AECOM Technology Corporation — FY2012 Form 10-K
Reporting period: Fiscal year ended September 30, 2012; the filing also reports fourth-quarter results. AECOM provides global engineering, design, consulting, construction/program management, and government support services through Professional Technical Services (PTS) and Management Support Services (MSS).
Financial performance and position
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue | $8.218 billion | $8.037 billion |
| Gross profit | $421.9 million | $466.7 million |
| Operating income | $53.6 million | $421.2 million |
| Net income (loss) attributable to AECOM | $(58.6) million; $(0.52) per diluted share | $275.8 million; $2.33 per diluted share |
| Cash from operations | $433.4 million | $132.0 million |
| Capital expenditures | $62.9 million | $78.0 million |
| Cash and cash equivalents | $593.8 million | $456.9 million |
| Working capital | $1.069 billion | $1.176 billion |
| Total debt | $1.070 billion | $1.163 billion |
| Total backlog | $16.0 billion | $15.6 billion |
- Revenue rose 2.2%, but revenue net of other direct costs, a company-defined non-GAAP measure, was essentially flat at $5.184 billion. Gross margin on that measure fell to 8.1% from 9.0%.
- FY2012 included a $336 million goodwill impairment charge ($317.2 million after tax), associated with EMEA and MSS business conditions. The impairment drove the reported operating-income and net-income declines. The effective tax rate was 425.7%, chiefly because most of the impairment was not tax-deductible.
- PTS revenue increased 5.8% to $7.277 billion, while gross profit rose 1.5% to $423.8 million and its margin on revenue net of other direct costs edged up to 9.2%.
- MSS revenue declined 18.9% to $941.3 million following completion of a U.S. government combat-support project. MSS gross profit swung to a $1.9 million loss from $49.0 million profit; management also cited weaker performance on national-security and field-services projects and settlement of a DCAA matter.
- Operating cash flow increased substantially, which management attributed primarily to working-capital receipt/payment timing. Cash includes $136.8 million held in consolidated joint ventures; those JV assets are restricted to the ventures’ use. DSO increased to 91 days from 88.
- Debt declined by $92.8 million; $162.6 million was current. A $1.05 billion revolving facility had $990.9 million available at year-end. The leverage ratio was 2.15 against a maximum of 3.0, and AECOM reported compliance with its debt covenants.
Changes, outlook, risks, and unusual items
- Growth in construction management in the Americas and infrastructure work in Australia and Asia was partly offset by weaker U.S., Middle East, and European activity, currency effects, reduced MSS work, and the cessation of Libya services. Private-entity revenue increased to 40% of total from 36%; government revenue fell to 60% from 64%.
- Backlog increased 3% to $16.0 billion, comprising $8.5 billion contracted and $7.5 billion awarded but not yet signed. The filing cautions that backlog may be delayed, reduced, canceled, or not become profitable.
- Management said available cash, operating cash flow, borrowing capacity, and potential access to capital should meet projected cash needs for at least 12 months. The filing provides no specific earnings or revenue guidance. It describes continued focus on core markets, client relationships, acquisitions, and balanced capital allocation.
- U.S. federal sequestration was scheduled to begin January 2, 2013 absent remedial action; management warned that government spending cuts could delay or cancel work. Other risks include annual funding uncertainty and government contract termination, economic cyclicality, fixed-price execution risk (47% of revenue), international and currency exposure, and competition for qualified staff.
- Defined-benefit pension plans had an aggregate deficit of $192.2 million, up from $166.5 million; expected FY2013 contributions were $17.3 million to international plans and $8.9 million to U.S. plans. Contractual obligations included $1.059 billion in operating leases.
- Open matters included DCAA-questioned costs at the Global Linguists Solutions joint venture, with approximately $19 million withheld pending resolution; Australian litigation relating to a toll-road traffic forecast, with claims amounts unspecified; and a U.S. Attorney/EPA investigation concerning a Hawaii landfill project, with no action filed as of the report. A previously disclosed Combat Support Associates DCAA matter was settled. Management said ordinary-course legal matters were not expected to have a material adverse effect.
- The company repurchased $159.8 million of stock in FY2012 and authorized a further $300 million program in August 2012; $237.7 million remained available at year-end. It reported no cash dividends and no near-term plan to pay them.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Investor verification priorities
- Assess the underlying earnings trend excluding the $336 million impairment, especially MSS profitability and the sustainability of PTS margins.
- Reconcile the sharp operating-cash-flow increase to working-capital timing and receivables sales; monitor DSO, unbilled receivables, and collections.
- Review backlog quality, funding and contract-signing status, cancellations, and expected margins—particularly awarded backlog.
- Track resolution and potential financial or contracting consequences of the GLS audit/investigation, Australian lawsuits, and Hawaii investigation.
- Check the effects of U.S. budget cuts/sequestration, pension funding needs, upcoming debt maturities, covenant headroom, and continued share repurchases.