Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On July 25, 2008, AECOM Technology Corporation (“AECOM”) completed its previously announced acquisition of Earth Tech, Inc. (“Earth Tech”), a business unit of Tyco International Ltd., pursuant to a Purchase Agreement (the “Purchase Agreement”), dated as of February 11, 2008, by and among AECOM, Tyco International Finance, S.A. and other seller parties thereto.
The unaudited pro forma condensed combined balance sheet as of June 30, 2008 and the unaudited pro forma condensed combined statements of operations for the year ended September 30, 2007 and the nine months ended June 30, 2008 are based on the separate historical consolidated financial statements of AECOM and Earth Tech. These unaudited pro forma condensed combined financial statements (the “pro forma financial statements”) reflect the acquisition and related events using the purchase method of accounting and apply the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined balance sheet as of June 30, 2008 reflects the acquisition and related events as if they had been consummated on June 30, 2008. The unaudited pro forma condensed combined statements of operations for the year ended September 30, 2007 and the nine months ended June 30, 2008 reflect the acquisition and related events as if they had been consummated on October 1, 2006, the beginning of AECOM’s 2007 fiscal year. Earth Tech’s fiscal year end was September 28, 2007 and interim period end was June 27, 2008. For clarity of presentation, such periods are presented consistent with those of AECOM, as September 30, 2007 and June 30, 2008.
AECOM and Tyco entered into two amendments to the Purchase Agreement, each dated as of July 25, 2008. Pursuant to Amendment No. 1 to the Purchase Agreement, the parties agreed to exclude the purchase of Tyco’s equity participations in certain Earth Tech Chinese joint venture operations from the Purchase Agreement and allow those operations to be sold directly by Tyco to third parties. Pursuant to Amendment No. 2 to the Purchase Agreement, the parties agreed to, among other things, delay the transfer of Earth Tech’s United Kingdom businesses to AECOM until certain third party consents to the transaction are obtained. Pending receipt of such consents, the parties have agreed for AECOM to manage the U.K. operations. The Chinese joint venture operations have been labeled as excluded businesses in the pro forma financial statements.
AECOM also announced that it completed the divestiture of certain Company businesses concurrent with the purchase of Earth Tech. Concurrent with the close of the purchase of the Earth Tech, AECOM divested Earth Tech’s Water & Power Technologies and North American Contract Operations businesses and the Company’s Mexican operations. Additionally, in September 2008, AECOM divested Earth Tech’s Nordic Water operations based in Sweden. These businesses have been labeled as businesses sold in the pro forma financial statements.
Adjustments to the pro forma financial statements remove balances and results of operations related to the Chinese joint ventures and Earth Tech businesses that were sold subsequent to AECOM’s acquisition of Earth Tech, and reclassify certain businesses as discontinued operations based on management’s intentions to dispose of such operations within a short period after the close of the Earth Tech transaction. The total purchase price for Earth Tech, excluding the Earth Tech Chinese joint ventures excluded from the transaction, and net of proceeds from the businesses sold to date, was $326 million. This total purchase price calculation is prior to the final settlement of working capital adjustments between AECOM and Tyco and does not include the proceeds from the future divestitures of the Earth Tech assets being held for sale. See also information regarding the purchase price allocation in Note 1 to the pro forma financial statements.
The pro forma adjustments are based upon available information and assumptions that management believes reasonably reflect the transaction. We present the pro forma financial statements for informational purposes only. The pro forma financial statements are not necessarily indicative of what our financial position or results of operations would have been had we completed the acquisition as of the dates indicated. In addition, the pro forma financial statements do not purport to project the future financial position or operating results of the combined company. You should read this information together with the following:
· the accompanying notes to the pro forma financial statements;
· the separate historical unaudited financial statements of AECOM as of and for the three and nine months ended June 30, 2008 and 2007 included in AECOM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008;
· the separate historical audited financial statements of AECOM as of and for the fiscal years ended September 30, 2007, 2006, and 2005 included in AECOM’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on May 9, 2008;
· the separate historical unaudited combined financial statements of Earth Tech as of and for the nine months ended June 27, 2008 and June 29, 2007, included as an exhibit in this Form 8-K/A; and
1
· the separate historical audited combined financial statements of Earth Tech as of and for the fiscal years ended September 28, 2007, September 29, 2006, and September 30, 2005, included as an exhibit in this Form 8-K/A.
We prepared the pro forma financial statements using the purchase method of accounting. Accordingly, the total purchase price of $326 million, net of proceeds from businesses sold to date, is allocated to the net tangible and identifiable intangible assets of Earth Tech acquired, based on their respective fair values. The allocation is dependent upon valuations and other studies that have not progressed to a stage where there is sufficient information to make a definitive allocation. Accordingly, the purchase price allocation pro forma adjustments are preliminary and have been made using our best judgment given the information currently available solely for the purpose of providing the pro forma financial statements. The final purchase price allocation and its effect on results of operations may differ significantly from the pro forma amounts included in the pro forma financial statements. These amounts represent management’s best estimate as of the date of this Form 8-K/A.
In connection with our plan to integrate the operations of AECOM and Earth Tech, we anticipate that non-recurring expenditures will be incurred. We are not able to determine the timing, nature and amount of these expenditures as of the date of this Form 8-K/A. However, these expenditures could affect the results of the combined company following the acquisition, in the period in which they are recorded. The pro forma financial statements do not include the effects of the costs associated with any restructuring or integration activities resulting from the transaction, as they are non-recurring in nature and not factually supportable at the time that the pro forma financial statements were prepared. In addition, the pro forma financial statements do not include the realization of any cost savings from operating efficiencies or synergies resulting from the transaction, nor do they include any potential incremental revenues and earnings that may be achieved with the combined capabilities of the companies.
2
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2008
(in thousands)
|
| Historical |
| Pro Forma Adjustments (Note 3) |
|
|
| ||||||||||||||||
|
| AECOM |
| Earth Tech |
| Excluded |
| Businesses |
| Discontinued |
| Other |
| Pro Forma |
| ||||||||
ASSETS |
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| ||||||||
CURRENT ASSETS: |
|
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|
|
|
|
|
| ||||||||
Total cash and cash equivalents |
| $ | 173,100 |
| $ | 17,000 |
| $ | (200 | ) | $ | (4,700 | ) | $ | (2,200 | ) | $ | 90,000 | (b) | $ | 183,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (90,000 | )(g) |
|
| |||
Accounts receivable – net |
| 1,405,400 |
| 328,100 |
| — |
| (54,400 | ) | (19,000 | ) |
|
| 1,660,100 |
| ||||||||
Due from Tyco and affiliates |
| — |
| 344,900 |
| 1,400 |
| (7,100 | ) | 3,700 |
| (342,900 | )(d) | — |
| ||||||||
Prepaid expenses and other current assets |
| 80,700 |
| 49,600 |
| (100 | ) | (15,500 | ) | (400 | ) |
|
| 114,300 |
| ||||||||
Current assets held for sale |
| — |
| — |
| — |
| — |
| 17,900 |
|
|
| 17,900 |
| ||||||||
TOTAL CURRENT ASSETS |
| 1,659,200 |
| 739,600 |
| 1,100 |
| (81,700 | ) | — |
| (342,900 | ) | 1,975,300 |
| ||||||||
PROPERTY AND EQUIPMENT—NET |
| 184,300 |
| 47,900 |
| (700 | ) | (5,900 | ) | (200 | ) |
|
| 225,400 |
| ||||||||
DEFERRED TAX ASSETS—NET |
| 56,600 |
| 34,000 |
| — |
| (6,600 | ) | — |
|
|
| 84,000 |
| ||||||||
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES |
| 34,100 |
| 87,800 |
| (47,300 | ) | (24,300 | ) | — |
| (1,000 | )(i) | 49,300 |
| ||||||||
INVESTMENT IN SALES-TYPE LEASES |
| — |
| 24,100 |
| — |
| (24,100 | ) | — |
|
|
| — |
| ||||||||
PRODUCTIVE ASSETS — NET |
| — |
| 170,200 |
| (8,300 | ) | (200 | ) | (52,800 | ) |
|
| 108,900 |
| ||||||||
GOODWILL |
| 766,100 |
| — |
| — |
| — |
| — |
| 169,900 | (e) | 945,200 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
| 9,200 | (d) |
|
| ||||||||
INTANGIBLE ASSETS—NET |
| 58,400 |
| 400 |
| — |
| — |
| — |
| 28,300 | (f) | 87,100 |
| ||||||||
OTHER NON-CURRENT ASSETS |
| 162,300 |
| 22,800 |
| (1,200 | ) | (3,300 | ) | (2,900 | ) |
|
| 177,700 |
| ||||||||
NON-CURRENT ASSETS HELD FOR SALE |
| — |
| — |
| — |
| — |
| 55,900 |
|
|
| 55,900 |
| ||||||||
TOTAL ASSETS |
| $ | 2,921,000 |
| $ | 1,126,800 |
| $ | (56,400 | ) | $ | (146,100 | ) | $ | — |
| $ | (136,500 | ) | $ | 3,708,800 |
| |
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|
|
|
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|
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| ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
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| ||||||||
CURRENT LIABILITIES: |
|
|
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|
|
|
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|
|
|
|
|
|
|
| ||||||||
Short-term debt |
| $ | 12,900 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
| $ | 12,900 |
| ||
Accounts payable and other current liabilities |
| 269,200 |
| 162,200 |
| (100 | ) | (16,400 | ) | (20,000 | ) |
|
| 394,900 |
| ||||||||
Accrued expenses |
| 591,300 |
| 86,100 |
| (100 | ) | (19,200 | ) | (700 | ) |
|
| 657,400 |
| ||||||||
Billings in excess of costs on uncompleted contracts |
| 267,400 |
| 58,100 |
| — |
| (9,600 | ) | — |
|
|
| 315,900 |
| ||||||||
Income taxes payable |
| 12,600 |
| 7,500 |
| — |
| — |
| — |
|
|
| 20,100 |
| ||||||||
Deferred tax liability – net |
| 27,100 |
| 12,300 |
| — |
| — |
| — |
|
|
| 39,400 |
| ||||||||
Current portion of long-term debt |
| 17,000 |
| 6,200 |
| (3,600 | ) | (1,900 | ) | — |
|
|
| 17,700 |
| ||||||||
Current liabilities held for sale |
| — |
| — |
| — |
| — |
| 20,700 |
|
|
| 20,700 |
| ||||||||
TOTAL CURRENT LIABILITIES |
| 1,197,500 |
| 332,400 |
| (3,800 | ) | (47,100 | ) | — |
|
|
| 1,479,000 |
| ||||||||
OTHER LONG-TERM LIABILITIES |
| 194,400 |
| 48,300 |
| — |
| (11,600 | ) | — |
| $ | 11,300 | (h) | 242,400 |
| |||||||
LONG-TERM DEFERRED REVENUE ON UNCOMPLETED CONTRACTS |
| — |
| 101,000 |
| — |
| — |
| (56,900 | ) |
|
| 44,100 |
| ||||||||
LONG-TERM DEBT |
| 58,900 |
| 19,100 |
| — |
| (16,600 | ) | — |
| 416,000 | (g) | 387,400 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
| (90,000 | )(g) |
|
| ||||||||
NON-CURRENT LIABILITIES HELD FOR SALE |
| — |
| — |
| — |
| — |
| 54,700 |
|
|
| 54,700 |
| ||||||||
MINORITY INTEREST |
| 21,500 |
| 33,000 |
| (1,000 | ) | — |
| — |
| (1,000 | )(i) | 52,500 |
| ||||||||
STOCKHOLDERS’ (DEFICIT)/EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Convertible preferred stock |
| 2,700 |
| — |
| — |
| — |
| — |
|
|
| 2,700 |
| ||||||||
Common stock |
| 1,000 |
| — |
| — |
| — |
| — |
|
|
| 1,000 |
| ||||||||
Additional paid-in capital |
| 1,285,200 |
| — |
| — |
| — |
| — |
|
|
| 1,285,200 |
| ||||||||
Accumulated other comprehensive loss |
| (18,200 | ) | (7,100 | ) | (800 | ) | (3,500 | ) | 2,200 |
| 9,200 | (d) | (18,200 | ) | ||||||||
Retained earnings |
| 178,000 |
| — |
| — |
| — |
| — |
|
|
| 178,000 |
| ||||||||
Parent company investment |
| — |
| 600,100 |
| (50,800 | ) | (67,300 | ) | — |
| (482,000 | )(d) | — |
| ||||||||
TOTAL STOCKHOLDERS’ (DEFICIT)/EQUITY |
| 1,448,700 |
| 593,000 |
| (51,600 | ) | (70,800 | ) | 2,200 |
| (472,800 | ) | 1,448,700 |
| ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 2,921,000 |
| $ | 1,126,800 |
| $ | (56,400 | ) | $ | (146,100 | ) | $ | — |
| $ | (136,500 | ) | $ | 3,708,800 |
| |
See accompanying notes to unaudited pro forma condensed combined financial statements.
3
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended June 30, 2008
(in thousands, except per share data)
|
| Historical |
| Pro Forma Adjustments (Note 3) |
|
|
| |||||||||||||||
|
| AECOM |
| Earth Tech |
| Excluded |
| Businesses |
| Discontinued |
| Other |
| Pro Forma |
| |||||||
|
|
|
|
|
|
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|
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|
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|
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| |||||||
Revenue |
| $ | 3,565,500 |
| $ | 954,900 |
| $ | (600 | ) | $ | (169,600 | ) | $ | (34,700 | ) |
|
| $ | 4,315,500 |
| |
Cost of revenue |
| 2,453,500 |
| 798,000 |
| (1,100 | ) | (142,100 | ) | (30,100 | ) | $ | 986,200 | (o) | 4,075,500 |
| ||||||
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|
|
|
|
|
|
|
|
|
|
| 11,100 | (n) |
|
| |||||||
Gross profit |
| 1,112,000 |
| 156,900 |
| 500 |
| (27,500 | ) | (4,600 | ) | (997,300 | ) | 240,000 |
| |||||||
Equity in earnings of joint ventures |
| 12,100 |
| 10,600 |
| (3,400 | ) | (3,400 | ) | — |
| (2,100 | )(p) | 13,800 |
| |||||||
General and administrative expenses |
| 956,400 |
| 114,400 |
| — |
| (16,000 | ) | (3,600 | ) | (986,200 | )(o) | 65,000 |
| |||||||
Charges and allocations from Tyco and affiliates |
| — |
| 23,100 |
| — |
| (4,100 | ) | (800 | ) |
|
| 18,200 |
| |||||||
Income from operations |
| 167,700 |
| 30,000 |
| (2,900 | ) | (10,800 | ) | (200 | ) | (13,200 | ) | 170,600 |
| |||||||
Minority interest in share of earnings |
| 10,900 |
| 500 |
| 200 |
| — |
| — |
| (2,100 | )(p) | 9,500 |
| |||||||
Other income (expense) |
| (900 | ) | — |
| — |
| — |
| — |
|
|
| (900 | ) | |||||||
Related party interest income (expense) |
| — |
| 8,700 |
| — |
| (400 | ) | 100 |
| (8,400 | )(r) | — |
| |||||||
Gain on sale of facility |
| — |
| 2,700 |
| (2,700 | ) | — |
| — |
| — |
| — |
| |||||||
Interest income (expense)—net |
| 4,100 |
| (4,700 | ) | (800 | ) | 3,100 |
| — |
| (10,300 | )(m) | (8,600 | ) | |||||||
Income from continuing operations before income tax expense |
| 160,000 |
| 36,200 |
| (6,600 | ) | (8,100 | ) | (100 | ) | (29,800 | ) | 151,600 |
| |||||||
Income tax expense (benefit) |
| 56,200 |
| 17,900 |
| (700 | ) | (3,600 | ) | — |
| (12,000 | )(q) | 57,800 |
| |||||||
Income from continuing operations |
| 103,800 |
| 18,300 |
| (5,900 | ) | (4,500 | ) | (100 | ) | (17,800 | ) | 93,800 |
| |||||||
Discontinued operations, net of tax |
| — |
| — |
| — |
| — |
| 100 |
|
|
| 100 |
| |||||||
Net income |
| $ | 103,800 |
| $ | 18,300 |
| $ | (5,900 | ) | $ | (4,500 | ) | $ | — |
| $ | (17,800 | ) | $ | 93,900 |
|
Net income allocation: |
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| |||||||
Preferred stock dividend |
| $ | 100 |
|
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|
|
| $ | 100 |
| |||||
Net income available for common stockholders |
| 103,700 |
|
|
|
|
|
|
|
|
|
|
| 93,800 |
| |||||||
Net income |
| $ | 103,800 |
|
|
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|
|
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|
|
| $ | 93,900 |
| |||||
Net income per share: |
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Basic: |
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| |||||||
Continuing operations |
| $ | 1.03 |
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|
|
| $ | 0.93 |
| |||||
Discontinued operations |
| — |
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||
|
| $ | 1.03 |
|
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|
|
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|
|
| $ | 0.93 |
| |||||
Diluted: |
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| |||||||
Continuing operations |
| $ | 1.00 |
|
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|
|
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|
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|
|
| $ | 0.90 |
| |||||
Discontinued operations |
| — |
|
|
|
|
|
|
|
|
|
|
| 0.01 |
| |||||||
|
| $ | 1.00 |
|
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|
|
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|
| $ | 0.91 |
| |||||
Weighted average shares outstanding: |
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|
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| |||||||
Basic |
| 100,745 |
|
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|
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|
|
| 100,745 |
| |||||||
Diluted |
| 103,681 |
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|
|
|
|
|
|
|
|
|
| 103,681 |
|
See accompanying notes to unaudited pro forma condensed combined financial statements.
4
Unaudited Pro Forma Condensed Combined Statement of Operations
Fiscal Year Ended September 30, 2007
(in thousands, except per share data)
|
| Historical |
| Pro Forma Adjustments (Note 3) |
|
|
| |||||||||||||||
|
| AECOM Technology Corporation |
| Earth Tech |
| Excluded Businesses |
| Businesses |
| Discontinued Operations |
| Other |
| Pro Forma Combined |
| |||||||
Revenue |
| $ | 4,237,200 |
| $ | 1,174,100 |
| $ | (800 | ) | $ | (191,700 | ) | $ | (34,000 | ) |
|
| $ | 5,184,800 |
| |
Cost of revenue |
| 3,076,000 |
| 1,001,600 |
| (900 | ) | (169,600 | ) | (28,600 | ) | $ | 1,065,600 | (o) | 4,958,700 |
| ||||||
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|
|
|
|
|
|
|
|
|
|
| 14,600 | (n) |
|
| |||||||
Gross profit |
| 1,161,200 |
| 172,500 |
| 100 |
| (22,100 | ) | (5,400 | ) | (1,080,200 | ) | 226,100 |
| |||||||
Equity in earnings of joint ventures |
| 11,800 |
| 14,300 |
| (4,700 | ) | (4,500 | ) | — |
| (2,700 | )(p) | 14,200 |
| |||||||
General and administrative expenses |
| 1,017,100 |
| 157,000 |
| (100 | ) | (18,700 | ) | (4,500 | ) | (1,065,600 | )(o) | 85,200 |
| |||||||
Charges and allocations from Tyco and affiliates |
| — |
| 20,600 |
| — |
| (3,400 | ) | (600 | ) |
|
| 16,600 |
| |||||||
Income from operations |
| 155,900 |
| 9,200 |
| (4,500 | ) | (4,500 | ) | (300 | ) | (17,300 | ) | 138,500 |
| |||||||
Minority interest share of earnings |
| 16,400 |
| 1,600 |
| 100 |
| — |
| — |
| (2,700 | )(p) | 15,400 |
| |||||||
Related party interest income (expense) |
| — |
| 14,300 |
| 100 |
| (400 | ) | 200 |
| (14,200 | )(r) | — |
| |||||||
Gain on sale of equity investment |
| 11,300 |
| — |
| — |
| — |
| — |
| — |
| 11,300 |
| |||||||
Interest income (expense)—net |
| (3,300 | ) | (5,000 | ) | (1,100 | ) | 3,700 |
| — |
| (19,700 | )(m) | (25,400 | ) | |||||||
Income from continuing operations before income tax expense |
| 147,500 |
| 16,900 |
| (5,600 | ) | (1,200 | ) | (100 | ) | (48,500 | ) | 109,000 |
| |||||||
Income tax expense (benefit) |
| 47,200 |
| 10,700 |
| (1,100 | ) | (700 | ) | — |
| (19,400 | )(q) | 36,700 |
| |||||||
Income from continuing operations |
| 100,300 |
| 6,200 |
| (4,500 | ) | (500 | ) | (100 | ) | (29,100 | ) | 72,300 |
| |||||||
Discontinued operations, net of tax |
| — |
| — |
| — |
| — |
| 100 |
|
|
| 100 |
| |||||||
Net income |
| $ | 100,300 |
| $ | 6,200 |
| $ | (4,500 | ) | $ | (500 | ) | $ | — |
| $ | (29,100 | ) | $ | 72,400 |
|
Net income allocation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Preferred stock dividend |
| $ | 300 |
|
|
|
|
|
|
|
|
|
|
| $ | 300 |
| |||||
Net income available for common stockholders |
| 100,000 |
|
|
|
|
|
|
|
|
|
|
| 72,100 |
| |||||||
Net income |
| $ | 100,300 |
|
|
|
|
|
|
|
|
|
|
| $ | 72,400 |
| |||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Continuing operations |
| $ | 1.37 |
|
|
|
|
|
|
|
|
|
|
| $ | 0.99 |
| |||||
Discontinued operations |
| — |
|
|
|
|
|
|
|
|
|
|
| — |
| |||||||
|
| $ | 1.37 |
|
|
|
|
|
|
|
|
|
|
| $ | 0.99 |
| |||||
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Continuing operations |
| $ | 1.15 |
|
|
|
|
|
|
|
|
|
|
| $ | 0.83 |
| |||||
Discontinued operations |
| $ | — |
|
|
|
|
|
|
|
|
|
|
| — |
| ||||||
|
| $ | 1.15 |
|
|
|
|
|
|
|
|
|
|
| $ | 0.83 |
| |||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Basic |
| 73,091 |
|
|
|
|
|
|
|
|
|
|
| 73,091 |
| |||||||
Diluted |
| 87,537 |
|
|
|
|
|
|
|
|
|
|
| 87,537 |
|
See accompanying notes to unaudited pro forma condensed combined financial statements.
5
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements (the “pro forma financial statements”) have been prepared using the purchase method of accounting with AECOM as the acquiring entity. Accordingly, under purchase accounting, the acquired and retained assets, liabilities and commitments of Earth Tech are adjusted to their fair values. Additionally, amounts contained in the historical consolidated financial statements of Earth Tech have been reclassified, where necessary, to conform to AECOM’s financial statement presentation.
The unaudited pro forma adjustments represent management’s best estimates based on information available as of the time these pro forma financial statements were prepared and are subject to revision as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after completion of an analysis to determine the fair values of Earth Tech’s tangible and identifiable intangible assets and liabilities. Accordingly, the final purchase accounting adjustments could differ materially from the preliminary unaudited pro forma adjustments presented herein.
Under the purchase method of accounting, the total purchase price is allocated to Earth Tech’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of completion of the acquisition. The total estimated purchase price allocation, net of businesses sold, is as follows:
|
| Amounts |
| Estimated |
| |||
|
| (in thousands) |
| (years) |
| |||
Net tangible assets as of June 30, 2008 at estimated fair value, net of businesses sold |
|
|
| $ | 129,900 |
|
|
|
Identifiable intangible assets: |
|
|
|
|
|
|
| |
Backlog |
| 17,300 |
|
|
| 1.1 |
| |
Customer relationships |
| 10,800 |
|
|
| 10 |
| |
Trade name |
| 200 |
|
|
| 5 |
| |
|
|
|
| 28,300 |
|
|
| |
|
|
|
|
|
|
|
| |
Net deferred tax liabilities |
|
|
| (11,300 | ) |
|
| |
Amount allocated to goodwill |
|
|
| 179,100 |
|
|
| |
Total purchase price, net of businesses sold |
|
|
| $ | 326,000 |
|
|
|
Management has not completed the process of determining whether any significant purchase accounting adjustment relating to normal profit on Earth Tech’s uncompleted contracts exists. A normal profit liability or asset is recognized in purchase accounting such that the rate of return reflected in the post-acquisition financial statements of the acquirer is equal to a market return for the acquirer’s remaining performance effort under the contract. Above- or below-market rates of return can occur for a variety of reasons, including: proposing and securing a contract at above or below market profitability levels; cost over- or under-runs primarily on fixed price and lump-sum contracts; changed conditions that cannot be resolved through change orders or claims; and shifts in market prices resulting in higher or lower margins occurring after a particular contract was established.
2. Reclassifications
The following reclassifications have been made to conform Earth Tech’s historical financial statements to the basis of presentation in the pro forma financial statements:
· Reclassify Earth Tech’s other expense within income from operations to general and administrative expenses to conform to AECOM’s presentation.
· Reclassify Earth Tech’s minority interest and related tax effects to conform to AECOM’s presentation.
· Reclassify certain of Earth Tech’s other current assets and other current liabilities, where applicable, to conform to AECOM’s presentation.
6
3. Pro Forma Adjustments
Adjustments included in the column under the heading “Pro Forma Adjustments” in the pro forma financial statements consist of the following adjustments:
Pro Forma Adjustments to Condensed Combined Balance Sheet
(a) To remove balances related to certain Chinese joint venture operations not purchased from Tyco.
(b) To remove WPT, NACO, and Earth Tech’s Mexican and Nordic Water operations, which were divested concurrently with or subsequent to the acquisition for approximately $90 million. No gain or loss on sale is recorded in connection with the sales of these operations.
(c) To reclassify discontinued operations balances related to certain Earth Tech assets and liabilities held for sale based on management’s intentions to dispose of such operations within a short period after the close of the Earth Tech transaction.
(d) To eliminate Earth Tech’s historical equity and balances due from Tyco and affiliates, as they were not included in the transaction.
(e) To record estimated goodwill resulting from the acquisition.
(f) To record the estimated identifiable intangible assets acquired, which include backlog, customer relationships, and trade name.
(g) To record long-term debt incurred as a result of the acquisition, net of proceeds from the divested WPT, NACO, Mexico, and Nordic Water operations noted above.
(h) To adjust deferred income tax liability associated with the estimated identifiable intangible assets acquired.
(i) To eliminate minority interest balance relating to a joint venture 100% owned by AECOM and Earth Tech, as combined.
Pro Forma Adjustments to Condensed Combined Statements of Operations
(j) To remove results related to certain Chinese joint venture operations and a U.S. water facility not purchased from Tyco.
(k) To remove WPT, NACO, and Earth Tech’s Mexican and Nordic Water operations, which were divested concurrently with or subsequent to the acquisition, for approximately $90 million. No gain or loss on sale is recorded in connection with the sales of these operations.
(l) To reclassify discontinued operations results related to certain Earth Tech operations held for sale, based on management’s intentions to dispose of such operations within a short period after the close of the Earth Tech transaction.
7
(m) To record the increase in interest expense, using a weighted average interest rate of 3.5% for the nine months ended June 30, 2008 and 5.4% for the year ended September 30, 2007, associated with the net borrowings under AECOM’s existing revolving financial credit facility of $326 million. For purposes of calculating the pro forma interest expense in the pro forma financial statements, AECOM has assumed that the cash proceeds received from the divestitures of WPT, NACO, Mexico, and Nordic Water noted above were available as of the beginning of the periods presented to service the related debt.
(n) To record the amortization of the purchased intangible assets resulting from the acquisition. See also Note 1.
(o) To reclassify certain indirect expenses from general and administrative expenses to cost of revenue to present AECOM’s and Earth Tech’s Combined Statements of Operations in a consistent manner. AECOM has adopted a new convention under which only certain corporate related expenses, including corporate salaries and rent, are classified as general and administrative expenses. Historical general and administrative expenses for AECOM and Earth Tech have been reclassified to conform to the new convention.
(p) To eliminate minority interest in share of earnings relating to a joint venture 100% owned by AECOM and Earth Tech, as combined.
(q) To record the income tax effect of pro forma adjustments.
(r) To eliminate related party interest income resulting from balances due from Tyco and affiliates.
8