You should read the following discussion in conjunction with our consolidated financial statements and the related notes included in this report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in "Risk Factors."

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 approximately 43,000 employees and staff employed in the field on projects.

Our business focuses primarily on providing fee-based professional technical and support services and therefore our business is 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 spent on client projects and our ability to manage our costs. We operate our business through two segments: Professional Technical Services (PTS) and Management Support Services (MSS).

Our PTS segment delivers planning, consulting, architecture and engineering design, and program and construction management services to institutional, commercial and government clients worldwide in end markets such as the transportation, facilities, environmental and energy markets. PTS revenue is primarily derived from fees from services that we provide, as opposed to pass-through fees from subcontractors and other direct costs. Revenue for our PTS segment for the year ended September 30, 2008 was $4.3 billion.

Our MSS segment provides facilities management and maintenance, training, logistics, consulting, technical assistance and systems integration services, primarily for agencies of the U.S. government. MSS revenue typically includes a significant amount of pass-through fees from subcontractors and other direct costs. Revenue for our MSS segment for the year ended September 30, 2008 was $866.8 million.

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

Our costs consist primarily of 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 costs.

Components of Income and Expense

Our management analyzes the results of our operations using several non-GAAP measures. A significant portion of our revenue relates to services provided by subcontractors and other non-employees that we categorize as other direct costs. Those costs are typically paid to service providers upon our receipt of payment from the client. We segregate other direct costs from revenue resulting in a measurement that we refer to as "revenue, net of other direct costs," which is a measure of work performed by AECOM employees. We have included information on revenue, net of other direct costs, as we believe that it is useful to view our 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 measure:

                                                     Year Ended September 30,
                                           2008      2007      2006      2005      2004
                                                           (in millions)
      Other Financial Data:
      Revenue                             $ 5,194   $ 4,237   $ 3,421   $ 2,395   $ 2,012
        Other direct costs*                 1,905     1,832     1,521       933       776

        Revenue, net of other direct        3,289     2,405     1,900     1,462     1,236
        costs*
        Cost of revenue, net of other       3,002     2,207     1,757     1,349     1,134
        direct costs*

      Gross profit                            287       198       143       113       102
      Equity in earnings of joint              23        12         6         2         3
      ventures
        Amortization expense of                18        12        15         3         -
        acquired intangible assets
        Other general and                      53        42        31        14        18
        administrative expenses

      General and administrative               71        54        46        17        18
      expenses

      Income from operations              $   239   $   156   $   103   $    98   $    87

      Reconciliation of Cost of
      Revenue:
        Other direct costs*               $ 1,905   $ 1,832   $ 1,521   $   933   $   776
        Cost of revenue, net of other       3,002     2,207     1,757     1,349     1,134
        direct costs*

      Cost of revenue                     $ 4,907   $ 4,039   $ 3,278   $ 2,282   $ 1,910

In the course of providing its services, the Company routinely subcontracts for services and incurs other direct costs on behalf of its clients. These costs are passed through to clients and, in accordance with industry practice and generally accepted accounting principles, are included in the Company's revenue and cost of revenue. Since subcontractor services and other direct costs can change significantly from project to project and period to period, changes in revenue may not accurately reflect business trends.

Our discussion and analysis of our financial condition and results of operations uses revenue, net of other direct costs as a point of reference. Revenue, net of other direct costs is a non-GAAP measure and may not be comparable to similarly titled items reported by other companies.

Cost of revenue, net of other direct costs reflects the cost of our own personnel (including fringe benefits and overhead expense) associated with revenue, net of other direct costs.

Equity in earnings of joint ventures includes our portion of fees charged by unconsolidated joint ventures in which we participate to clients for services performed by us and other joint venture partners along with earnings we receive from investments in unconsolidated joint ventures.

Included in our general and administrative expenses is amortization of acquired intangible assets. Under SFAS No. 141, "Business Combinations" (SFAS 141), we must ascribe value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired. These assets include but are not limited to backlog, customer lists and trade names. To the extent we ascribe value to identifiable intangible assets that have finite lives, we amortize those values over the estimated useful lives of the assets. Such amortization expense, although non-cash in the period expensed, directly impacts our results of operations.

It is difficult to predict with any precision the amount of expense we may record relating to acquired intangible assets. As backlog is typically the shortest lived intangible asset in our business, we would expect to see higher amortization expense in the first 12 to 18 months (the typical backlog amortization period) after an acquisition has been consummated.

Other general and administrative expenses include corporate overhead expenses, including personnel, occupancy, and administrative expenses. To date we have not recognized any expense related to goodwill impairment. Should we determine, however, that in future periods our goodwill is impaired, the related expense would be a component of our general and administrative expenses.

Income tax expense varies as a function of income before income tax expense and permanent non-tax deductible expenses. Acquisitions have a material effect on our income tax expense. We anticipate continuing our acquisition strategy and, as such, we anticipate that there will be variability in our effective tax rate from quarter to quarter and year to year, especially to the extent that our permanent differences increase or decrease.

Acquisitions

One of our key strategies is to focus on acquisitions of companies that complement our business sectors and/or expand our geographic presence.

The aggregate value of consideration for our acquisitions consummated during the year ended September 30, 2008 was $632 million, the largest of which were:

º •
º Tecsult-During the quarter ended March 31, 2008, we completed the acquisition of Tecsult Inc., a Montreal, Canada-based engineering services firm, with particular strengths in hydroelectric power and developing country infrastructure engineering.

º •
º Boyle-During the quarter ended June 30, 2008, we completed the acquisition of Boyle Engineering Corporation, a California-based engineering services firm that focuses on the environmental market.

º •
º Earth Tech-During the quarter ended September 30, 2008, we acquired substantially all of Earth Tech, Inc., a California-based environmental engineering and government services company, from Tyco International, Ltd.

The aggregate value of all consideration for our acquisitions consummated during the year ended September 30, 2007 was $184 million, the largest of which were:

º •
º HSMM-During the quarter ended March 31, 2007, we acquired Hayes, Seay, Mattern & Mattern, Inc., a Virginia-based engineering and architectural firm which provides professional technical services for buildings, infrastructure development and environmental restoration.

º •
º RETEC-During the quarter ended March 31, 2007, we acquired RETEC, Inc., a Massachusetts-based environmental consulting and engineering firm.

º •
º STS-During the quarter ended March 31, 2007, we acquired STS Consultants, Ltd., an Illinois-based geotechnical/soil engineering, transportation and environmental management firm.

The purchase prices of certain of these acquisitions are subject to purchase allocation adjustments based upon the final determination of the acquired firms' tangible and intangible net asset values as of their respective closing dates. All of our acquisitions have been accounted for as purchases and the results of operations of the acquired companies have been included in our consolidated results since the dates of the acquisitions.

Critical Accounting Policies

Our financial statements are presented in accordance with GAAP. Highlighted below are the accounting policies that management considers significant to understanding the operations of our business.

The Company generally utilizes a cost-to-cost approach in applying the percentage-of-completion method of revenue recognition, under which revenue is earned in proportion to total costs incurred, divided by total costs expected to be incurred. Recognition of revenue and profit under this method is dependent upon a number of factors, including the accuracy of a variety of estimates, including engineering progress, materials quantities, the achievement of milestones, penalty provisions, labor productivity and cost estimates. Due to uncertainties inherent in the estimation process, it is possible that actual completion costs may vary from estimates. If estimated total costs on contracts indicate a loss, the Company recognizes that estimated loss in the period the estimated loss first becomes known.

Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that we seek to collect from customers or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price or other causes of unanticipated additional costs. In accordance with the American Institute of Certified Public Accountants Statement of Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," the Company records contract revenue related to claims only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated. In such cases, the Company records revenue only to the extent that contract costs relating to the claim have been incurred. The amounts recorded, if material, are disclosed in the notes to the financial statements. Costs attributable to claims are treated as costs of contract performance as incurred.

Unbilled Accounts Receivable and Billings in Excess of Costs on Uncompleted Contracts

Unbilled accounts receivable represents the contract revenue recognized to date using the percentage-of-completion accounting method but not yet invoiced to the client due to contract terms or the timing of the accounting invoicing cycle.

Billings in excess of costs on uncompleted contracts represent the billings to date, as allowed under the terms of a contract, but not yet recognized as contract revenue using the percentage-of-completion accounting method.

The Company has non-controlling operational interests in joint ventures accounted for under the equity method. Fees received for and the associated costs of services performed by the Company and billed to joint ventures with respect to work done by the Company for third-party customers are recorded as revenues and costs of the Company in the period in which such services are rendered. In certain joint ventures, a fee is added to the respective billings from the Company and the other joint venture partners on the amounts billed to the third-party customers. These fees result in earnings to the joint venture and are split with each of the joint venture partners and paid to the joint venture partners upon collection from the third-party customer. The Company records its allocated share of these fees as equity in earnings of joint ventures.

Valuation Allowance. Deferred income taxes are provided on the liability method whereby deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities, as well as operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment of such changes to laws and rates.

Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets may not be realized. Whether a deferred tax asset may be realized requires considerable judgment by us. In considering the need for a valuation allowance, we consider the future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carry-forwards, taxable income in carry-back years if carry-back is permitted under tax law, and prudent and feasible tax planning strategies that would normally be taken by management, in the absence of the desire to realize the deferred tax asset. Whether a deferred tax asset will ultimately be realized is also dependent on varying factors, including, but not limited to, changes in tax laws and audits by tax jurisdictions in which we operate.

We review the need for a valuation allowance annually. If we determine we will not realize all or part of our deferred tax asset in the future, we will record an additional valuation allowance. Conversely, if a valuation allowance exists and we determine that the ultimate realizability of all or part of the net deferred tax asset is more likely than not to be realized, then the amount of the valuation allowance will be reduced. This adjustment will increase or decrease income tax expense in the period of such determination.

Undistributed Non-U.S. Earnings. The results of our operations outside of the United States are consolidated by us for financial reporting; however, earnings from investments in non-U.S. operations are included in domestic U.S. taxable income only when actually or constructively received. No deferred taxes have been provided on the undistributed earnings of non-U.S. operations of approximately $229.3 million because we plan to permanently reinvest these earnings overseas. If we were to repatriate these earnings, additional taxes would be due at that time. However, these additional U.S. taxes may be offset in part by the use of foreign tax credits.

Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", requires that the Company perform an impairment test of its goodwill at least annually for each reporting unit of the Company. Inherent in such fair value determination are certain judgments and estimates, including assumptions about our forecasts with regard to our operations as well as the interpretation of current economic indicators and market valuations. Reporting units for purposes of this test are consistent with the Company's reportable segments, Professional Technical Services and Management Support Services segments. The impairment test is a two-step process. During the first step, the Company estimates the fair value of the reporting unit and compares that amount to the carrying value of that reporting unit's goodwill. In the event the fair value of the reporting unit is determined to be less than the carrying value, a second step is required. The second step requires the Company to perform a hypothetical purchase allocation to compare the current implied fair value of the goodwill to the current carrying value of the goodwill. In the event that the current implied fair value of the goodwill is less than the carrying value, an impairment charge is recognized. The Company performs this test annually in its fiscal fourth quarter and concluded that no impairment existed at September 30, 2008, 2007, or 2006.

We carry professional liability insurance policies or self-insure for our initial layer of professional liability claims under our professional liability insurance policies and for a deductible for each claim even after exceeding the self-insured retention. We accrue for our portion of the estimated ultimate liability for the estimated potential incurred losses. We establish our estimate of loss for each potential claim in consultation with legal counsel handling the specific matters and based on historic trends taking into account recent events. We also use an outside actuarial firm to assist us in estimating our future claims exposure. It is possible that our estimate of loss may be revised based on the actual or revised estimate of liability of the claims.

Fiscal year ended September 30, 2008 compared to the fiscal year ended

September 30, 2007

     Consolidated Results

                                          Twelve Months Ended                 Change
                                    September 30,     September 30,
                                        2008              2007             $          %
                                           ($ in thousands)
Revenue                             $    5,194,482    $    4,237,270   $ 957,212       22.6 %
   Other direct costs                    1,905,773         1,832,001      73,772        4.0

Revenue, net of other direct             3,288,709         2,405,269     883,440       36.7
costs
   Cost of revenue, net of other         3,001,513         2,207,316     794,197       36.0
   direct costs

   Gross profit                            287,196           197,953      89,243       45.1
Equity in earnings of joint                 22,192            11,828      10,364       87.6
ventures
General and administrative                  70,581            53,842      16,739       31.1
expense

   Income from operations                  238,807           155,939      82,868       53.1
Minority interest in share of               13,590            16,404      (2,814 )    (17.2 )
earnings
Gain on sale of equity                           -            11,286     (11,286 )   (100.0 )
investment
Other expense                               (3,438 )               -      (3,438 )        -
Interest income (expense)-net                  736            (3,321 )     4,057     (122.2 )

   Income before income tax                222,515           147,500      75,015       50.9
   expense
Income tax expense                          76,321            47,203      29,118       61.7

   Income from continuing                  146,194           100,297      45,897       45.8
   operations
Income from discontinued                     1,032                 -       1,032        0.0
operations, net of tax

   Net income                       $      147,226    $      100,297   $  46,929       46.8 %

The following table presents the percentage relationship of certain items to revenue, net of other direct costs:

                                                    Fiscal Year Ended
                                             September 30,      September 30,
                                                 2008               2007
       Revenue, net of other direct costs             100.0 %            100.0 %
       Cost of revenue, net of other                   91.3               91.8
       direct costs

           Gross profit                                 8.7                8.2
       Equity in earnings of joint                      0.7                0.5
       ventures
       General and administrative expense               2.1                2.2

           Income from operations                       7.3                6.5
       Minority interest in share of                    0.4                0.7
       earnings
       Gain on sale of equity investment                  -                0.5
       Other expense                                   (0.1 )                -
       Interest income (expense)-net                      -               (0.2 )

           Income before income tax                     6.8                6.1
           expense
       Income tax expense                               2.4                1.9

           Income from continuing                       4.4                4.2
           operations
       Income from discontinued                         0.1                  -
       operations, net of tax

           Net income                                   4.5 %              4.2 %

Our revenue for the year ended September 30, 2008 increased $957.2 million, or 22.6%, to $5.2 billion as compared to $4.2 billion for the corresponding period last year. Of this increase, $424.1 million, or 44.3%, was provided by companies acquired in the past twelve months. Excluding the revenue provided by acquired companies, revenue increased $533.1 million, or 12.6%, over the year ended September 30, 2007. This increase was primarily attributable to greater volumes of work performed in our environmental management services business in all of our geographic markets, continued strength in our engineering design services in the United Arab Emirates, higher government spending for highway and transit infrastructure projects in Australia and an increase in demand for work performed in our planning and urban design business. Increased demand in these markets was partially offset by a decline in our design/build services business due to the completion of a significant facility project in the fourth quarter of fiscal 2007.

Our revenue, net of other direct costs for the year ended September 30, 2008 increased $883.4 million, or 36.7%, to $3.3 billion as compared to $2.4 billion for the corresponding period last year. Of this increase, $300.6 million, or 34.0%, was provided by companies acquired in the past twelve months. Excluding revenue, net of other direct costs provided by acquired companies, revenue, net of other direct costs increased $582.8 million, or 24.2%, over fiscal 2007. The increase was 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 increase in revenue during the same period resulted from the decline in our design/build services business in the United States which contains a proportionately higher component of subcontractor costs.

Our gross profit for the year ended September 30, 2008 increased $89.2 million, or 45.1%, to $287.2 million, as compared to $198.0 million for the corresponding period last year. Of this increase, $20.5 million, or 23.0%, was provided by companies acquired in the past twelve months. Excluding gross profit provided by acquired companies, gross profit increased $68.7 million, or 34.7%, over the year ended September 30, 2007, consistent with the increase in revenue, net of other direct costs. For the year ended September 30, 2008, gross profit as a percentage of revenue, net of other direct costs, increased to 8.7% from 8.2% in the year ended September 30, 2007. The increase was primarily due to greater demand for services in higher margin end markets including our world-wide environmental management services business, and our engineering design business in the United Arab Emirates. As discussed in Notes 1, 22, and 23 to the financial statements, we reclassified certain indirect expenses which had previously been presented within general and administrative expenses.

Our equity in earnings of joint ventures for the year ended September 30, 2008 increased $10.4 million, or 87.6%, to $22.2 million as compared to . . .