AECOM Technology Corporation — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013; the filing also reports fourth-quarter results. AECOM provides engineering, design, consulting, construction/program management, and government support services through Professional Technical Services (PTS) and Management Support Services (MSS).
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $8.154 billion | $8.218 billion |
| Gross profit | $450.0 million | $421.9 million |
| Operating income | $377.0 million | $53.6 million |
| Net income (loss) attributable to AECOM | $239.2 million | $(58.6) million |
| Diluted EPS | $2.35 | $(0.52) |
| Cash provided by operations | $408.6 million | $433.4 million |
| Cash and cash equivalents | $600.7 million | $593.8 million |
| Total debt | $1.173 billion | $1.070 billion |
| Working capital | $1.078 billion | $1.069 billion |
Revenue declined 0.8%; excluding acquired-company revenue, it fell 2.8%. Revenue net of other direct costs, a non-GAAP measure excluding pass-through costs, decreased 4.0% to $4.977 billion. Gross profit increased 6.7%; gross margin on that net-revenue measure improved to 9.0% from 8.1%. GAAP gross margin on reported revenue was approximately 5.5%. Net income attributable to AECOM represented approximately 2.9% of revenue.
Operating cash flow decreased $24.8 million, primarily due to working-capital timing. Investing activities used $139.5 million and financing activities used $254.4 million. Capital expenditures were $52.1 million. The company reported $899.8 million available under its $1.05 billion revolving facility; cash and equivalents include $150.3 million held in consolidated joint ventures and restricted to those ventures’ use. The leverage ratio was 2.54 against a maximum of 3.0; AECOM reported compliance with its debt covenants.
Segments and changes versus prior year
- PTS: Revenue was $7.243 billion, down 0.5%; gross profit was $416.9 million, down 1.6%. Lower Australian mining-related work and reduced engineering/program management services in the Americas weighed on results. Improved PTS gross margin partly offset the decline.
- MSS: Revenue was $910.6 million, down 3.3%; gross profit recovered to $33.1 million from a $1.9 million loss. Management attributed the improvement to better project performance.
- Revenue weakness was concentrated in Australia, where reduced mining services drove an approximately $300 million decline excluding acquisitions. Asia infrastructure work provided a partial offset. PTS backlog increased, while MSS backlog decreased.
- Total backlog rose 3% to $16.6 billion: $8.8 billion contracted and $7.8 billion awarded but not yet signed. Backlog is not assured future revenue and may include pass-through costs.
- Equity earnings from joint ventures fell 50% to $24.3 million, primarily due to lower earnings from MSS joint ventures supporting the U.S. Army in the Middle East. General and administrative expense increased 20.3% to $97.3 million, mainly due to performance-based compensation.
Fourth quarter: Revenue was $2.079 billion versus $2.083 billion in FY2012’s fourth quarter. Net income attributable to AECOM was $76.5 million, or diluted EPS of $0.77, versus a $224.9 million loss, or $(2.05) diluted EPS, in the prior-year quarter. The prior-year fourth quarter included a $336 million goodwill impairment charge.
Outlook, risks and unusual items
- No quantified FY2014 revenue or earnings guidance is provided in the supplied filing text. Management stated that expected operating cash flows, existing cash, revolving-facility capacity, and potential access to debt or equity should cover projected cash needs for at least 12 months.
- Management expected FY2014 pension contributions of $16.0 million to international plans and $4.9 million to U.S. plans. Defined-benefit plans had an aggregate deficit of approximately $192.7 million at year-end.
- Government clients generated 59% of FY2013 revenue. Risks include annual appropriations, U.S. sequestration and spending reductions, contract termination or insourcing, and government audits. Fixed-price contracts were approximately 42% of revenue and expose AECOM to cost overruns and project delays.
- International operations generated approximately 41% of revenue from non-U.S. clients and expose AECOM to currency, political, security, regulatory, and anti-corruption risks. The company also relies on joint ventures for a portion of its work and may have limited control over partners.
- Unresolved matters include DCAA-questioned costs at the Global Linguists Solutions joint venture, with approximately $19 million withheld by the U.S. government; Australian litigation relating to a toll-road traffic forecast, with damages not specified; and a U.S. investigation into a Hawaii landfill project. Management said the investigations and claims were not expected to have a material adverse effect based on information available, while noting adverse outcomes could be significant.
- FY2013 included approximately $15 million of severance costs related to reduced Australian mining services. AECOM recorded no goodwill impairment in FY2013, following the $336 million FY2012 charge related to EMEA and MSS. Goodwill and acquired intangible assets totaled approximately $1.9 billion at FY2013 year-end.
- AECOM repurchased $379.7 million of shares under its repurchase program during FY2013. It paid no cash dividend and reported no plan to do so in the foreseeable future.
Important facts for investors to verify
- Whether revenue and margins stabilize, particularly in Australian mining-related work and Americas engineering/program management.
- Whether MSS’s improved project performance persists and its backlog converts to revenue.
- The quality and conversion timing of the $16.6 billion backlog, especially the $7.8 billion of awarded but unsigned work.
- Cash generation and working-capital performance, including continued receivables sales and the availability of cash held in joint ventures.
- Debt maturities, covenant headroom, refinancing needs, and the ability to maintain leverage below the 3.0 maximum.
- Developments and potential financial or contracting consequences from the GLS, Australia, and Hawaii matters, as well as pension funding and goodwill impairment sensitivity.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting as of September 30, 2013.