AECOM Technology Corporation — FY2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011. The filing also provides fourth-quarter results; it is an annual report, not a standalone Q4 filing. AECOM provides global technical, engineering, design, construction-management and government support services through Professional Technical Services (PTS) and Management Support Services (MSS). PTS generated 86% of FY2011 revenue and MSS 14%.
Financial performance and liquidity
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $8.04 billion | $6.55 billion |
| Revenue, net of other direct costs (non-GAAP) | $5.18 billion | $4.21 billion |
| Gross profit | $466.7 million | $430.3 million |
| Gross margin on revenue net of other direct costs | 9.0% | 10.2% |
| Operating income | $421.2 million | $340.8 million |
| Net income attributable to AECOM | $275.8 million | $236.9 million |
| Diluted EPS | $2.33 | $2.05 |
| Cash from operating activities | $132.0 million | $158.6 million |
| Cash and cash equivalents at year-end | $456.9 million | $612.9 million |
| Total debt | $1.16 billion | $931.1 million |
| Working capital | $1.18 billion | $1.09 billion |
- Revenue increased 22.8%, but excluding acquired companies it decreased 1.8%. Revenue net of other direct costs rose 23.2%; on the same acquisition-excluded basis it increased 4.8%.
- PTS revenue rose 27.5%, while acquisition-excluded revenue increased 3.3%. Its margin on revenue net of other direct costs fell to 9.1% from 10.2%.
- MSS revenue increased 0.7%, but fell 25.8% excluding acquired companies, mainly following completion of a major U.S. government Combat Support project. Its corresponding margin declined to 8.6% from 11.1%.
- Operating cash flow declined year over year. Management cited the $89.7 million settlement of the U.S. deferred compensation plan and timing of receivables and payables, among other items. Investing cash outflow was $421.9 million, including $365.5 million net acquisition payments.
- At year-end, the company had $916.5 million available under its $1.05 billion revolving facility. The reported leverage ratio was 2.2 against a maximum of 3.0; the company reported compliance with its debt covenants and said available liquidity was expected to cover projected needs for at least 12 months.
Material changes, outlook and risks
- FY2011 acquisition consideration totaled $453.3 million, including the Davis Langdon businesses, RSW and Spectral. Acquisitions materially contributed to reported growth.
- Net interest expense increased to $40.4 million from $9.9 million, primarily reflecting acquisition-related borrowing. The effective tax rate was 26.1%, versus 26.9%.
- FY2011 fourth-quarter revenue was $2.12 billion and diluted EPS was $0.75. Western European restructuring generated $12 million of fourth-quarter expenses and reduced Q4 diluted EPS by approximately $0.07.
- Civil unrest led AECOM to suspend its Libya project in February 2011. The company recorded a $10.0 million net expense for the disruption and reported $28.5 million of related liabilities at year-end; it could not determine whether or when services would resume.
- Backlog grew 6% to $15.6 billion: $8.9 billion contracted and $6.7 billion awarded but not yet signed. Backlog is not guaranteed revenue and may include pass-through costs.
- Government clients represented 64% of revenue. Risks include annual appropriations, contract modification or termination, reduced outsourcing, economic and budget pressures, and audits. A DCAA dispute concerning the CSA joint venture involved approximately $17 million withheld; a separate post-year-end DCAA action concerning GLS involved approximately $14 million withheld. Management believed the matters were defensible, but adverse outcomes could materially affect results.
- Other material exposures include fixed-price contract execution, international political and currency risks, joint-venture obligations, collection and claim uncertainty, and defined-benefit pension deficits of approximately $166.5 million. Expected FY2012 pension contributions were $16.3 million internationally and $13.8 million in the U.S.
- No specific FY2012 revenue or earnings guidance is provided in the supplied filing text. Management expected SAFETEA-LU transportation funding to be extended, while warning that failure to extend it could adversely affect results. AECOM stated that it does not plan to pay cash dividends in the foreseeable future.
Important facts for investors to verify
- How much of future growth and backlog conversion depends on acquisitions, and whether organic PTS growth can offset weaker markets and project completions.
- Whether margins recover after FY2011 declines, particularly in PTS and MSS, and how restructuring affects subsequent periods.
- Collections, unbilled receivables and exposure to the CSA and GLS DCAA disputes, including the amounts ultimately recovered or disallowed.
- Progress on the Libya project and settlement of its reported liabilities; also monitor government funding and contract-renewal decisions.
- Debt maturities, variable-rate exposure, covenant headroom, and cash generation relative to acquisition spending and share repurchases.
- Backlog quality: distinguish funded contracted work from unsigned awarded work and assess cancellation, margin and pass-through-cost risks.
Note: “Revenue, net of other direct costs” and the related margin are non-GAAP measures defined by AECOM and may not be comparable with similarly titled measures at other companies. The filing’s financial statements received an unqualified audit opinion; the auditors also reported effective internal control, while certain FY2011 acquisitions were excluded from the internal-control assessment.