Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following MD&A is intended to facilitate an understanding of the results of operations and financial condition of ABM. This MD&A is provided as a supplement to, and should be read in conjunction with, our Financial Statements. This MD&A contains both historical and forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “should,” “target,” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Factors that might cause such differences include, but are not limited to, those discussed in Part 1. of this Form 10-K under Item 1A. , “Risk Factors,” which are incorporated herein by reference. Our future results and financial condition may be materially different from those we currently anticipate. Throughout the MD&A, amounts and percentages may not recalculate due to rounding. Unless otherwise indicated, all information in the MD&A and references to years are based on our fiscal year, which ends on October 31.
Business Overview
ABM is a leading provider of integrated facility solutions, customized by industry, with a mission to make a difference, every person, every day . Our principal operations are in the United States, and in 2022 our U.S. operations generated approximately 94% of our revenues.
Strategic Growth
We remain focused on long-term, profitable growth by delivering valued service offerings to both new and existing clients within our industry groups and across our many service lines. Our revenue growth strategy is predicated on pursuing new sales and targeting a favorable retention rate among existing contracts. Cross-selling and up-selling projects and services is also an integral part of our strategy. We believe our strategic growth initiatives, coupled with our continued focus on marketing, capital, and sales resources, will increase profitability.
ELEVATE Transformation
Through our ELEVATE strategy, as described in Item 1., “Business.,” we continue to focus our efforts on:
• the client experience, by serving as a trusted advisor who can provide innovative multiservice solutions and consistent service delivery;
• the team member experience, by investing in workforce management, training, developing the next generation of ABM leaders, and building on our inclusive culture; and
• our use of technology and data to power client and employee experiences with cutting-edge data and analytics, processes, and tools that will fundamentally change how we operate our business.
We believe that our technology and data investments will enable: the development and deployment of client-facing technology to improve service delivery to our clients; the use of advanced data analytics for sales targeting, employee retention, and recruiting; and the upgrade of our Enterprise Resource Planning and payroll systems.
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Developments and Trends
COVID-19 Pandemic
The COVID-19 Pandemic has led to an increased demand for our services, including higher margin work orders and our EnhancedClean services. While overall demand for these services has decreased as pandemic-related restrictions continue to loosen, we experienced that ongoing concerns around COVID-19 variants combined with our ELEVATE strategy led to new and incremental opportunities for our services. Refer to “Consolidated Results of Operations” and “Results of Operations by Segment” for additional information related to the impact of the Pandemic on our financial results.
Insurance Reserves
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. Insurance claim liabilities represent our estimate of retained risks without regard to insurance coverage. We retain a substantial portion of the risk related to certain workers’ compensation and medical claims. Liabilities associated with these losses include estimates of both filed claims and incurred but not reported claims (“IBNR Claims”).
With the assistance of third-party actuaries, we review our estimate of ultimate losses for IBNR Claims on a quarterly basis and adjust our required self-insurance reserves as appropriate. As part of this evaluation, we review the status of existing and new claim reserves as established by third-party claims administrators. The third-party claims administrators establish the case reserves based upon known factors related to the type and severity of the claims, demographic factors, legislative matters, and case law, as appropriate. We compare actual trends to expected trends and monitor claims developments. The specific case reserves estimated by the third-party administrators are provided to an actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs, which includes the case reserves plus an actuarial estimate of reserves required for additional developments, such as IBNR Claims. We utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.
The actuarial reviews demonstrate that the changes we have made to our risk management program continue to positively impact the frequency and severity of claims. The claims management strategies and programs that we have implemented have resulted in improvements. Furthermore, we continue to adjust our reserves consistent with known fact patterns. Based on the results of the actuarial reviews performed, we decreased our total reserves related to prior years for known claims as well as our estimate of the loss amounts associated with IBNR Claims during 2022 by $36.8 million. In 2021, we decreased our total reserves related to prior year claims by $36.0 million.
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Key Financial Highlights
• Revenues increased by $1,578.0 million, or 25.3%, to $7,806.6 million during 2022, as compared to 2021. Revenue growth was comprised of acquisition growth of 18.0% and organic growth of 7.3%. Acquisition growth was primarily driven by an $1,064.4 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021. Organic growth was primarily driven by the recovery in volume of our business as pandemic disruptions eased (primarily in B&I and Aviation) and new business within M&D, Technical Solutions, and Education. The increase in revenues was partially offset by a decrease in work orders for pandemic-related demands (primarily in M&D and B&I) and the loss of certain accounts within Education in the third quarter of 2021.
• Operating profit increased by $142.5 million to $348.8 million during 2022, as compared to 2021. The increase in operating profit was attributable to:
◦ the absence of legal costs and settlements attributed to the legal reserve for the Bucio case;
◦ increase in the volume in our business due to the Able Acquisition and the easing of pandemic disruptions and net new business; and
◦ the absence of a non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation.
The increase was partially offset by:
◦ increase in compensation and related expenses primarily attributable to talent acquisition activities and limited labor supply in certain markets;
◦ additional overhead and amortization of intangibles related to the Able Acquisition; and
◦ increased expenditures for certain technology projects and other enterprise initiatives (including ELEVATE ).
• Our effective tax rate on income from continuing operations was 25.7% for 2022, as compared to 29.8% during 2021.
• Net cash provided by operating activities of continuing operations was $20.4 million during 2022. Our total operating cash flows were lower, primarily due to the timing of certain working capital requirements, which included a $143.8 million payment for the Bucio case and a $66 million payment for deferred payroll taxes under the CARES Act in the current fiscal year.
• Dividends of $51.9 million were paid to shareholders, and dividends totaling $0.78 per common share were declared during 2022.
• At October 31, 2022, total outstanding borrowings under our Amended Credit Facility and Receivables Facility were $1,271.3 million, and we had up to $612.9 million of borrowing capacity.
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Results of Operations
Consolidated
Years Ended October 31, 2022 vs. 2021
($ in millions) 2022 2021 2020 Increase / (Decrease)
Revenues $ 7,806.6 $ 6,228.6 $ 5,987.6 $ 1,578.0 25.3%
Operating expenses 6,757.5 5,258.2 5,157.0 1,499.3 28.5%
Gross margin 13.4 % 15.6 % 13.9 % (214) bps
Selling, general and administrative expenses 628.3 719.2 506.1 (90.9) (12.6)%
Restructuring and related expenses — — 7.6 — NM*
Amortization of intangible assets 72.1 45.0 48.4 27.1 60.2%
Impairment loss of goodwill and other intangibles — — 172.8 — NM*
Operating profit 348.8 206.3 95.7 142.5 69.1%
Income from unconsolidated affiliates 2.4 2.1 2.2 0.3 16.5%
Interest expense (41.1) (28.6) (44.6) 12.5 (43.9)%
Income from continuing operations before
income taxes 310.0 179.8 53.3 130.2 72.4%
Income tax provision (79.6) (53.5) (53.1) 26.1 (48.9)%
Income from continuing operations 230.4 126.3 0.2 104.1 82.4%
Income (loss) from discontinued operations,
net of taxes — — 0.1 — NM*
Net income 230.4 126.3 0.3 104.1 82.4%
Other comprehensive income (loss)
Interest rate swaps 36.7 4.5 (7.6) 32.2 NM*
Foreign currency translation and other (19.8) 5.3 (1.8) (25.1) NM*
Income tax (provision) benefit (10.5) (1.5) 2.4 (9.0) NM*
Comprehensive income (loss) $ 236.9 $ 134.5 $ (6.6) $ 102.4 76.1%
*Not meaningful
The Year Ended October 31, 2022 Compared with the Year Ended October 31, 2021
Revenues
Revenues increased by $1,578.0 million, or 25.3%, to $7,806.6 million during 2022, as compared to 2021. Revenue growth was comprised of acquisition growth of 18.0% and organic growth of 7.3%. Acquisition growth was primarily driven by an $1,064.4 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021. Organic growth was primarily driven by the recovery in volume of our business as pandemic disruptions eased (primarily in B&I and Aviation) and new business within M&D, Technical Solutions, and Education. The increase in revenues was partially offset by a decrease in work orders for pandemic-related demands (primarily in M&D and B&I) and the loss of certain accounts within Education in the third quarter of 2021.
Operating Expenses
Operating expenses increased by $1,499.3 million, or 28.5%, to $348.8 million during 2022, as compared to 2021. Gross margin decreased by 214 bps to 13.4% in 2022 from 15.6% in 2021. The decrease in gross margin was primarily driven by the decrease in cleaning services for pandemic-related demands (primarily in M&D and B&I), which have higher margins, and the changes in contract mix due to the Able Acquisition. In addition, gross margin was negatively impacted by an increase in direct labor and related costs (primarily in B&I, Aviation, and Education) and the amortization of intangibles acquired as part of the Able Acquisition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $90.9 million, or 12.6%, to $628.3 million during 2022, as compared to 2021. The decrease in selling, general and administrative expenses was primarily attributable to:
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• a $160.1 million decrease in legal costs and settlements, of which $142.9 million was attributed to the accrual of a legal reserve for the Bucio case during 2021;
• the absence of a $9.1 million non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation as we determined that certain components developed will no longer be incorporated into the new ERP system during 2021;
• a $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services within Technical Solutions;
• a $9.8 million decrease in bad debt expense; and
• a $5.7 million decrease in acquisition and integration costs primarily attributable to the Able acquisition partially offset by an increase due to our Momentum and RavenVolt acquisitions.
This decrease was partially offset by:
• a $46.1 million increase in compensation and related expenses primarily attributable to talent acquisition activities;
• a $31.4 million increase in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;
• a $16.9 million increase related to the Able Acquisition; and
• a $6.7 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.
Amortization of Intangible Assets
Amortization of intangible assets increased by $27.1 million, or 60.2%, to $72.1 million during 2022, as compared to 2021. This increase was primarily due to the amortization of intangibles acquired as part of the Able Acquisition.
Interest Expense
Interest expense increased by $12.5 million, or 43.9%, to $41.1 million during 2022, as compared to 2021, primarily driven by the indebtedness to fund acquisitions and working capital requirements and an increase in the reference rates on our debt borrowings beginning the second quarter of 2022. This increase was partially offset by more favorable terms in the current year as the result of amending our credit facility in the third quarter of 2021.
Income Taxes from Continuing Operations
During 2022 and 2021, we had effective tax rates of 25.7% and 29.8%, respectively, resulting in a provision for tax of $79.6 million and $53.5 million, respectively. Our effective tax rate for 2022 was impacted by the following items: a $8.1 million benefit for expiring statutes of limitations; a $1.4 million benefit for share-based compensation; and a $1.3 million provision for true-ups. Our effective tax rate for 2021 was also impacted by the following items: a $3.0 million provision for nondeductible transaction costs; a $2.6 million provision for change in tax reserves; a $1.4 million provision for true-ups; and a $1.2 million benefit for energy efficiency incentives.
Interest Rate Swaps
We had a gain of $36.7 million on interest rate swaps during the year ended October 31, 2022, as compared to a gain of $4.5 million during the year ended October 31, 2021, primarily due to underlying changes in the fair value of our interest rate swaps.
Foreign Currency Translation and Other
We had a foreign currency translation loss of $19.8 million during the year ended October 31, 2022, as compared to a foreign currency translation gain of $5.3 million during the year ended October 31, 2021. This change was due to fluctuations in the exchange rate between the U.S. Dollar (“USD”) and the British pound sterling
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(“GBP”). Future gains and losses on foreign currency translation will be dependent upon changes in the relative value of foreign currencies to the USD and the extent of our foreign assets and liabilities.
The Year Ended October 31, 2021 Compared with the Year Ended October 31, 2020
For a comparison of our Results of Operations for the year ended October 31, 2021, to the year ended October 31, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended October 31, 2021, filed with the SEC on December 22, 2021.
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Segment Information
Our current reportable segments consist of B&I, M&D, Education, Aviation, and Technical Solutions.
Financial Information for Each Reportable Segment
Years Ended October 31, 2022 vs. 2021
($ in millions) 2022 2021 2020 Increase / (Decrease)
Revenues
Business & Industry $ 4,095.9 $ 2,853.8 $ 2,856.4 $ 1,242.1 43.5%
Manufacturing & Distribution 1,445.2 1,363.1 1,151.4 82.1 6.0%
Education 834.7 830.8 805.1 3.9 0.5%
Aviation 804.0 651.1 670.7 152.9 23.5%
Technical Solutions 626.8 529.8 504.0 97.0 18.3%
$ 7,806.6 $ 6,228.6 $ 5,987.6 $ 1,578.0 25.3%
Operating profit (loss)
Business & Industry $ 334.9 $ 285.9 $ 229.2 $ 49.0 17.1%
Operating profit margin 8.2 % 10.0 % 8.0 % (184) bps
Manufacturing & Distribution 161.8 155.5 108.0 6.3 4.0%
Operating profit margin 11.2 % 11.4 % 9.4 % (21) bps
Education 47.1 61.5 (39.9) (14.4) (23.4)%
Operating profit margin 5.6 % 7.4 % (5.0 %) (176) bps
Aviation 29.3 32.1 (60.1) (2.8) (8.6)%
Operating profit margin 3.6 % 4.9 % (9.0 %) (128) bps
Technical Solutions 63.8 49.4 9.7 14.4 29.2%
Operating profit margin 10.2 % 9.3 % 1.9 % 86 bps
Government Services (0.3) (0.2) (0.1) (0.1) (72.4)%
Operating profit margin NM* NM* NM* NM*
Corporate (284.5) (374.6) (146.9) (90.1) 24.0%
Adjustment for income from unconsolidated
affiliates, included in Aviation (2.4) (2.1) (2.2) (0.3) (16.5)%
Adjustment for tax deductions for energy
efficient government buildings, included in
Technical Solutions (0.9) (1.2) (2.1) 0.3 27.7%
$ 348.8 $ 206.3 $ 95.7 $ 142.5 69.1%
*Not meaningful
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The Year Ended October 31, 2022 Compared with the Year Ended October 31, 2021
Business & Industry
Years Ended October 31,
($ in millions) 2022 2021 Increase
Revenues $ 4,095.9 $ 2,853.8 $ 1,242.1 43.5%
Operating profit 334.9 285.9 49.0 17.1%
Operating profit margin 8.2 % 10.0 % (184) bps
B&I revenues increased by $1,242.1 million, or 43.5%, to $4,095.9 million during 2022, as compared to 2021. Revenue growth was comprised of acquisition growth of 38.5% and organic growth of 5.0%. Acquisition growth was primarily driven by a $1,058.9 million revenue increase due to the Able Acquisition, completed in the fourth quarter of 2021. Organic growth was primarily driven by the recovery of certain accounts as pandemic-related disruptions continue to ease and targeted expansion of certain key clients, as well as lower sales allowance reserve, while partially offset by decrease in pandemic-related cleaning services. Management reimbursement revenues for this segment totaled $227.8 million and $185.8 million during 2022 and 2021, respectively.
Operating profit increased by $49.0 million, or 17.1%, to $334.9 million during 2022, as compared to 2021. Operating profit margin decreased by 184 bps to 8.2% in 2022 from 10.0% in 2021. The decrease in operating profit margin was primarily driven by an increase in direct labor and related costs due to a limited labor supply in certain non-union markets; a decrease in pandemic-related cleaning services, which have higher margins; and changes in contract mix as a result of the Able Acquisition, partially offset by lower bad debt expense. In addition, operating profit margin was negatively impacted by the amortization of intangibles acquired as part of the Able Acquisition.
Manufacturing & Distribution
Years Ended October 31,
($ in millions) 2022 2021 Increase
Revenues $ 1,445.2 $ 1,363.1 $ 82.1 6.0%
Operating profit 161.8 155.5 6.3 4.0%
Operating profit margin 11.2 % 11.4 % (21) bps
M&D revenues increased by $82.1 million, or 6.0%, to $1,445.2 million during 2022, as compared to 2021. The increase was primarily attributable to the expansion of business with existing customers led by distribution clients, partially offset by a decrease in work orders for pandemic-related demands.
Operating profit increased by $6.3 million, or 4.0%, to $161.8 million during 2022, as compared to 2021. Operating profit margin decreased by 21 bps to 11.2% in 2022 from 11.4% in 2021. The decrease in operating profit margin was primarily attributable to the decrease in pandemic-related work orders, which have higher margins.
Education
Years Ended October 31,
($ in millions) 2022 2021 Increase / (Decrease)
Revenues $ 834.7 $ 830.8 $ 3.9 0.5%
Operating profit 47.1 61.5 (14.4) (23.4)%
Operating profit margin 5.6 % 7.4 % (176) bps
Education revenues increased by $3.9 million, or 0.5%, to $834.7 million during 2022, as compared to 2021. The increase was primarily attributable to new business and recovery in the volume of our business as schools reopened to full capacity. The increase was partially offset by a loss of certain accounts in the third quarter of 2021.
Operating profit decreased by $14.4 million, or 23.4% to $47.1 million during 2022, as compared to 2021. Operating margin decreased to 5.6% in 2022 from 7.4% in 2021. The decrease in operating margin was primarily attributable to an increase in direct labor and related costs due to the return to in-person learning and a limited labor supply in certain geographies. Operating margin was positively impacted by lower amortization of intangible assets.
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Aviation
Years Ended October 31,
($ in millions) 2022 2021 Increase / (Decrease)
Revenues $ 804.0 $ 651.1 $ 152.9 23.5%
Operating profit 29.3 32.1 (2.8) (8.6)%
Operating profit margin 3.6 % 4.9 % (128) bps
Aviation revenues increased by $152.9 million, or 23.5% to $804.0 million, during 2022, as compared to 2021. The increase was primarily attributable to a recovery in consumer and business travel (both domestic and international) and new parking-related services. Management reimbursement revenues for this segment totaled $52.6 million and $54.5 million during 2022 and 2021, respectively.
Operating profit decreased by $2.8 million, or 8.6%, to $29.3 million during 2022, as compared to 2021. Operating margin decreased to 3.6% during 2022, from 4.9% during 2021. The decrease was primarily attributable to delays in work order acceptance from a client related to a parking project, whereby direct labor and related costs were incurred in the current year while related revenue did not meet the criteria for revenue recognition. It is expected that the revenue that was not recognized in 2022 will be recognized in a future period. The decrease was partially offset by the contract mix.
Technical Solutions
Years Ended October 31,
($ in millions) 2022 2021 Increase
Revenues $ 626.8 $ 529.8 $ 97.0 18.3%
Operating profit 63.8 49.4 14.4 29.2%
Operating profit margin 10.2 % 9.3 % 86 bps
Technical Solutions revenues increased by $97.0 million, or 18.3%, to $626.8 million during 2022, as compared to 2021. Revenue growth was comprised of acquisition growth of 2.8% and organic growth of 15.5%. The organic revenue growth was primarily driven by the growth in electric vehicle charging station installation sales. Acquisition growth was primarily driven by a $14.7 million revenue increase due to the RavenVolt Acquisition, completed in the fourth quarter of 2022.
Operating profit increased by $14.4 million, or 29.2%, to $63.8 million during 2022, as compared to 2021. Operating profit margin increased by 86 bps to 10.2% in 2022 from 9.3% in 2021. The increase in operating profit margin was primarily attributable to the $7.6 million gain recognized on the sale of a group of customer contracts related to healthcare technology management services and lower bad debt expense partially offset by the contract mix.
Corporate
Years Ended October 31,
($ in millions) 2022 2021 Decrease
Corporate expenses $ (284.5) $ (374.6) $ (90.1) 24.0%
Corporate expenses decreased by $90.1 million, or 24.0%, to $284.5 million during 2022, as compared to 2021. The decrease in corporate expenses was primarily related to:
• a $158.0 million decrease in legal costs and settlements, of which $142.9 million was attributed to the accrual of a legal reserve for the Bucio case during 2021;
• the absence of a $9.1 million non-cash impairment charge for previously capitalized internal-use software related to our ERP system implementation as we determined that certain components developed will no longer be incorporated into the new ERP system during 2021; and
• a $5.7 million decrease in acquisition and integration costs primarily attributable to the Able acquisition partially offset by an increase due to our Momentum and RavenVolt acquisitions.
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This decrease was partially offset by:
• a $26.2 million increase in compensation and related expenses primarily attributable to talent acquisition activities;
• a $32.2 million increase in certain technology projects primarily attributable to discrete transformational costs under our ELEVATE strategy for developing the new ERP system, client-facing technology, workforce management tools, and data analytics;
• a $14.9 million increase related to the Able Acquisition; and
• a $6.7 million decrease in favorable self-insurance adjustments related to prior year claims as the result of actuarial evaluations completed on our medical and dental self-insurance plans.
The Year Ended October 31, 2021 Compared with the Year Ended October 31, 2020
For a comparison of our Segment Information for the year ended October 31, 2021, to the year ended October 31, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended October 31, 2021, filed with the SEC on December 22, 2021.
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Liquidity and Capital Resources
Our primary sources of liquidity are operating cash flows and borrowing capacity under our credit facility. We assess our liquidity in terms of our ability to generate cash to fund our short- and long-term cash requirements. As such, we project our anticipated cash requirements as well as cash flows generated from operating activities to meet those needs.
In addition to normal working capital requirements, we anticipate that our short- and long-term cash requirements will include funding insurance claims, dividend payments, capital expenditures, share repurchases, mandatory loan repayments, and systems and technology transformation initiatives under our ELEVATE strategy. We anticipate long-term cash uses may also include strategic acquisitions. On a long-term basis, we will continue to rely on our credit facility for any long-term funding not provided by operating cash flows.
We believe that our operating cash flows and borrowing capacity under our credit facility are sufficient to fund our cash requirements for the next 12 months. In the event that our plans change or our cash requirements are greater than we anticipate, we may need to access the capital markets to finance future cash requirements. However, there can be no assurance that such financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders.
Debt Facilities
On September 1, 2017, we refinanced and replaced our then-existing $800.0 million credit facility with a new senior, secured five-year syndicated credit facility (the “Credit Facility”), consisting of a $900.0 million revolving line of credit and an $800.0 million amortizing term loan. In accordance with the terms of the Credit Facility, the revolving line of credit was reduced to $800.0 million on September 1, 2018.
On June 28, 2021, the Company amended and restated the Credit Facility (the “Second Amendment,” and the Credit Facility as amended, the “Amended Credit Facility”), extending the maturity date to June 28, 2026, and increasing the capacity of the revolving credit facility from $800.0 million to $1.3 billion and the then-remaining term loan outstanding from $620.0 million to $650.0 million. The Amended Credit Facility provides for the issuance of up to $350.0 million for standby letters of credit and the issuance of up to $75.0 million in swingline advances. The obligations under the Amended Credit Facility are secured on a first-priority basis by a lien on substantially all of our assets and properties, subject to certain exceptions. We may repay amounts borrowed under the Amended Credit Facility at any time without penalty.
Under the Amended Credit Facility, the term loan and U.S.-dollar-denominated borrowings under the revolver bear interest at a rate equal to the one-month London Interbank Offered Rate (“LIBOR”) plus a spread based upon our leverage ratio. Euro- and sterling-denominated borrowings under the revolver bear at the interest rate of the Euro Interbank Offered Rate (EURIBOR) and the daily Sterling Overnight Index Average (SONIA) reference rate, respectively, plus a spread that is based upon our leverage ratio. The spread ranges from 1.375% to 2.250% for Eurocurrency loans and 0.375% to 1.250% for base rate loans. At October 31, 2022, the weighted average interest rate on our outstanding borrowings was 4.97%. We also pay a commitment fee, based on our leverage ratio and payable quarterly in arrears, ranging from 0.20% to 0.40% on the average daily unused portion of the line of credit. For purposes of this calculation, irrevocable standby letters of credit, which are issued primarily in conjunction with our insurance programs, and cash borrowings are included as outstanding under the line of credit.
The Amended Credit Facility contains certain covenants, including a maximum total net leverage ratio of 5.00 to 1.00, a maximum secured net leverage ratio of 4.00 to 1.00, and a minimum interest coverage ratio of 1.50 to 1.00, as well as other financial and non-financial covenants. In the event of a material acquisition, as defined in the Amended Credit Facility, we may elect to increase the maximum total net leverage ratio to 5.50 to 1.00 for a total of four fiscal quarters and increase the maximum secured net leverage ratio to 4.50 to 1.00 for a total of four fiscal quarters. We did not make this election for the Able Acquisition. Our borrowing capacity is subject to, and limited by, compliance with the covenants described above. At October 31, 2022, we were in compliance with these covenants and expect to be in compliance in the foreseeable future.
On March 1, 2022, we entered into a new uncommitted receivable repurchase facility (the “Receivables Facility”) of up to $150 million, which expires on February 28, 2023. The Receivables Facility allows the Company to sell a portfolio of available and eligible outstanding U.S. trade accounts receivable to a participating institution and simultaneously agree to repurchase them generally on a monthly basis. Under this arrangement, we make floating
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rate interest payments equal to the forward-looking term rate based on Secured Overnight Financing Rate (“SOFR”) plus 1.05%. These interest payments are payable monthly in arrears. The repurchase price of the receivables in the facility is the original face value. Outstanding receivables must be repurchased on a date agreed upon by both the buyer and seller, generally on a monthly basis, and on the termination date of the repurchase facility. This facility is considered a secured borrowing and provides the buyer with customary rights of termination upon the occurrence of certain events of default. We have guaranteed all of the sellers’ obligations under the facility.
During 2022, we made $32.5 million of principal payments under the term loan. At October 31, 2022, the total outstanding borrowings and standby letters of credit were $1,271.3 million and $158.3 million, respectively. At October 31, 2022, we had up to $612.9 million of borrowing capacity.
On March 5, 2021, the United Kingdom’s Financial Conduct Authority, the regulator of LIBOR, announced that the USD LIBOR rates will no longer be published after June 30, 2023. The Alternative Reference Rates Committee, a group of market participants convened by the U.S. Federal Reserve Board and the Federal Reserve Bank of New York, has recommended SOFR, a rate calculated based on repurchase agreements backed by treasury securities, as its recommended alternative benchmark rate to replace USD LIBOR. We transitioned the outstanding debt from a LIBOR-based interest rate to a term SOFR-based interest rate, which is set to take effect on November 1, 2022.
Reinvestment of Foreign Earnings
We plan to reinvest our foreign earnings to fund future non-U.S. growth and expansion, and we do not anticipate remitting such earnings to the United States. While U.S. federal tax expense has been recognized as a result of the Tax Cuts and Jobs Act of 2017, no deferred tax liabilities with respect to federal and state income taxes or foreign withholding taxes have been recognized. We believe that our cash on hand in the United States, along with our Amended Credit Facility and future domestic cash flows, are sufficient to satisfy our domestic liquidity requirements.
Share Repurchases
Effective December 18, 2019, our Board of Directors replaced our then-existing share repurchase program with a new share repurchase program under which we may repurchase up to $150.0 million of our common stock. We repurchased shares under the Share Repurchase Program during 2022, as summarized below. At October 31, 2022, authorization for $47.4 million of repurchases remained under the Share Repurchase Program. Effective December 9, 2022, our Board of Directors expanded the Share Repurchase Program by an additional $150.0 million. There were no share repurchases during 2021.
Years Ended October 31,
(in millions, except per share amounts) 2022 2021
Total number of shares purchased 2.3 —
Average price paid per share $ 42.15 N/A
Total cash paid for share repurchases $ 97.5 $ —
Proceeds from Federal Energy Savings Performance Contracts
As part of our Technical Solutions business, we enter into energy savings performance contracts (“ESPC”) with the federal government pursuant to which we agree to develop, design, engineer, and construct a project and guarantee that the project will satisfy agreed-upon performance standards. Proceeds from ESPC projects are generally received in advance of construction through agreements to sell the ESPC receivables to unaffiliated third parties. We use the advances from the third parties under these agreements to finance the projects, which are recorded as cash flows from financing activities. The use of the cash received under these arrangements to pay project costs is classified as operating cash flows.
Effect of Inflation
The rates of inflation experienced in recent years have not had a material impact on our Financial Statements. We attempt to recover increased costs by increasing prices for our services to the extent permitted by contracts and competition.
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Regulatory Environment
Our operations are subject to various federal, state, and/or local laws, rules, and regulations regulating among other things, labor, wages, and health and safety matters, as well as laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of the environment. Historically, the cost of complying with these laws, rules, and regulations has not had a material adverse effect on our financial position, results of operations, or cash flows.
Cash Flows
In addition to revenues and operating profit, our management views operating cash flows as a good indicator of financial performance, because strong operating cash flows provide opportunities for growth both organically and through acquisitions. Operating cash flows primarily depend on: revenue levels; the quality and timing of collections of accounts receivable; the timing of payments to suppliers and other vendors; the timing and amount of income tax payments; and the timing and amount of payments on insurance claims and legal settlements.
Years Ended October 31,
(in millions) 2022 2021 2020
Net cash provided by operating activities of continuing operations $ 20.4 $ 314.3 $ 457.4
Net cash provided by operating activities of discontinued operations — — 0.1
Net cash provided by operating activities 20.4 314.3 457.5
Net cash used in investing activities (241.5) (740.0) (27.5)
Net cash provided by (used in) financing activities 235.5 92.4 (94.1)
Operating Activities of Continuing Operations
Net cash provided by operating activities of continuing operations decreased by $293.9 million during 2022, as compared to 2021. The decrease was primarily driven by payments made for the Bucio settlement, which was recorded within “Other Accrued Liabilities” in the Consolidated Balance Sheets, and deferred remittance of payroll taxes in the current year and the timing of client receivable collections and vendor payments.
Net cash provided by operating activities of continuing operations decreased by $143.1 million during 2021, as compared to 2020. The decrease was primarily related to the timing of client receivable collections and deferred remittance of payroll taxes under the CARES Act in 2021, partially offset by the timing of vendor payments.
Investing Activities
Net cash used in investing activities changed by $498.5 million during 2022, as compared to 2021. The change was primarily related to the Able Acquisition during the fourth quarter of 2021, partially offset by Momentum and RavenVolt acquisitions.
Net cash used in investing activities changed by $712.5 million during 2021, as compared to 2020. The change was primarily related to the Able Acquisition during the fourth quarter of 2021.
Financing Activities
Net cash provided by financing activities was $235.5 million in 2022, as compared to net cash used in financing activities of $92.4 million in 2021. The change was primarily related to an increase in net borrowings from our Amended Credit Facility and Receivable Facility to fund acquisitions and working capital requirements.
Net cash provided by financing activities was $92.4 million in 2021, as compared to net cash used in financing activities of $94.1 million in 2020, primarily due to higher net borrowings to partially fund the purchase price of the Able Acquisition.
Dividends
On December 5, 2022, we announced a quarterly cash dividend of $0.22 per share on our common stock, payable on February 6, 2023. We declared a quarterly cash dividend on our common stock every quarter during
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2022, 2021, and 2020. We paid total annual dividends of $51.9 million, $51.0 million, and $49.3 million during 2022, 2021, and 2020, respectively.
Material Cash Requirements from Contractual and Other Obligations
As of October 31, 2022, our material cash requirements for our known contractual and other obligations were as follows:
• Debt Obligations and Interest Payments – Outstanding payments on our Amended Credit Facility were $1,271.3 million, with $32.5 million payable within 12 months. In addition, we have $150.0 million payable under our Receivables Facility that allows us to sell a portfolio of available and eligible outstanding U.S. trade accounts receivable of up to $150.0 million to a participating institution and simultaneously agree to repurchase them generally on a monthly basis. We had future interest payments based on our hedged borrowings under our Amended Credit Facility of $16.3 million, which is payable within 12 months. The interest payments on our remaining borrowings under the Amended Credit Facility will be determined based upon the average outstanding balance of our borrowings and the prevailing interest rate during that time. See Note 11, “Credit Facility,” in the Financial Statements for further detail of our debt and the timing of expected future principal and interest payments.
• Operating and Finance Leases – We enter into various noncancelable l ease agreements for office space, parking facilities, warehouses, vehicles, and equipment used in the normal course of business. Operating and finance lease obligations were $161.1 million, with $38.4 million payable within 12 months. See Note 5, “Leases,” in the Financial Statements for further detail of our obligations and the timing of expected future payments.
• Service Concession Arrangements – As defined under Topic 853, Service Concession Arrangements , our leased location parking arrangements are represented as service concession arrangements. We had contractual payments for these arrangements of $66.0 million, with $17.3 million payable within 12 months.
• Information Technology Service Agreement s – Information technology service agreements represent outsourced services and licensing costs pursuant to our information technology agreements. We had contractual payments for these agreements of $61.4 million, with $38.8 million payable within 12 months.
• Benefit Obligations – Expected future payments relating to our defined benefit, postretirement, and deferred compensation plans were $39.0 million, with $3.2 million payable in 12 months. These amounts are based on expected future service and were calculated using the same assumptions used to measure our benefit obligation at October 31, 2022.
• CARES Act Tax Obligations – We deferred approximately $66 million of payroll tax provisions under the CARES Act, which we paid in December 2022. See Note 16, “Income Taxes,” in the Financial Statements for further details.
In addition, our material cash requirements for other obligations, for which we cannot reasonably estimate future payments, include the following:
• Multiemployer Benefit Plans – In addition to our company sponsored benefit plans, we participate in certain multiemployer pension and other postretirement plans. The cost of these plans is equal to the annual required contributions determined in accordance with the provisions of negotiated collective bargaining arrangements. During 2021, 2020, and 2019, contributions made to these plans were $555.1 million, $348.8 million, and $335.8 million, respectively; however, our future contributions to the multiemployer plans are dependent upon a number of factors, including the funded status of the plans, the ability of other participating companies to meet ongoing funding obligations, and the level of our ongoing participation in these plans. Amounts of future contributions that we would be contractually obligated to make pursuant to these plans cannot be reasonably estimated. See Note 12, “Employee Benefit Plans,” in the Financial Statements for more information.
• Self-Insurance Obligations – We may make payments for exposures for which we are self-insured, including workers’ compensation, general liability, automobile liability, property damage, and other insurable risks. At October 31, 2022, our self-insurance reserves, net of recoverables, were $479.9 million. As these obligations do not have scheduled maturities, we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters. See Note 10, “Insurance,” in the Financial Statements for further detail.
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• Unrecognized Tax Benefits – At October 31, 2022, our total liability for unrecognized tax benefits was $10.8 million. The resolution or settlement of these tax positions with the taxing authorities is subject to significant uncertainty, and therefore we are unable to make a reliable estimate of the amount or timing of cash that may be required to settle these matters. In addition, certain of these matters may not require cash settlements due to the exercise of credits and net operating loss carryforwards as well as other offsets, including the indirect benefit from other taxing jurisdictions that may be available.
• Contingent Consideration Payable in Connection with Our Acquisition of RavenVolt – At October 31, 2022, contingent consideration of up to $280.0 million in cash may be paid in calendar years 2024, 2025, and 2026, if the RavenVolt business achieves certain financial targets, as defined in the merger agreement, in calendar years 2023, 2024, and 2025 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than unrecorded standby letters of credit and surety bonds. We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations and to collateralize self-insurance obligations in the event we are unable to meet our claim payment obligations. As we already have reserves on our books for the claims costs, these do not represent additional liabilities. The surety bonds typically remain in force for one to five years and may include optional renewal periods. As of October 31, 2022, these letters of credit and surety bonds totaled $158.3 million and $618.6 million, respectively. Neither of these arrangements has a material current effect, or is reasonably likely to have a material future effect, on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
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Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires our management to make certain estimates that affect the reported amounts. We base our estimates on historical experience, known or expected trends, independent valuations, and various other assumptions that we believe to be reasonable under the circumstances. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. As a result of our Acquisition of RavenVolt, we added “Contingent Consideration” to our critical accounting policies and estimates in 2022. We removed “Customer Relationships” and “Contingencies and Litigation”. There have been no other significant changes to our critical accounting policies and estimates for the year ended October 31, 2022. We believe the following critical accounting policies govern the more significant judgments and estimates used in the preparation of our Financial Statements.
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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Valuation of Long-Lived Assets
We evaluate our fixed assets and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These events and circumstances include, but are not limited to: higher than expected attrition for customer relationships; a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, such as when we classify a business as held for sale; a significant adverse change in the extent or manner in which we use a long-lived asset; or a change in the physical condition of a long-lived asset. Undiscounted cash flow analyses are used to determine if impairment exists; if impairment is determined to exist, the loss is calculated based on estimated fair value. Goodwill is not amortized but rather tested at least annually for impairment or more often if events or changes in circumstances indicate it is more likely than not that the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which represents an operating segment or a component of an operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all of our reporting units and instead perform a quantitative impairment test.
Our impairment evaluations require us to apply judgment in determining whether a triggering event has occurred, including the evaluation of whether it is more likely than not that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life. Incorrect estimation of useful lives may result in inaccurate depreciation and amortization charges over future periods leading, to future impairment.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
We estimate the fair value of each reporting unit using a combination of the income approach and the market approach.
The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal value are calculated for each reporting unit and then discounted to present value using an appropriate discount rate.
The valuation of our reporting units requires significant judgment in evaluation of recent indicators of market activity and estimated future cash flows, discount rates, and other factors. Our impairment analyses contain inherent uncertainties due to uncontrollable events that could positively or negatively impact anticipated future economic and operating conditions.
In making these estimates, the weighted-average cost of capital is utilized to calculate the present value of future cash flows and terminal value. Many variables go into estimating future cash flows, including estimates of our future revenue growth and operating results. When estimating our projected revenue growth and future operating results, we consider industry trends, economic data, and our competitive advantage.
The market approach estimates fair value of a reporting unit by using market comparables for reasonably similar public companies.
During the last three years, we have not made any changes in the accounting methodology used to evaluate the impairment of long-lived assets or to estimate the useful lives of our long-lived assets. Additionally, we have not made any changes in the accounting methodology used to evaluate impairment of goodwill during the last three years.
At October 31, 2022, we had $2.5 billion of goodwill. Our goodwill is included in the following segments:
$1.1 billion — B&I
$502.2 million — M&D
$459.3 million — Education
$68.7 million — Aviation
$367.4 million — Technical Solutions
A goodwill impairment analysis was performed for each of our reporting units on August 1, 2022. Based on these studies, the implied fair value of each of our reporting units was substantially in excess of its carrying value. Therefore, we concluded there were no indicators of impairment. A 10% decrease in the estimated fair value of any of our reporting units would not have resulted in a different conclusion.
During the third quarter of 2021, we recognized a non-cash impairment charge totaling $9.1 million in our Corporate segment for previously capitalized internal-use software related to our ERP system implementation. The Company determined that certain components that were previously developed would no longer be integrated into the new ERP system. The impairment charge reduced the carrying value to zero for those components.
During the second quarter of 2020, given the general deterioration in economic and market conditions arising from the Pandemic, we identified a triggering event indicating possible impairment of goodwill and intangible assets. For the three goodwill reporting units tested quantitatively, we estimated the fair value using a weighting of fair values derived from an income approach and a market approach. Based on the evaluation performed, we determined that goodwill was impaired for each of the three goodwill reporting units evaluated and recognized a non-cash impairment charge totaling $163.8 million ($99.3 million related to Education, $55.5 million related to Aviation, and $9.0 million related to our UK Technical Solutions business). We also recognized intangible asset impairment charges of $5.6 million related to Aviation and $3.4 million related to our UK Technical Solutions business. We performed our annual goodwill impairment analysis on August 1, 2020, using a qualitative approach since there were no indicators of impairment subsequent to our quantitative analysis performed in the second quarter of 2020 as discussed above. As a result of the qualitative analysis, we concluded that there were no further impairments.
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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Insurance Reserves
We use a combination of insured and self-insurance programs to cover workers’ compensation, general liability, automobile liability, property damage, and other insurable risks.
Insurance claim liabilities represent our estimate of retained risks without regard to insurance coverage. We retain a substantial portion of the risk related to certain workers’ compensation and medical claims. Liabilities associated with these losses include estimates of both claims filed and IBNR Claims.
With the assistance of third-party actuaries, we periodically review our estimate of ultimate losses for IBNR Claims and adjust our required self-insurance reserves as appropriate. As part of this evaluation, we review the status of existing and new claim reserves as established by our third-party claims administrators.
The third-party claims administrators establish the case reserves based upon known factors related to the type and severity of the claims, demographic data, legislative matters, and case law, as appropriate.
We compare actual trends to expected trends and monitor claims development.
The specific case reserves estimated by the third-party administrators are provided to an actuary who assists us in projecting an actuarial estimate of the overall ultimate losses for our self-insured or high deductible programs. The projection includes the case reserves plus an actuarial estimate of reserves required for additional developments, including IBNR Claims.
We utilize the results of actuarial studies to estimate our insurance rates and insurance reserves for future periods and to adjust reserves, if appropriate, for prior years.
Our self-insurance liabilities contain uncertainties due to assumptions required and judgment used.
Costs to settle our obligations, including legal and healthcare costs, could fluctuate and cause estimates of our self-insurance liabilities to change.
Incident rates, including frequency and severity, could fluctuate and cause the estimates in our self-insurance liabilities to change.
These estimates are subject to: changes in the regulatory environment; fluctuations in projected exposures, including payroll, revenues, and the number of vehicle units; and the frequency, lag, and severity of claims.
The full extent of certain claims, especially workers’ compensation and general liability claims, may not be fully determined for several years.
In addition, if the reserves related to self-insurance or high deductible programs from acquired businesses are not adequate to cover damages resulting from future accidents or other incidents, we may be exposed to substantial losses arising from future claim developments. We have not made any changes in the accounting methodology used to establish our self-insurance liabilities during the past three years.
After analyzing recent loss development patterns, comparing the loss development patterns against benchmarks, and applying actuarial projection methods to estimate the ultimate losses, we decreased our total reserves related to prior years known claims as well as our estimate of the loss amounts associated with IBNR Claims during 2022 by $36.8 million. In 2021, we decreased our total reserves related to prior years claims by $36.0 million.
It is possible that actual results could differ from recorded self-insurance liabilities. A 10% change in our projected ultimate losses would have affected net income by approximately $34.5 million for 2022.
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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Contingent Consideration
The acquisition of RavenVolt included contingent earn-out arrangement, which is based on the achievement of future income thresholds or other metrics. The contingent earn-out arrangements are based upon our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.
The fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the Consolidated Balance Sheets. The fair values of the earn-out arrangements are estimated by discounting the expected future contingent payments to present value using a variation of the Income Approach, known as the Real Option method.
To estimate the fair value of the contingent consideration on the date of acquisition, we used the Real Options method. The key assumptions used in our valuation were: i) forecast of revenues and EBITDA margins, ii) the volatility associated with the EBITDA, iii) risk-adjusted discount rate applied to forecasted EBITDA, and (iv) the credit-adjusted discount rate related to the payment of the contingent consideration. A simulation of one million scenarios was performed with the assistance of a third-party valuation specialist, resulting in a fair value for the cumulative contingent consideration for calendar years 2023 through 2025 totaling $59 million.
These estimates are influenced by many factors, including historical financial information, guideline public company data, and management's expectations for future customer growth as a combined company. Changes in these inputs could have a significant impact on the initial fair value of the contingent consideration liability.
We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts. Changes in the estimated fair value of our contingent consideration and adjustments to the estimated fair value related to changes in all other unobservable inputs will be recognized within “Operating Expenses” in the Consolidated Statements of Comprehensive Income (Loss).
At October 31, 2022, we recorded $59.0 million of contingent consideration liability related to the RavenVolt acquisition. The cumulative maximum of the earn-out payments is $280.0 million, if RavenVolt achieves certain EBITDA (as defined in the RavenVolt merger agreement) targets. Pursuant to the RavenVolt merger agreement, former owners of RavenVolt would be entitled to a payment of up to $75.0 million in calendar year 2024 for achieving certain EBITDA targets in calendar year 2023; $75.0 million in calendar year 2025 for achieving certain EBITDA targets in calendar year 2024; and $130.0 million in calendar year 2026 for achieving certain EBITDA targets in calendar year 2025. If the EBITDA achieved for calendar years 2023 - 2025 cumulatively meets the defined EBITDA targets, the entire $280.0 million would be paid in calendar year 2026, minus any earn-out payments made in 2024 and 2025. The actual achievement of contingent considerations payments in 2024, 2025, and 2026 could be materially different than the initial fair value of $59 million.
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Recent Accounting Pronouncements
Accounting Standard Updates Topic Summary Effective Date/
Method of Adoption
2021-01 Reference Rate Reform (Topic 848): Scope This Accounting Standard Update (“ASU”), issued in January 2021, clarifies that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions under Topic 848.
Effective November 1, 2023, we applied available practical expedients under ASC 848 to account for modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes have been made to applicable debt and derivative contracts as if they were not substantial. This update was effective upon issuance and can be applied to hedging relationships retrospectively or prospectively through December 31, 2022.
2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting This ASU, issued in March 2020, provides optional expedients to assist with the discontinuance of LIBOR. The expedients allow companies to ease the potential accounting burden when modifying contracts and hedging relationships that use LIBOR as a reference rate, if certain criteria are met.
Effective November 1, 2023, we applied available practical expedients under ASC 848 to account for modifications, changes in critical terms, and updates to the designated hedged risks as qualifying changes have been made to applicable debt and derivative contracts as if they were not substantial. This update was effective upon issuance and can be applied prospectively to contract modifications made and hedging relationships entered into or evaluated through December 31, 2022.
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