AECOM Technology Corporation — FY2010 Form 10-K
Reporting period: Fiscal year ended September 30, 2010; the filing also reports fourth-quarter results. Unless otherwise noted, figures are U.S. dollars.
Business context
AECOM provides engineering, design, consulting, program and construction management, and government support services. Its Professional Technical Services (PTS) segment generated 82% of FY2010 revenue; Management Support Services (MSS), primarily serving U.S. government agencies, generated 18%. The company had approximately 48,100 employees and reported that 54% of revenue came from outside the United States.
Financial results and liquidity
| Metric | FY2010 | FY2009 |
|---|---|---|
| Revenue | $6.546 billion | $6.119 billion |
| Gross profit | $430.3 million | $351.2 million |
| Operating income | $340.8 million | $286.9 million |
| Net income attributable to AECOM | $236.9 million | $189.7 million |
| Diluted EPS | $2.05 | $1.73 |
| Cash from operating activities | $158.6 million | $228.6 million |
| Capital expenditures | $68.5 million | $62.9 million |
- Revenue increased 7.0%, but growth excluding acquisitions was only 0.2%. Acquisitions contributed $412.7 million of revenue growth.
- Gross margin was 10.2% of revenue net of other direct costs, versus 9.2% in FY2009; operating margin on that basis was 8.1%, versus 7.5%. Management attributed margin improvement mainly to efficiency initiatives, acquisition integration and project performance.
- PTS gross margin on revenue net of other direct costs rose to 10.2% from 8.8%. MSS gross margin on the same basis fell to 11.0% from 15.1%, reflecting lower-margin work, strategic growth costs and a contract reserve.
- FY2010 fourth-quarter revenue was $1.829 billion; net income attributable to AECOM was $67.8 million and diluted EPS was $0.58.
- Cash and equivalents were $612.9 million, versus $290.8 million; working capital was $1.094 billion, versus $657.8 million. Net accounts receivable rose 30.7% to $1.8 billion, and DSO increased to 89 days from 78.
- Total debt was $931.1 million, versus $171.2 million. Long-term debt excluding current maturities was $914.7 million. A $600 million term loan and $300 million private placement of notes helped fund acquisitions and general corporate purposes; $542 million remained available under the $600 million revolving facility.
Changes, outlook and notable items
- Backlog increased 54.7% to $14.7 billion from $9.5 billion, primarily due to acquisitions. It comprised $6.8 billion contracted and $7.9 billion awarded; awarded work was not yet under signed contract, and AECOM cautioned that backlog may be delayed, reduced or cancelled.
- FY2010 acquisition consideration totaled $768 million, including Tishman Construction and MT Holdings/McNeil Technologies. AECOM subsequently completed the Davis Langdon acquisitions for approximately $324 million in cash and stock.
- Management stated that cash, operating cash flow, revolving-credit availability and access to debt or equity were expected to cover projected cash requirements for at least the next 12 months. No specific earnings or revenue guidance was provided.
- Operating cash flow declined from FY2009, principally due to timing of collections and payments. Investing cash use rose to $614.5 million, primarily because of acquisitions.
- Government entities generated 73% of revenue. Key exposures include annual appropriations, potential contract termination or insourcing, economic and public-budget pressure, fixed-price project overruns, and foreign-exchange, political and security risks.
- The global defined-benefit pension deficit was $164.2 million, up from $132.5 million; expected FY2011 pension contributions were approximately $34.2 million. A DCAA dispute over Kuwait labor-indemnity costs led the U.S. government to withhold approximately $18 million; management believed the joint venture had a strong defense but warned an adverse outcome could materially affect results.
- Other notable items: $9.0 million of acquisition transaction costs were expensed; annual goodwill testing found no impairment. The auditor issued unqualified opinions on the financial statements and internal control, while the acquired Tishman and MT Holdings businesses were excluded from management’s internal-control assessment.
Key investor verification points
- Separate acquisition-driven, foreign-exchange and underlying organic growth, and assess whether acquired businesses deliver expected earnings and integration benefits.
- Track receivables, DSO and operating cash conversion, including whether the increase in unbilled and billed receivables reverses.
- Assess conversion and funding of awarded backlog, concentration in government work, and the outlook for U.S. infrastructure appropriations.
- Review debt covenants, floating-rate exposure, the 2014 term-loan maturity concentration and refinancing needs.
- Monitor MSS profitability, the $18 million Kuwait cost dispute, pension funding and the effect of contract claims, guarantees and fixed-price exposures.