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| ACM > SEC Filings for ACM > Form 10-Q on 6-Feb-2013 | All Recent SEC Filings |
6-Feb-2013
Quarterly Report
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, the risk of employee misconduct or our failure to comply with laws and regulations, and our ability to successfully execute our mergers and acquisitions strategy, including the integration of new companies into our business. Accordingly, actual results could differ materially from those contemplated by any forward-looking statement. 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 public and private clients around the world. We provide our services in a broad range of end markets through a network of approximately 46,900 employees.
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 report our business through two segments:
Professional Technical Services (PTS) and Management Support Services (MSS).
Our PTS segment delivers planning, consulting, architectural and engineering design, and program and construction management services to commercial and government clients worldwide in major end markets such as transportation, facilities, environmental, energy, water and government 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.
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 and other direct costs.
Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, integrate and maximize the value of our recent acquisitions, allocate our labor resources to profitable and high growth markets, secure new contracts and renew existing client agreements. Demand for our services is cyclical and may be vulnerable to sudden economic downturns and reductions in government and private industry spending, which may result in clients delaying, curtailing or canceling proposed and existing projects. Moreover, as a professional services company, maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability.
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.
We define revenue provided by acquired companies as revenue included in the current period up to twelve months subsequent to their acquisition date. Throughout this section, we refer to companies we acquired in the last twelve months as "acquired companies."
Components of Income and Expense
Our management analyzes the results of our operations using several financial measures not in accordance with generally accepted accounting principles (GAAP). 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. A large portion of our fees are derived through work performed by AECOM employees rather than other parties. 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, and the related gross margins, as discussed in Results of Operations below. Because of the importance of maintaining the high quality of work generated by our employees, gross margin is an important metric that we review in evaluating our operating performance.
The following table presents, for the periods indicated, a presentation of the non-GAAP financial measures reconciled to the closest GAAP measures:
Three Months
Ended December 31,
2012 2011
(in millions)
Other Financial Data:
Revenue $ 2,017.3 $ 2,029.2
Other direct costs(1) 772.3 798.4
Revenue, net of other direct costs(1) 1,245.0 1,230.8
Cost of revenue, net of other direct costs(1) 1,166.9 1,140.5
Gross profit 78.1 90.3
Equity in earnings of joint ventures 5.9 9.0
General and administrative expenses (22.1 ) (22.6 )
Income from operations $ 61.9 $ 76.7
Reconciliation of Cost of Revenue:
Other direct costs $ 772.3 $ 798.4
Cost of revenue, net of other direct costs 1,166.9 1,140.5
Cost of revenue $ 1,939.2 $ 1,938.9
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Results of Operations
Three months ended December 31, 2012 compared to the three months ended December 31, 2011
Consolidated Results
Three Months Ended
December 31, December 31, Change
2012 2011 $ %
(in millions)
Revenue $ 2,017.3 $ 2,029.2 $ (11.9 ) (0.6 )%
Other direct costs 772.3 798.4 (26.1 ) (3.3 )
Revenue, net of other
direct costs 1,245.0 1,230.8 14.2 1.2
Cost of revenue, net of
other direct costs 1,166.9 1,140.5 26.4 2.3
Gross profit 78.1 90.3 (12.2 ) (13.5 )
Equity in earnings of joint
ventures 5.9 9.0 (3.1 ) (34.4 )
General and administrative
expenses (22.1 ) (22.6 ) 0.5 (2.2 )
Income from operations 61.9 76.7 (14.8 ) (19.3 )
Other income 0.3 1.9 (1.6 ) (84.2 )
Interest expense, net (10.5 ) (10.6 ) 0.1 (0.9 )
Income before income tax
expense 51.7 68.0 (16.3 ) (24.0 )
Income tax expense 12.7 19.6 (6.9 ) (35.2 )
Net income 39.0 48.4 (9.4 ) (19.4 )
Noncontrolling interests in
income of consolidated
subsidiaries, net of tax (0.9 ) (0.5 ) (0.4 ) 80.0
Net income attributable to
AECOM $ 38.1 $ 47.9 $ (9.8 ) (20.5 )%
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The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
Three Months Ended
December 31, December 31,
2012 2011
Revenue, net of other direct costs 100.0 % 100.0 %
Cost of revenue, net of other direct costs 93.7 92.7
Gross margin 6.3 7.3
Equity in earnings of joint ventures 0.5 0.7
General and administrative expense (1.8 ) (1.8 )
Income from operations 5.0 6.2
Other income - 0.2
Interest expense, net (0.8 ) (0.9 )
Income before income tax expense 4.2 5.5
Income tax expense 1.1 1.6
Net income 3.1 3.9
Noncontrolling interests in income of
consolidated subsidiaries, net of tax - -
Net income attributable to AECOM 3.1 % 3.9 %
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Revenue
Our revenue for the three months ended December 31, 2012 decreased $11.9 million, or 0.6%, to $2,017.3 million as compared to $2,029.2 million for the corresponding period last year. Revenue provided by acquired companies was $29.1 million for the three months ended December 31, 2012. Excluding the revenue provided by acquired companies, revenue decreased $41.0 million, or 2.0%, from the three months ended December 31, 2011.
The decrease in revenue, excluding acquired companies, for the three months ended December 31, 2012 was primarily attributable to a reduction in engineering, program management, and construction management services provided in the Americas of $75 million and a decrease in mining related services in Australia of approximately $15 million. These decreases were partially offset by a $24 million increase in our MSS segment and increased engineering and program management services on infrastructure projects in Asia of approximately $20 million.
Revenue, Net of Other Direct Costs
Our revenue, net of other direct costs, for the three months ended December 31, 2012 increased $14.2 million, or 1.2%, to $1,245.0 million as compared to $1,230.8 million for the corresponding period last year. Revenue, net of other direct costs, provided by acquired companies was $21.3 million for the three months ended December 31, 2012. Excluding revenue, net of other direct costs, provided by acquired companies, revenue, net of other direct costs, decreased $7.1 million, or 0.6%, from the three months ended December 31, 2011.
The decrease in revenue, net of other direct costs, excluding revenue, net of other direct costs provided by acquired companies, for the three months ended December 31, 2012 was primarily due to a reduction in engineering and program management services in the Americas of $20 million and a decrease in mining related services in Australia of approximately $15 million, partially offset by an increase in our MSS segment of $21 million.
Gross Profit
Our gross profit for the three months ended December 31, 2012 decreased $12.2 million, or 13.5%, to $78.1 million as compared to $90.3 million for the corresponding period last year. Gross profit provided by acquired companies was $0.8 million for the three months ended December 31, 2012. Excluding gross profit provided by acquired companies, gross profit decreased $13.0 million, or 14.4%, from the three months ended December 31, 2011. For the three months ended December 31, 2012, gross profit, as a percentage of revenue, net of other direct costs, decreased to 6.3% from 7.3% in the three months ended December 31, 2011.
The decreases in gross profit and gross profit, as a percentage of revenue, net of other direct costs for the three months ended December 31, 2012, as compared to the corresponding period last year were primarily attributable to a decline in our Australian mining related services noted above, which led us to incur severance costs of approximately $8 million during the quarter ended December 31, 2012.
Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the three months ended December 31, 2012 decreased $3.1 million, or 34.4%, to $5.9 million as compared to $9.0 million in the corresponding period last year primarily due to reduced earnings on a joint venture that supports United States government activities in the Middle East.
General and Administrative Expenses
Our general and administrative expenses for the three months ended December 31, 2012 decreased $0.5 million, or 2.2%, to $22.1 million as compared to $22.6 million for the corresponding period last year. As a percentage of revenue, net of other direct costs, general and administrative expenses was 1.8% for each of the three months ended December 31, 2012 and December 31, 2011.
Other Income
Our other income for the three months ended December 31, 2012 decreased $1.6 million to $0.3 million as compared to $1.9 million for the three months ended December 31, 2011.
Other income is primarily related to investment earnings.
Interest Expense, Net
Our net interest expense for the three months ended December 31, 2012 decreased $0.1 million to $10.5 million as compared to $10.6 million for the three months ended December 31, 2011.
Income Tax Expense
Our income tax expense for the three months ended December 31, 2012 decreased $6.9 million, or 35.2%, to $12.7 million as compared to $19.6 million for the three months ended December 31, 2011.
The reduction in the tax expense is primarily due to a reduction in the earnings from the quarter ended December 31, 2012, as compared to the earnings from the quarter ended December 31, 2011.
Net Income Attributable to AECOM
The factors described above resulted in net income attributable to AECOM of $38.1 million for the three months ended December 31, 2012 as compared to net income attributable to AECOM of $47.9 million for the three months ended December 31, 2011.
Results of Operations by Reportable Segment:
Professional Technical Services
Three Months Ended
December 31, December 31, Change
2012 2011 $ %
(in millions)
Revenue $ 1,771.2 $ 1,807.4 $ (36.2 ) (2.0 )%
Other direct costs 677.4 706.5 (29.1 ) (4.1 )
Revenue, net of other
direct costs 1,093.8 1,100.9 (7.1 ) (0.6 )
Cost of revenue, net of
other direct costs 1,024.5 1,016.1 8.4 0.8
Gross profit $ 69.3 $ 84.8 $ (15.5 ) (18.3 )%
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The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
Three Months Ended
December 31, December 31,
2012 2011
Revenue, net of other direct costs 100.0 % 100.0 %
Cost of revenue, net of other direct costs 93.7 92.3
Gross margin 6.3 % 7.7 %
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Revenue
Revenue for our PTS segment for the three months ended December 31, 2012 decreased $36.2 million, or 2.0%, to $1,771.2 million as compared to $1,807.4 million for the corresponding period last year. Revenue provided by acquired companies was $29.1 million for the three months ended December 31, 2012. Excluding revenue provided by acquired companies, revenue decreased $65.3 million, or 3.6%, from the three months ended December 31, 2011.
The decrease in revenue, excluding acquired companies, for the three months ended December 31, 2012 was primarily attributable to a reduction in engineering, program management, and construction management services provided in the Americas of $75 million and a decrease in mining related services in Australia of approximately $15 million. These decreases were partially offset by increased engineering and program management services on infrastructure projects in Asia of approximately $20 million.
Revenue, Net of Other Direct Costs
Revenue, net of other direct costs, for our PTS segment for the three months ended December 31, 2012 decreased $7.1 million, or 0.6%, to $1,093.8 million as compared to $1,100.9 million for the corresponding period last year. Revenue, net of other direct costs, provided by acquired companies was $21.3 million for the three months ended December 31, 2012. Excluding revenue, net of other direct costs, provided by acquired companies, revenue, net of other direct costs, decreased $28.4 million, or 2.6%, from the three months ended December 31, 2011.
The decrease in revenue, net of other direct costs, excluding revenue, net of other direct costs provided by acquired companies, for the three months ended December 31, 2012 was primarily due to decreased engineering and program management services in the Americas and Australia of $20 million and $15 million, respectively.
Gross Profit
Gross profit for our PTS segment for the three months ended December 31, 2012 decreased $15.5 million, or 18.3%, to $69.3 million as compared to $84.8 million for the corresponding period last year. Gross profit provided by acquired companies was $0.8 million for the three months ended December 31, 2012. Excluding gross profit provided by acquired companies, gross profit decreased $16.3 million, or 19.2%, from the three months ended December 31, 2011. As a percentage of revenue, net of other direct costs, gross profit decreased to 6.3% of revenue, net of other direct costs, for the three months ended December 31, 2012 from 7.7% in the corresponding period last year.
The decrease in gross profit and gross profit as a percentage of revenue, net of other direct costs, was primarily attributable to a decline in our Australian mining related services noted above, which led us to incur severance costs of approximately $8 million during the quarter ended December 31, 2012.
Management Support Services
Three Months Ended
December 31, December 31, Change
2012 2011 $ %
(in millions)
Revenue $ 246.1 $ 221.8 $ 24.3 11.0 %
Other direct costs 94.9 91.9 3.0 3.3
Revenue, net of other
direct costs 151.2 129.9 21.3 16.4
Cost of revenue, net of
other direct costs 142.4 124.4 18.0 14.5
Gross profit $ 8.8 $ 5.5 $ 3.3 60.0 %
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The following table presents the percentage relationship of certain items to revenue, net of other direct costs:
Three Months Ended
December 31, December 31,
2012 2011
Revenue, net of other direct costs 100.0 % 100.0 %
Cost of revenue, net of other direct costs 94.2 95.8
Gross margin 5.8 % 4.2 %
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Revenue
Revenue for our MSS segment for the three months ended December 31, 2012 increased $24.3 million, or 11.0%, to $246.1 million as compared to $221.8 million for the corresponding period last year. No revenue, net of other direct costs, was provided by acquired companies.
The increase in revenue for the three months ended December 31, 2012 was primarily attributable to increased services provided to the U.S. Army in the Middle East.
Revenue, Net of Other Direct Costs
Revenue, net of other direct costs, for our MSS segment for the three months ended December 31, 2012 increased $21.3 million, or 16.4%, to $151.2 million as compared to $129.9 million for the corresponding period last year. No revenue, net of other direct costs, was provided by acquired companies.
The increase in revenue, net of other direct costs, for the three months ended December 31, 2012 was primarily attributable to increased services provided to the U.S. Army in the Middle East.
Gross Profit
Gross profit for our MSS segment for the three months ended December 31, 2012 increased $3.3 million, or 60.0%, to $8.8 million as compared to $5.5 million for the corresponding period last year. As a percentage of revenue, net of other direct costs, gross profit increased to 5.8% of revenue, net of other direct costs, for the three months ended December 31, 2012 from 4.2% in the corresponding period last year. No gross profit was provided by acquired companies.
Seasonality
We experience seasonal trends in our business. The first quarter of our fiscal year (October 1 to December 31) is typically our weakest quarter. The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season schedule affects our productivity during this period. 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 our 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
Our principal sources of liquidity are cash flows from operations, borrowings under our credit facilities, and access to financial markets. Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of stock under our stock repurchase program and repayment of debt. We believe our anticipated sources of liquidity including operating cash flows, existing cash and cash equivalents, borrowing capacity under our revolving credit facility and our ability to issue debt or equity, if required, will be sufficient to meet our projected cash requirements for at least the next 12 months.
At December 31, 2012, cash and cash equivalents were $591.3 million, a decrease of $2.5 million, or 0.4%, from $593.8 million at September 30, 2012. The decrease in cash and cash equivalents was primarily attributable to cash payments for business acquisitions and stock repurchases offset by cash provided by operating activities and net borrowings under credit agreements.
Net cash provided by operating activities was $67.1 million for the three months ended December 31, 2012, compared with net cash used in operating activities of $6.4 million for the three months ended December 31, 2011. The increase was primarily attributable to the timing of receipts and payments of working capital, which include accounts receivable, accounts payable, accrued expenses, and billings in excess of costs on uncompleted contracts. The increase in cash provided by operating activities provided by our accounts receivable was partially due to the sale of trade receivables to financial institutions, which provided a net benefit of $51.0 million. We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to AECOM.
Net cash used in investing activities was $52.2 million for the three months ended December 31, 2012, compared with $21.6 million for the three months ended December 31, 2011. This increase was primarily attributable to a $32.7 million increase in payments for business acquisitions.
Net cash used in financing activities was $16.9 million for the three months ended December 31, 2012, compared with net cash provided by financing activities of $72.7 million for the three months ended December 31, 2011. The change was primarily attributable to a $159.8 million increase in payments to repurchase common stock under the Repurchase Program, partially offset by an increase in . . .
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