September 30,
2007

 

Post-Acquisition
Adjustments

 

Acquired

 

March 31,
2008

 

 

 

(in thousands)

 

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 Company’s acquired identifiable intangible assets with finite useful lives as of March 31, 2008 and September 30, 2007, included in intangible and other assets—net in the accompanying condensed consolidated balance sheets, were as follows:

 

 

 

March 31, 2008

 

September 30, 2007

 

 

 

Gross
Amount

 

Accumulated
Amortization

 

Gross
Amount

 

Accumulated
Amortization

 

 

 

(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 Company’s pension cost for the three and six months ended March 31, 2008 and 2007 includes the following components:

 

U.S. Plans

 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

 

 

 

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
March 31,

 

Six Months Ended
March 31,

 

 

 

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

 

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

 

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

 

Reportable Segments:

 

Professional
Technical 
Services

 

Management
Support
Services

 

Corporate

 

Total

 

 

 

(in thousands)

 

Three Months Ended 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
Technical
Services

 

Management
Support
Services

 

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 Company’s results of operations, financial position, or cash flows.

 

The fair value of the Company’s stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model.  The expected term of awards granted represents the period of time the awards are expected to be outstanding.  As the Company’s common stock has only recently 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
March 31,

 

Six Months Ended
March 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

Dividend yield

 

 

 

 

 

Expected volatility

 

33

%

25

%

33

%

25

%

Risk-free interest rate

 

3.5

 

4.6

 

3.5

 

4.6

 

Term (in years)

 

4.5

 

7

 

4.5

 

7

 

 

Under SFAS 123R, the Company’s net income for the six months ended March 31, 2008 and 2007 was $0.6 million and $0.3 million lower than under the Company’s 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
under options

 

Weighted average
exercise price

 

Shares of stock
under options

 

Weighted average
exercise price

 

 

 

(in thousands)

 

 

 

(in thousands)

 

 

 

Outstanding at September 30

 

7,728

 

$

9.27

 

8,929

 

$

8.42

 

Options granted

 

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,
 2008

 

March 31,
2007

 

March 31,
2008

 

March 31,
2007

 

 

 

(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 Company’s financial statements.

 

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

 

As of 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 Company’s future effective tax rate.  The remaining $3.4 million would reduce deferred tax balances and amounts primarily arising from business combinations which, if recognized, would be recorded as reductions to goodwill.

 

The Company’s continuing practice is to recognize interest and penalties related to uncertain tax positions in tax expense.  At adoption, the Company had accrued $1.6 million of interest and penalties (net of $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 Company’s 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 Company’s 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 parent’s 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 Company’s fiscal year ending September 30, 2010.  The Company is currently evaluating the impact of SFAS 160 on its financial statements.

 

In February 2007, the FASB issued 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.  Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

Forward-Looking Statements

 

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

 

Overview

 

We are a leading global provider of professional technical and management support services for commercial and government clients around the world.  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
Ended March 31,

 

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 year’s 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 year’s 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.

 

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Seasonality

 

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

 

Liquidity and Capital Resources

 

Cash Flows

 

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

 

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

 

At 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.

 

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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