What changed in this filing

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Item 1A. Risk Factors

2021-11-17 compared with 2020-11-19 · 66 added, 62 removed, 331 unchanged (28% of the section changed)

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Risks Related to Our Markets, Customers and Business

We face various risks related to health outbreaks such as the Covid-19 coronavirus that may have material adverse effects on our business, financial position, results of operations and/or cash flows.

We face various risks related to health epidemics, pandemics, and similar outbreaks, including the current global outbreak of the Covid-19 coronavirus pandemic.

The coronavirus pandemic is expected to reduce demand for our services and impact client spending in certain circumstances.

An extended health outbreak could adversely affect the world economy resulting in an economic downturn that could further affect demand for our services.

If significant portions of our workforce are unable to work or travel effectively for a prolonged period because of government-mandated quarantines, closures, or other restrictions, then our business and financial operations will be significantly impacted.

For example, work on some non-essential construction and other client projects has temporarily halted our services on these projects.

Extended disruptions due to the coronavirus could further delay or limit our ability to perform services, make or receive timely payments, and impair our ability to win future contracts.

The continued spread of coronavirus without any impact from any effective treatments may cause further financial instability increasing our costs and ability to access the capital markets.

Any cost increases due to the coronavirus may not be fully recoverable or adequately covered by our insurance.

We cannot at this time predict the duration of the coronavirus pandemic or the impact of government regulations that might be imposed in response of the pandemic;

however, the coronavirus pandemic may have a material adverse effect on our business, financial position, results of operations and cash flows.

We face various risks related to health outbreaks such as the Covid-19 pandemic that may have material adverse effects on our business, financial position, results of operations and/or cash flows.

Our business could be materially and adversely affected by the risk, or the public perception of risk, related to a pandemic or widespread health crisis, such as the current Covid-19 pandemic.

A significant outbreak, epidemic or pandemic of contagious diseases in the human population could result in a widespread health crisis adversely affecting the broader economies, financial markets and overall demand for our services.

In addition, any preventative or protective actions that governments implement or that we take in respect of a global health crisis, such as travel restrictions, quarantines, or site closures, may interfere with the ability of our employees and vendors to perform their responsibilities.

Such results could have a material adverse effect on our operations, business, financial condition, results of operations, or cash flows.

Our operations have been affected by a range of external factors related to the Covid-19 pandemic that are not within our control.

For example, many jurisdictions have imposed a wide range of restrictions on the physical movement of our employees and vendors to limit the spread of Covid-19 and some non-essential construction and other client projects temporarily halted as a result.

Extended disruptions due to the Covid-19 pandemic could further delay or limit our ability to perform services, make or receive timely payments, and impair our ability to win future contracts.

Any cost increases due to Covid-19 may not be fully recoverable or adequately covered by our insurance.

Our management is focused on mitigating the effects of Covid-19 on our business, which has required and will continue to require a substantial investment of their time and may delay their other efforts.

We continue to closely monitor the impact of the Covid-19 pandemic and to assess its potential effects on our business.

In response to the Covid-19 pandemic, we implemented various measures to mitigate the impact of the pandemic on our business but given the dynamic nature of these circumstances, the full impact of the Covid-19 pandemic cannot be reasonably estimated at this time.

The extent to which our business, financial condition, results of operations, or cash flows are affected by Covid-19 will depend in part on future developments which cannot be accurately predicted and are uncertain.

The impact of the Covid-19 pandemic depends upon various uncertainties, including the ultimate geographic spread of the virus, the severity of the virus, the duration of the outbreak, and actions that may be taken by governmental authorities to contain the virus.

This situation is changing continually, and additional effects may arise that we are not presently aware of or that we currently do not consider to be significant risks to our operations.

If we are not able to respond to and manage the impact of such events effectively, our business and financial condition could be negatively impacted.

Our industry is highly competitive, and we may be unable to compete effectively, which could result in reduced revenue, profitability and market share.

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Increased competition may result in our inability to win bids for future projects, increased margin pressure and loss of revenue, profitability and market share.

Demand for our services is cyclical and may be vulnerable to sudden economic downturns and reductions in government and private industry spending.

Demand for our services is cyclical and vulnerable to sudden economic downturns and reductions in government and private industry spending.

If economic conditions remain uncertain and/or weaken, our revenue and profitability could be adversely affected.

Demand for our services is cyclical and may be vulnerable to sudden economic downturns, interest rate fluctuations and reductions in government and private industry spending that result in clients delaying, curtailing or canceling proposed and existing projects.

For example, the Covid-19 coronavirus pandemic is expected to reduce demand for our services and impact client spending in certain circumstances.

For example, the Covid-19 pandemic reduced demand for some of our services and impacted certain client spending.

Where economies are weakening, our clients may demand more favorable pricing or other terms while their ability to pay our invoices or to pay them in a timely manner may be adversely affected.

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During fiscal 2021 and 2020, approximately 43% and 42%, respectively, of our revenue was derived from contracts with government entities.

Most government contracts are subject to the government’s budgetary approval process.

Legislatures typically appropriate funds for a given program on a year-by-year basis, even though contract performance may take more than one year.

Most government contracts are subject to such government’s budgetary approval process.

Legislatures typically appropriate funds for a given program on an annual basis, even though contract performance may take more than one year.

In addition, public-supported financing such as state and local municipal bonds may be only partially raised to support existing infrastructure projects.

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These appropriations, and the timing of payment of appropriated amounts, may be influenced by, among other things, the state of the economy, a government shutdown, competing priorities for appropriation, changes in administration or control of legislatures, and the timing and amount of tax receipts and the overall level of government expenditures.

Similarly, the impact of an economic downturn on governments, including as a result of the coronavirus, may make it more difficult for them to fund infrastructure projects.

Similarly, the impact of an economic downturn on governments, including as a result of the Covid-19 pandemic, may make it more difficult for them to fund infrastructure projects.

If appropriations are not made in subsequent years on our government contracts, then we will not realize all of our potential revenue and profit from that contract.

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The federal government has awarded multi-year contracts with pre-established terms and conditions, such as indefinite delivery contracts, that generally require those contractors that have previously been awarded the indefinite delivery contract to engage in an additional competitive bidding process before a task order is issued.

In addition, the federal government has also awarded federal contracts based on a low-price, technically acceptable criteria emphasizing price over qualitative factors, such as past performance.

The federal government has also awarded federal contracts based on a low-price, technically acceptable criteria emphasizing price over qualitative factors, such as past performance.

As a result of these competitive pricing pressures, our profit margins on future federal contracts may be reduced and may require us to make sustained efforts to reduce costs in order to realize profits under government contracts.

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Furthermore, as a government contractor, we are subject to an increased risk of investigations, criminal prosecution, civil fraud actions, whistleblower lawsuits, and other legal actions and liabilities to which purely private sector companies are not, the results of which could materially adversely impact our business.

For example, from time to time we may be subject to qui tam lawsuits.

Qui tam lawsuits typically allege that we have made false statements or certifications in connection with claims for payment, or improperly retained overpayments, from the government.

For example, from time to time we may be subject to qui tam lawsuits, which typically allege that we have made false statements or certifications in connection with claims for payment, or improperly retained overpayments, from the government.

These suits may remain under seal (and hence, be unknown to us) for some time while the government decides whether to intervene on behalf of the qui tam plaintiff.

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● effect mergers or consolidations.

In addition, our Credit Agreement also requires us to comply with a consolidated interest coverage ratio and consolidated leverage ratio.

In addition, our Credit Agreement requires us to comply with a consolidated interest coverage ratio and consolidated leverage ratio.

Our ability to comply with these ratios may be affected by events beyond our control.

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The uncertainty surrounding the implementation of and effects of the United Kingdom’s proposed withdrawal from the European Union could have an adverse effect on our business and financial results.

In March 2017, the United Kingdom government initiated a process to withdraw from the European Union (Brexit) and began negotiating the terms of its separation.

The United Kingdom formally left the European Union on January 31, 2020, and is now in a transition period through December 31, 2020.

Although the United Kingdom will remain in the European Union single market and customs union during the transition period, the long-term nature of the United Kingdom's relationship with the European Union is unclear and there is considerable uncertainty as to when any agreement will be reached and implemented.

The uncertainty surrounding Brexit has created substantial economic and political uncertainty and volatility in currency exchange rates.

The United Kingdom formally left the European Union on January 31, 2020, under the UK-EU Withdrawal Agreement, which also included a transition period that concluded on December 31, 2020.

On January 1, 2021, the UK also left the EU Single Market and Customs Union, as well as all EU policies and international agreements.

As a result, the free movement of persons, goods, services and capital between the UK and the EU ended, and the EU and the UK formed two separate markets.

On December 24, 2020, the EU reached a trade agreement with the UK.

The trade agreement offers UK and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas;

however, economic relations between the UK and EU will now be on more restricted terms than existed previously.

The trade agreement does not incorporate the full scope of the services sector, and businesses such as banking and finance face uncertainty.

In March 2021, the UK and EU agreed on a framework for voluntary regulatory cooperation and dialogue on financial services issues between the two countries in a memorandum of understanding, which is expected to be signed after formal steps are completed, although this has not yet occurred.

At this time, we cannot predict the impact that the trade agreement, the memorandum of understanding or any future agreements on services, particularly financial services, will have on our business.

Our United Kingdom business is a significant part of our European operations with approximately 6,000 employees and revenues representing approximately 6% of our total revenue for the fiscal year ended September 30, 2021.

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● imposition of governmental controls and changes in laws, regulations or policies;

● political and economic instability, such as in the Middle East and South East Asia;

● political and economic instability, including in the Middle East and Southeast Asia;

● civil unrest, acts of terrorism, force majeure, war, or other armed conflict;

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● political unrest in Hong Kong where we have a significant presence;

● impact of the coronavirus pandemic and its related economic impacts;

● impact of the Covid-19 pandemic and its related economic impacts;

● changes in regulatory practices, tariffs and taxes, such as Brexit;

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We work in international locations where there are high security risks, which could result in harm to our employees and contractors or material costs to us.

Some of our services are performed in high-risk locations, such as the Middle East, Africa, and Southwest Asia, where the location is suffering from political, social or economic problems, or war or civil unrest.

Some of our services are performed in high-risk locations, such as the Middle East, Africa, and Southeast Asia, where the location is suffering from political, social or economic problems, or war or civil unrest.

In those locations where we have employees or operations, we may incur material costs to maintain the safety of our personnel.

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In some circumstances, we can incur liquidated or other damages if we do not achieve project completion by a scheduled date.

If we or an entity for which we have provided a guarantee subsequently fails to complete the project as scheduled and the matter cannot be satisfactorily resolved with the client, we may be responsible for cost impacts to the client resulting from any delay or the cost to complete the project.

If we or an entity for which we have provided a guarantee fails to complete the project as scheduled and the matter cannot be satisfactorily resolved with the client, we may be responsible for cost impacts to the client resulting from any delay or the cost to complete the project.

Our costs generally increase from schedule delays and/or could exceed our projections for a particular project.

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We may not be able to maintain adequate surety and financial capacity necessary for us to successfully bid on and win contracts.

In line with industry practice, we are often required to provide surety bonds, standby letters of credit or corporate guarantees to our clients that indemnify the customer should our affiliate fail to perform its obligations under the terms of a contract.

In line with industry practice, we are often required to provide surety bonds, standby letters of credit or corporate guarantees to our clients that indemnify them should our affiliate fail to perform its obligations under the terms of a contract.

As of September 30, 2021 and September 30, 2020, we were contingently liable for $4.3 billion and $6.2 billion, respectively, in issued surety bonds primarily to support project execution and we had outstanding letters of credit totaling $483.0 million and $529.1 million, respectively.

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AECOM Capital’s real estate development and investment activities are inherently risky and may result in a future loss.

ACAP’s real estate business involves managing, sponsoring, investing and developing commercial real estate projects (Real Estate Joint Ventures) that are inherently risky and may result in future losses since real estate markets are significantly impacted by economic trends and government policies that we do not control.

ACAP’s real estate business involves managing, sponsoring, investing in and developing commercial real estate projects and joint ventures (Real Estate Joint Ventures) that are inherently risky and may result in future losses since real estate markets are significantly impacted by economic trends and government policies that we do not control.

Our registered investment adviser jointly manages and sponsors the AECOM-Canyon Equity Fund, L.P.

(the “Fund”), in which the Company indirectly holds an equity interest and which also invests and develops Real Estate Joint Ventures on behalf of its investors.

(the “Fund”), in which the Company indirectly holds an equity interest and which also invests in and develops Real Estate Joint Ventures on behalf of its investors.

Real Estate Joint Ventures rely on substantial amounts of third party borrowing to finance their development activities including completion guarantees, repayment guarantees, environmental indemnities and other lender required credit support guarantees that may be provided by AECOM or an affiliate to secure the Real Estate Joint Venture financing.

Although the Fund and the Real Estate Joint Ventures have reserves that will be used to share any cost overruns of the Real Estate Joint Ventures, if such reserves are depleted, then AECOM may be required to make support payments to fund non-budgeted cost overruns on behalf of the Fund (but not on behalf of the Fund’s co-partner or any unaffiliated limited partners of the Real Estate Joint Ventures).

Although the Fund and such Real Estate Joint Ventures have reserves that will be used to share any cost overruns of the Real Estate Joint Ventures, if such reserves are depleted, then AECOM may be required to make support payments to fund non-budgeted cost overruns on behalf of the Fund (but not on behalf of the Fund’s co-partner or any unaffiliated limited partners of the Real Estate Joint Ventures).

Some of the Fund’s limited partners may be permitted to make additional equity co-investments in certain Real Estate Joint Ventures for which AECOM will provide support payments on behalf of the limited partner co-investor in the event of a cost overrun of the Real Estate Joint Venture after additional specific reserves have been depleted.

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Risks Related to Laws and Regulations

Misconduct by our employees, partners or consultants or our failure to comply with laws or regulations applicable to our business could cause us to lose customers or lose our ability to contract with government agencies.

As a government contractor, misconduct, fraud or other improper activities caused by our employees’, partners’ or consultants’ failure to comply with laws or regulations could have a significant negative impact on our business and reputation.

Misconduct by our employees, subcontractors, partners or consultants or our failure to comply with laws or regulations applicable to our business could cause us to lose customers or lose our ability to contract with government agencies.

As a government contractor, misconduct, fraud or other improper activities caused by our employees’, subcontractors’, partners’ or consultants’ failure to comply with laws or regulations could have a significant negative impact on our business and reputation.

Such misconduct could include the failure to comply with procurement regulations, environmental regulations, regulations regarding the protection of sensitive government information, legislation regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, and anti-corruption, anti-competition, export control and other applicable laws or regulations.

Our failure to comply with applicable laws or regulations, misconduct by any of our employees or consultants or our failure to make timely and accurate certifications to government agencies regarding misconduct or potential misconduct could subject us to fines and penalties, loss of government granted eligibility, cancellation of contracts and suspension or debarment from contracting with government agencies, any of which may adversely affect our business.

Our failure to comply with applicable laws or regulations, misconduct by any of our employees, subcontractors, partners or consultants, or our failure to make timely and accurate certifications to government agencies regarding misconduct or potential misconduct could subject us to fines and penalties, loss of government granted eligibility, cancellation of contracts and suspension or debarment from contracting with government agencies, any of which may adversely affect our business.

We may be subject to substantial liabilities under environmental laws and regulations.

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Risks Related to Acquisitions and Divestitures

AECOM is a smaller company after the sale of our Management Services business and may be more vulnerable to changing market conditions.

AECOM is a smaller company after the sale of our Management Services business and more reliant on our remaining business segments.

AECOM is a smaller company after the sale of our Management Services and self-perform at-risk civil infrastructure and power construction businesses and, as a result, may be more vulnerable to changing market conditions.

AECOM is a smaller company after the sale of our Management Services and self-perform at-risk civil infrastructure and power construction businesses and more reliant on our remaining business segments.

Our results of operations, cash flows, working capital, effective tax rate, and financing requirements may be subject to increased volatility and our ability to fund capital expenditures, investments and service debt may be diminished.

Restructuring costs and other costs incurred in connection with the Management Services sale may exceed our estimates or diminish the benefits we expected to realize.

In addition, any contingent purchase price adjustments could be unfavorable and result in lower aggregate cash proceeds.

In addition, any purchase price adjustments could be unfavorable and other future proceeds owed to us as part of these transactions could be lower than we expect.

We are also obligated to incur ongoing costs and retain certain legal claims that were previously allocated to the Management Services business.

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We may not be able to complete transactions on favorable terms, on a timely basis, or at all, and during the integration of any acquisition, we may discover regulatory and compliance issues.

In addition, our results of operations

and cash flows may be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns;

In addition, our results of operations and cash flows may be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns;

(ii) the failure to integrate acquired businesses on schedule and/or to achieve expected synergies;

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Any of these factors could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or could reduce our earnings or otherwise adversely affect our business and financial results.

Our plans to divest certain businesses are subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated time frame, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

Divesting businesses involve risks and uncertainties, such as the difficulty separating assets related to such businesses from the businesses we retain, employee distraction, the need to obtain regulatory approvals and other third-party consents, which potentially disrupts customer and vendor relationships, and the fact that we may be subject to additional tax obligations or loss of certain tax benefits.

Because of these challenges, as well as market conditions or other factors, the anticipated divestitures may take longer or be costlier or generate fewer benefits than expected and may not be completed at all.

If we are unable to complete the divestitures or to successfully transition divested businesses, our business and financial results could be negatively impacted.

Our plans to divest businesses are subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated time frame, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

Because of these challenges, as well as market conditions or other factors, anticipated divestitures may take longer or be costlier or generate fewer benefits than expected and may not be completed at all.

If we are unable to complete divestitures or to successfully transition divested businesses, our business and financial results could be negatively impacted.

After we dispose of a business, we may retain exposure on financial or performance guarantees and other contractual, employment, pension and severance obligations, and potential liabilities that may arise under law because of the disposition or the subsequent failure of an acquirer.

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Because we have grown in part through acquisitions, goodwill and intangible assets-net represent a substantial portion of our assets.

Under generally accepted accounting principles in the United States (GAAP), we are required to test goodwill carried in our Consolidated Balance Sheets for possible impairment on an annual basis based upon a fair value approach and whenever events occur that indicate impairment could exist.

Under generally accepted accounting principles in the United States, we are required to test goodwill carried in our consolidated balance sheets for possible impairment on an annual basis based upon a fair value approach and whenever events occur that indicate impairment could exist.

These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, a significant sustained decline in our market capitalization and other factors.

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A multiemployer pension plan is typically established under a collective bargaining agreement with a union to cover the union-represented workers of various unrelated companies.

Our collective bargaining agreements with unions will require us to contribute to various multiemployer pension plans;

Our collective bargaining agreements with unions require us to contribute to various multiemployer pension plans;

however, we do not control or manage these plans.

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however, since we do not control the multiemployer plans, we are unable to estimate any potential contributions that could be required.

We may experience disproportionately high levels of collection risk and nonpayment if certain clients in specific geographic areas or industries are adversely affected by factors particular to their geographic area or industry.

We may experience disproportionately high levels of collection risk and nonpayment if clients in specific geographic areas or industries are adversely affected by factors particular to their geographic area or industry.

Our clients include public and private entities that have been, and may continue to be, negatively impacted by the changing landscape in the global economy.

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In the event that we have concentrated credit risk from clients in a specific geographic area or industry, continuing negative trends or a worsening in the financial condition of that specific geographic area or industry could make us susceptible to disproportionately high levels of default by those clients.

Such defaults could materially adversely impact our revenues and our results of operations.

Such defaults could materially adversely impact our revenues, results of operations or accounts receivable.

Our services expose us to significant risks of liability and our insurance policies may not provide adequate coverage.

Our services involve significant risks of professional and other liabilities that may substantially exceed the fees that we derive from our services.

Our services involve significant risks of professional and other liabilities that may substantially exceed the fees that we derive from such services.

In addition, we sometimes contractually assume liability to clients on projects under indemnification or guarantee agreements.

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Our backlog of uncompleted projects under contract is subject to unexpected adjustments and cancellations and, thus may not accurately reflect future revenue and profits.

At September 30, 2020, our contracted backlog was approximately $19.5 billion, our awarded backlog was approximately $21.1 billion and our unconsolidated joint venture backlog was approximately $0.6 billion for a total backlog of $41.2 billion.

Our contracted backlog includes revenue we expect to record in the future from signed contracts and, in the case of a public sector client, where the project has been funded.

At September 30, 2021, backlog was approximately $38.6 billion.

We reported transaction price allocated to remaining unsatisfied performance obligations (RUPO) of $18.7 billion, as described in Note 4, Revenue Recognition, in the notes to our consolidated financial statements.

The most significant difference between our contracted backlog and RUPO is revenue related to service contracts that extend beyond the termination provisions of those contracts.

Our contracted backlog includes revenues for service contracts expected to be earned over the term of that contract.

Guidance for the calculation of RUPO requires us to assume the contract will be terminated at its earliest convenience, resulting in RUPO to be $0.6 billion lower than contracted backlog.

Our awarded backlog includes revenue we expect to record in the future where we have been awarded the work, but the contractual agreement has not yet been signed.

The most significant differences between our backlog and RUPO are backlog contains revenue we expect to record in the future where we have been awarded the work, but the contractual agreement has not yet been signed, unconsolidated joint venture backlog where we expect to realize income through equity earnings rather than revenue, and revenue related to service contracts that extend beyond the termination provisions of those contracts, where guidance for the calculation of RUPO requires us to assume the contract will be terminated at its earliest convenience.

Accordingly, RUPO is $19.9 billion lower than backlog.

We cannot guarantee that future revenue will be realized from either category of backlog or, if realized, will result in profits.

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As a result, if our clients reproduce such information to solicit funds from investors for projects without appropriate disclaimers and the information proves to be incorrect, or if our clients reproduce such information for potential investors in a misleading or incomplete manner, our clients or such investors may threaten to or file suit against us for, among other things, securities law violations.

For example, in August 2016, an affiliate entered into a settlement related to, among other things, alleged deficiencies in a traffic forecast.

If we were found to be liable for any claims related to our client work product, our business could be adversely affected.

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● ability of our Board of Directors to authorize the issuance of preferred stock in series without stockholder approval;

● vesting of exclusive authority in our Board of Directors to determine the size of the board (subject to limited exceptions) and to fill vacancies;

● advance notice requirements for stockholder proposals and nominations for election to our Board of

● vesting of exclusive authority in our Board of Directors to determine the size of the board and to fill vacancies;

● advance notice requirements for stockholder proposals and nominations for election to our Board of Directors.

Changes in tax laws could increase our worldwide tax rate and materially affect our results of operations.

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and numerous foreign jurisdictions.

Many international legislative and regulatory bodies have proposed and/or enacted legislation that could significantly impact how U.S.

multinational corporations are taxed on foreign earnings.

and many international legislative and regulatory bodies continually propose and enact legislation that could significantly impact how U.S.

multinational corporations are taxed.

In the U.S., the proposed legislation in the Build Back Better Act would impose a 15% minimum tax on corporate book income for corporations with profits over $1 billion, change the Global Intangible Low-Taxed Income (GILTI) regime, reduce the deduction for Foreign-Derived Intangible Income (FDII), and create a new limitation on interest deductions as well as other corporate tax reform.

Due to the large scale of our U.S.

and international business activities, many of these proposed and enacted changes to the taxation of our activities could increase our worldwide effective tax rate and harm results of operations.

and international business activities, many of these proposed changes, if enacted into law, could have an adverse impact on our worldwide effective tax rate, income tax expense and cash flows.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors