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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

For the transition period from                        to                       

Commission File Number 0-52423

AECOM TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)

555 South Flower Street, Suite 3700
Los Angeles, California  90071

(Address of principal executive office and zip code)

(213) 593-8000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of February 1, 2010, 113,968,304 shares of the registrant’s common stock were outstanding.

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AECOM TECHNOLOGY CORPORATION

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

AECOM Technology Corporation
Consolidated Balance Sheets

(in thousands, except share data)

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Consolidated Statements of Income

(unaudited - in thousands, except per share data)

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Consolidated Statements of Comprehensive Income (Loss)

(unaudited—in thousands)

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

See accompanying Notes to Consolidated Financial Statements.

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AECOM Technology Corporation
Notes to Consolidated Financial Statements

(unaudited)

1.              Basis of Presentation

The accompanying consolidated financial statements of AECOM Technology Corporation (the Company) are unaudited and, in the opinion of management, include all adjustments necessary for a fair statement of the Company’s financial position and results of operations for the periods presented.  All inter-company balances and transactions are eliminated in consolidation.

The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended September 30, 2009.  The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The results of operations for the three months ended December 31, 2009 are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2010.

The Company reports its annual results of operations based on 52 or 53-week periods ending on the Friday nearest September 30.  The Company reports its quarterly results of operations based on periods ending on the Friday nearest December 31, March 31, and June 30.  For clarity of presentation, all periods are presented as if the periods ended on September 30, December 31, March 31, and June 30.

2.              Adoption of Changes in Accounting Principles

In December 2007, the Financial Accounting Standards Board (FASB) issued ASC 810-10, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (ASC 810-10).  ASC 810-10 requires all entities to report noncontrolling interests in subsidiaries as a separate component of equity in the consolidated balance sheet and to reflect net income attributable to noncontrolling interests below net income on the consolidated statement of income.  The Company adopted ASC 810-10 during the first quarter ended December 31, 2009.  Accordingly, prior periods have been restated to reflect these reclassifications.

In December 2007, the FASB issued ASC 805-10, “Business Combinations” (ASC 805-10).  ASC 805-10 significantly changes the way companies account for business combinations and will generally require more assets acquired and liabilities assumed to be measured at their acquisition-date fair value.  Under ASC 805-10, legal fees and other transaction-related costs are expensed as incurred and are no longer included as a cost of acquiring the business.  ASC 805-10 also requires, among other things, acquirers to estimate the acquisition-date fair value of any contingent consideration and to recognize any subsequent changes in the fair value of contingent consideration in earnings.  In addition, restructuring costs the acquirer expects, but is not obligated to incur, must be recognized separately from the business acquisition.  This pronouncement has been applied by the Company to all acquisitions consummated on or after October 1, 2009.  Transaction and restructuring costs expensed as a result of the adoption of ASC 805-10 were not material.

3.              Recently Issued Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update No. 2009-13 “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13) which updates ASC Topic 605, “Revenue Recognition.”  ASU 2009-13 provides another alternative for determining the selling price of deliverables and will allow companies to allocate arrangement consideration in multiple deliverable arrangements in a manner that better reflects the transaction’s economics and could result in earlier revenue recognition.  ASU 2009-13 is effective for the Company prospectively for revenue arrangements entered into or materially modified on or after October 1, 2010; however, early adoption is permitted.  The Company is currently evaluating the impact of adopting ASU 2009-13 on its financial statements.

In June 2009, the FASB issued ASC 810-10-05, “Amendments to FASB Interpretation No. 46(R)” (ASC 810-05).  ASC 810-05 amends prior accounting for variable interests and requires a company to perform an analysis to determine whether its interests give it a controlling financial interest in a variable interest entity.  A company must also assess whether it has the power to direct the activities of the variable interest entity and whether it has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the variable interest entity.  ASC 810-05 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity, eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and expands required disclosures.  ASC 810-05 may be applied retrospectively in previously issued financial statements with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated.  ASC 810-05 is effective for the Company in its fiscal year ending September 30, 2011.  The Company is currently evaluating the impact that the adoption of ASC 810-05 will have on its financial statements.

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In December 2008, the FASB issued ASC 715-20-65, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (ASC 715-20-65).  ASC 715-20-65 amends SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan.  The additional disclosure requirements include expanded disclosure about an entity’s investment policies and strategies, the categories of plan assets, concentrations of credit risk and fair value measurements of plan assets.  This standard is effective for the Company in its fiscal year ending September 30, 2010.  The Company will amend its disclosures accordingly beginning with the financial statements included in its fiscal year 2010 Form 10-K.

4.              Business Acquisitions, Goodwill and Intangible Assets

Three business acquisitions were completed during the quarter ended December 31, 2009, which were immaterial both individually and in the aggregate.  Additionally, the Company gained control of an entity and commenced consolidating it during the quarter ended December 31, 2009.  Total consideration related to acquisitions consisted of $39.6 million in cash, net of cash acquired, and $33.5 million in Company stock.

The changes in the carrying value of goodwill by reporting segment for the three months ended December 31, 2009 and 2008 were as follows:

The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of December 31, 2009 and September 30, 2009, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:

At the time of acquisition, the Company preliminarily estimates the amount of the identifiable intangible assets acquired based upon historical valuations of similar acquisitions and the facts and circumstances available at the time.  The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than 12 months from the date of acquisition.  The Company has yet to complete its final valuation of intangible assets for certain of the immaterial business acquisitions noted above.

The following table presents estimated amortization expense of existing intangible assets for the remainder of fiscal 2010 and for the succeeding years:

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5.              Discontinued Operations

Assets and liabilities held for sale primarily related to a non-strategic business in the United Kingdom, which was acquired as part of the acquisition of Earth Tech into the Company’s Professional Technical Services segment and was disposed of during the first quarter ended December 31, 2009.

For the three months ended December 31, 2009 and 2008, the summarized results of the discontinued operation, included in the Company’s results of operations, is as follows (in millions):

6.              Restructuring Costs

In fiscal 2009, in connection with the Earth Tech acquisition, the Company initiated plans for workforce reductions and facility closures. During the quarter ended December 31, 2009, the Company initiated a restructuring plan for its United Kingdom operations to reduce ongoing overhead costs and improve operating efficiencies. The accrued restructuring costs are expected to be paid over the next five years. The following table presents a reconciliation of the restructuring reserve balance from October 1, 2009 to December 31, 2009.

7.              Accounts Receivable—Net

Net accounts receivable consisted of the following as of December 31, 2009 and September 30, 2009:

Billed accounts receivable represent amounts billed to clients that have yet to be collected.  Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end.  Substantially all unbilled receivables as of December 31, 2009 and September 30, 2009 are expected to be billed and collected within twelve months of such date.  Contract retentions represent amounts invoiced to clients where payments have been withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project.  These retention agreements vary from project to project and could be outstanding for several months or years.

Allowances for doubtful accounts have been determined through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experience.

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Other than the U.S. government, no single client accounted for more than 10% of the Company’s accounts receivable as of December 31, 2009 or September 30, 2009.

8.              Disclosures About Pension Benefit Obligations

The following table details the components of net periodic benefit cost for the plans for the three months ended December 31, 2009 and 2008:

The total amounts of employer contributions paid for the three months ended December 31, 2009 were $3.2 million for U.S. plans and $3.9 million for non-U.S. plans.  The expected remaining scheduled annual employer contributions for the fiscal year ending September 30, 2010 are $2.1 million for U.S. plans and $13.5 million for non-U.S. plans.  During the quarter ended December 31, 2009, the Company adopted an amendment to freeze pension plan benefit accruals for certain U.S employee plans resulting in a curtailment gain of $1.9 million.  Included in other long-term liabilities are net pension liabilities of $124.2 million and $132.5 million as of December 31 and September 30, 2009, respectively.

9.              Fair Value Measurements

In September 2006, the FASB issued ASC 820-10, “Fair Value Measurements” (ASC 820-10), which defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.  ASC 820-10 was effective for the Company on October 1, 2008 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value in its consolidated financial statements on a recurring basis (at least annually).

Effective October 1, 2009, the Company adopted the fair value measurement guidance for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  These assets and liabilities include items such as goodwill and long lived assets that are measured at fair value resulting from impairment, if deemed necessary.  During the first quarter ended December 31, 2009, the Company did not record any fair market value adjustments to those financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) in millions:

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10.       Stock-Based Compensation

The fair value of the Company’s stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model.  The expected term of awards granted represents the period of time the awards are expected to be outstanding.  As the Company’s common stock has only been publicly-traded since May 2007, expected volatility was based on a historical volatility, for a period consistent with the expected option term, of publicly-traded peer companies.  The risk-free interest rate is based on U.S. Treasury bond rates with maturities equal to the expected term of the option on the grant date.  The Company uses historical data as a basis to estimate the probability of forfeitures.

The fair value of options granted during the three months ended December 31, 2009 and 2008 were determined using the following weighted average assumptions:

For the three months ended December 31, 2009 and 2008, compensation expense recognized related to stock options as a result of the fair value method was $1.3 million and $0.9 million, respectively.  Unrecognized compensation expense relating to stock options outstanding as of December 31, and September 30, 2009 was $8.1 million and $6.8 million, respectively, to be recognized over the awards’ respective vesting periods, which are generally three years.

Stock option activity for the three months ended December 31, 2009 and 2008 was as follows:

The weighted average grant-date fair value of stock options granted during the three months ended December 31, 2009 and 2008 was $8.60 and $8.14, respectively.

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The Company grants stock units under the Performance Earnings Program (PEP), whereby units are earned and issued dependent upon meeting established cumulative performance objectives over a three-year period.  The Company recognized compensation expense relating to the PEP of $5.3 million and $4.4 million during the three months ended December 31, 2009 and 2008, respectively.  Additionally, the Company issues restricted stock units which are earned based on service conditions, resulting in compensation expense of $1.8 million and $0.1 million during the three months ended December 31, 2009 and 2008, respectively.  Unrecognized compensation expense related to PEP units and restricted stock units outstanding was $34.1 million and $19.6 million as of December 31, 2009 and $21.2 million and $3.9 million as of September 30, 2009, respectively, to be recognized over the awards’ respective vesting periods which are generally three years.

Cash flows attributable to tax benefits resulting from tax deductions in excess of compensation cost recognized for those stock options (excess tax benefits) is classified as financing cash flows.  Excess tax benefits of $0.8 million and $4.6 million for the three months ended December 31, 2009 and 2008, respectively, have been classified as financing cash inflows in the Consolidated Statements of Cash Flows.

11.       Income Taxes

A number of tax years are under audit by the relevant federal, state and foreign tax authorities.  The Company is currently under examination by the U.S. Internal Revenue Service for the fiscal years 2006 and 2007.  During the three months ended December 31, 2009, the Company settled the portion of this audit relating to Research & Experimentation Credits.  As a result, of this settlement, the Company recorded a $3.2 million reduction to income tax expense during the quarter ended December 31, 2009. The effective tax rate was 24.9% and 28.8% for the three months ended December 31, 2009 and 2008, respectively. The decrease was primarily due to this settlement.

The Company anticipates that some of the audits may be concluded in the foreseeable future, including in fiscal year 2010.  Based on the status of these audits, it is reasonably possible that the conclusion of the audits may result in a reduction of unrecognized tax benefits.  However, it is not possible to estimate the impact of this change at this time due to the status of the tax examinations.

12.       Net Income Per Share

Basic net income per share (EPS) excludes dilution and is computed by dividing net income available for common stockholders by the weighted average number of common shares outstanding for the period.  Diluted EPS is computed by dividing net income attributable to AECOM by the weighted average number of common shares outstanding and dilutive potential common shares for the period.  The Company includes as potential common shares the weighted average dilutive effects of outstanding stock options using the treasury stock method.

The following table sets forth a reconciliation of the denominators for basic and diluted EPS:

For the three months ended December 31, 2009 and 2008, no options were excluded from the calculation of potential common shares because they were considered anti-dilutive.

13.       Other Financial Information

Accrued expenses consist of the following:

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Accrued contract costs above include balances related to professional liability risks of $101.8 million and $98.3 million as of December 31, 2009 and September 30, 2009, respectively.  Accrued contract costs primarily relate to costs for services provided by subcontractors and other non-employees.

Other long-term liabilities consist of the following:

The components of accumulated other comprehensive loss are as follows:

The Company elected to terminate its U.S. deferred compensation plan effective in December 2009.  As a result of the termination, 6.3 million outstanding stock units and the Company’s deferred compensation liability of $90.8 million as of December 31, 2009 are expected to be settled in December 2010.  Accordingly, this liability was reclassified from other long-term liabilities to accrued expenses and other current liabilities in the current period.  Additionally, $62.2 million in investments held in a rabbi trust to fund the deferred compensation liability were reclassified from other non-current assets to other current assets during the quarter ended December 31, 2009.  The 6.3 million outstanding stock units can only be settled in common stock of the Company, and as such remain classified in AECOM’s stockholder equity as of December 31, 2009.

14.       Commitments and Contingencies

The Company records amounts representing its estimated liabilities relating to claims, guarantees, litigation, audits and investigations.  The Company relies in part on qualified actuaries to assist it in determining the level of reserves to establish for insurance-related claims that are known and have been asserted against it, and for insurance-related claims that are believed to have been incurred based on actuarial analysis, but have not yet been reported to the Company’s claims administrators as of the respective balance sheet dates.  The Company includes any adjustments to such insurance reserves in its consolidated results of operations.

The Company is a defendant in various lawsuits arising in the normal course of business.  In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on its consolidated balance sheet or statements of income or cash flows.

In some instances, the Company guarantees that a project, when complete, will achieve specified performance standards.  If the project subsequently fails to meet guaranteed performance standards, the Company may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.  At December 31, 2009, the Company was contingently liable in the amount of approximately $153.8 million under standby letters of credit issued primarily in connection with general and professional liability insurance programs and for payment and performance guarantees.

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In the ordinary course of business, the Company enters into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated partnerships, joint ventures and other jointly executed contracts.  These agreements are entered into primarily to support the project execution commitments of these entities.  The guarantees have various expiration dates.  The maximum potential payment amount of an outstanding performance guarantee is the remaining cost of work to be performed by or on behalf of third parties.  Generally, under joint venture arrangements, if a partner is financially unable to complete its share of the contract, the other partner(s) will be required to complete those activities.  The Company generally only enters into joint venture arrangements with partners who are reputable, financially sound and who carry appropriate levels of surety bonds for the project in order to adequately assure completion of their assignments.  The Company does not expect that these guarantees will have a material adverse effect on its consolidated balance sheet or statements of income or cash flows.

15.       Reportable Segments

The Company’s operations are organized into two reportable segments: Professional Technical Services (PTS) and Management Support Services (MSS).  The Company’s PTS reportable segment delivers planning, consulting, architectural and engineering design, and program and construction management services to commercial and government clients worldwide.  The Company’s MSS reportable segment provides program and facilities management and maintenance, training, logistics, consulting, and technical assistance and systems integration services, primarily for agencies of the U.S. government.  These reportable segments are organized by the types of services provided, the differing specialized needs of the respective clients, and how the Company manages its business.  The Company has aggregated various operating segments into its PTS reportable segment based on their similar characteristics, including similar long term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.

Management internally analyzes the results of its operations using several non-GAAP measures.  A significant portion of the Company’s revenues relates to services provided by subcontractors and other non-employees that it categorizes as other direct costs.  Other direct costs are segregated from cost of revenues resulting in revenue, net of other direct costs, which is a measure of work performed by Company employees.  The Company has included information on revenue, net of other direct costs, as it believes that it is useful to view our revenue exclusive of costs associated with external service providers.

The following tables set forth summarized financial information concerning the Company’s reportable segments: