What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-11-17 compared with 2020-11-19 · 142 added, 322 removed, 542 unchanged (46% of the section changed)

20 unchanged sentences

future post-retirement expenses;

future tax benefits and expenses;

future tax benefits and expenses, and the impact of future tax laws;

future compliance with regulations;

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cybersecurity issues, IT outages and data privacy;

risks associated with the benefits and costs of the Management Services transaction, including the risk that the expected benefits of the Management Services transaction or any contingent purchase price will not be realized within the expected time frame, in full or at all;

the risk that costs of restructuring transactions and other costs incurred in connection with the Management Services transaction will exceed our estimates or otherwise adversely affect our business or operations;

risks associated with the benefits and costs of the sale of our Management Services and self-perform at-risk civil infrastructure and power construction businesses, including the risk that any purchase adjustments from those transactions could be unfavorable and any future proceeds owed to us as part of the transactions could be lower than we expect;

as well as other additional risks and factors discussed in this Annual Report on Form 10-K and any subsequent reports we file with the SEC.

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For clarity of presentation, we present all periods as if the year ended on September 30.

We refer to the fiscal year ended September 30, 2019 as “fiscal 2019” and the fiscal year ended September 30, 2020 as “fiscal 2020.” Fiscal years 2020, 2019, and 2018 each contained 53, 52, and 52 weeks, respectively, and ended on October 2, September 27, and September 28, respectively.

We refer to the fiscal year ended September 30, 2020 as “fiscal 2020” and the fiscal year ended September 30, 2021 as “fiscal 2021.” Fiscal years 2021, 2020, and 2019 each contained 52, 53, and 52 weeks, respectively, and ended on October 1, October 2, and September 27, respectively.

In this section, we discuss the results of our operations for the year ended September 30, 2021 compared to the year ended September 30, 2020.

For a discussion on the year ended September 30, 2020 compared to the year ended September 30, 2019, please refer to Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2020.

We are a leading global provider of professional, technical and management support services for governments, businesses and organizations throughout the world.

We provide planning, consulting, architectural and engineering design, construction management services, and investment and development services to commercial and government clients worldwide in major end markets such as transportation, facilities, environmental, energy, water and government markets.

Our business focuses primarily on providing fee-based planning, consulting, architectural and engineering design services and, therefore, our business is labor intensive.

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Our costs consist primarily of the compensation we pay to our employees, including salaries, fringe benefits, the costs of hiring subcontractors, other project-related expenses and sales, general and administrative costs.

federal government has proposed significant legislative and executive infrastructure initiatives that, if enacted, could have a positive impact to our infrastructure business.

Regarding our capital allocation policy, on November 13, 2020, the Board approved an increase in our repurchase authorization to $1.0 billion, up from the approximately $305 million authorization in place immediately prior to such date.

federal government, under the Biden Administration, has proposed significant legislative and executive infrastructure initiatives that, if enacted, could have a positive impact to our infrastructure business.

Regarding our capital allocation policy, on September 22, 2021, the Board approved an increase in our repurchase authorization to $1.0 billion.

At September 30, 2021, we have approximately $1.0 billion remaining of the Board’s repurchase authorization.

We intend to deploy future available cash towards stock repurchases consistent with our capital allocation policy.

In July 2020, we drew $248.5 million on our secured delayed draw term loan facility for the purpose of redeeming all of the URS 5.00% Senior Notes due 2022 (2022 URS Senior Notes).

We expect to exit the self-perform at-risk construction and non-core oil and gas markets.

We are in the process of exiting more than 30 countries, subject to applicable laws, as part of our ongoing plan to improve profitability and reduce our risk profile, and we continue to evaluate our geographic exposure as part of such plan.

We have exited substantially all of our self-perform at-risk construction business and expect to divest all of our remaining non-core oil and gas markets.

We have substantially completed our exit of 30 countries, subject to applicable laws, as part of our ongoing plan to improve profitability and reduce our risk profile, and we continue to evaluate our geographic exposure as part of such plan.

We expect to incur restructuring costs of approximately $20 million to $30 million in fiscal 2022 primarily related to previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies.

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The impact of the coronavirus pandemic and measures to prevent its spread are affecting our businesses in a number of ways:

● The coronavirus and accompanying economic effects are expected to reduce demand for our services and impact client spending in certain circumstances;

● The coronavirus and accompanying economic effects may reduce demand for our services and impact client spending in certain circumstances;

however, the uncertain nature of the coronavirus and its duration make it difficult for us to predict and quantify such impact.

● We have restricted non-essential business travel, required employees to work remotely where appropriate, reduced salaries or furloughed employees, reduced non-essential spending and limited physical interactions with our clients.

● Non-essential construction and work on other client projects has been temporarily halted in certain jurisdictions.

● Some contractual agreements are unable to be performed preventing us from making or receiving payments.

● The coronavirus has made accessing the capital markets and engaging in business and client development more difficult.

● We have restricted non-essential business travel, required or facilitated employees to work remotely where appropriate.

● The coronavirus has made estimating the future performance of our business and mitigating the adverse financial impact of these developments on our business operations more difficult.

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● Certain markets, such as the U.K., Middle East, and Southeast Asia, are experiencing project delays that have impacted our performance and results.

● During the second half of fiscal 2020, we benefited from government subsidies of approximately $23.2 million, which were received under various programs related to retaining employees.

The aggregate value of all consideration for our acquisitions consummated during the year ended September 30, 2018 was $5.6 million.

There were no acquisitions consummated during the years ended September 30, 2021, 2020 and 2019.

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Restructuring cost

Gain (loss) on disposal activities

Gain on disposal activities

Impairment of long-lived assets

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Cost of Revenue

Cost of revenue reflects the cost of our own personnel (including fringe benefits and overhead expense) associated with revenue.

Cost of revenue reflects the cost of our own personnel (including fringe benefits and overhead expense) and fees from subcontractors and other direct costs associated with revenue.

Amortization Expense of Acquired Intangible Assets

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For geographic financial information, please refer to Note 4 and Note 19 in the notes to our consolidated financial statements found elsewhere in the Form 10-K.

Critical Accounting Policies

Our financial statements are presented in accordance with accounting principles generally accepted in the United States (GAAP).

Highlighted below are the accounting policies that management considers significant to understanding the operations of our business.

Critical Accounting Policies and Estimates

Our accounting policies, including those described below, often require management to make significant estimates and assumptions using information available at the time the estimates are made.

Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenue and expenses.

If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected.

Our most critical accounting policies and estimates are described below.

We have not materially changes our estimation methodology during the period presented.

Revenue Recognition

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There can be no assurance that audits by the DCAA or other governmental agencies will not result in material cost disallowances in the future.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts and Expected Credit Losses

We record accounts receivable net of an allowance for doubtful accounts.

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● General economic conditions.

In October 2020, we adopted the credit loss model that replaced the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

Under the credit loss model, we maintain an allowance for credit losses, which represents the portion of our financial assets that we do not expect to collect over their contractual life.

Contract Assets and Contract Liabilities

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As of September 30, 2021, a 1% decrease in the terminal growth rate represents a $200 million decrease to the fair value of our reporting units.

There are inherent uncertainties related to each of the above listed assumptions, and our judgment in applying them.

Changes in the assumptions used in our goodwill and intangible assets could result in impairment charges that could be material to our consolidated financial statements in any given period.

We have not materially changed our estimation methodology during the periods presented.

Pension Benefit Obligations

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In assessing a plan’s asset allocation strategy, we and the plan trustees consider factors such as the structure of the plan’s liabilities, the plan’s funded status, and the impact of the asset allocation to the volatility of the plan’s funded status, so that the overall risk level resulting from our defined benefit plans is appropriate within our risk management strategy.

Between September 30, 2019 and September 30, 2020, the aggregate worldwide pension deficit increased from $366.1 million to $406.0 million due to decreased discount rates.

Between September 30, 2020 and September 30, 2021, the aggregate worldwide pension deficit decreased from $428.4 million to $345.5 million due to increased discount rates.

If the various plans do not experience future investment gains to reduce this shortfall, the deficit will be reduced by additional contributions.

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Restructuring cost

Gain on disposal activities

Impairment of long-lived assets

Income from operations

Interest expense

Income from continuing operations before income tax expense

Income from continuing operations before taxes

Income tax expense from continuing operations

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Net loss from discontinued operations

Net income (loss)

Net income attributable to noncontrolling interests from continuing operations

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Net loss attributable to AECOM from discontinued operations

Net loss attributable to AECOM

Net income (loss) attributable to AECOM

The following table presents the percentage relationship of statement of operations items to revenue:

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Restructuring costs

Gain on disposal activities

Impairment of long-lived assets

Income from operations

Interest expense

Income from continuing operations before income tax expense

Income from continuing operations before taxes

Income tax expense from continuing operations

1 unchanged sentence

Net loss from discontinued operations

Net income (loss)

Net income attributable to noncontrolling interests from continuing operations

3 unchanged sentences

Net loss attributable to AECOM from discontinued operations

Net loss attributable to AECOM

Our revenue for the year ended September 30, 2020 decreased $402.5 million, or 3.0%, to $13,240.0 million as compared to $13,642.5 million for the corresponding period last year.

The decrease in revenue for the year ended September 30, 2020 was primarily attributable to decreases in our Americas segment of $251.1 million and in our International segment of $150.0 million, as discussed further below.

Net income (loss) attributable to AECOM

Our revenue for the year ended September 30, 2021 increased $100.9 million, or 0.8%, to $13,340.9 million as compared to $13,240.0 million for the corresponding period last year.

The increase in revenue for the year ended September 30, 2021 was primarily attributable to increases in our Americas segment of $94.8 million and in our International segment of $10.9 million, as discussed further below.

In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients.

These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in our revenue and cost of revenue.

Because subcontractor and other direct costs can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends.

Subcontractor and other direct costs for the years ended September 30, 2020 and 2019 were $7.1 billion and $7.4 billion, respectively.

Subcontractor costs and other direct costs as a percentage of revenue was 54% during the year ended September 30, 2020 and the year ended September 30, 2019.

Because these pass through revenues can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends.

Pass through revenues for the years ended September 30, 2021 and 2020 were $7.2 billion and $7.1 billion, respectively.

Pass through revenue as a percentage of total revenue was 54% during the year ended September 30, 2021 and the year ended September 30, 2020.

Our gross profit for the year ended September 30, 2021 increased $88.8 million, or 12.5%, to $798.4 million as compared to $709.6 million for the corresponding period last year.

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Our equity in earnings of joint ventures for the year ended September 30, 2021 was $35.0 million as compared to $48.8 million in the corresponding period last year.

The decrease in earnings of joint ventures for the year ended September 30, 2021 compared to the same period in the prior year is primarily due to decreased earnings in our Americas and AECOM Capital segments.

General and Administrative Expenses

Our general and administrative expenses for the year ended September 30, 2020 increased $40.4 million, or 27.3%, to $188.6 million as compared to $148.2 million for the corresponding period last year.

For the year ended September 30, 2020, general and administrative expenses increased to 1.5% from 1.1% for the year ended September 30, 2019.

The increase in general and administrative expenses was primarily due to the accelerated depreciation of a project management tool.

Our general and administrative expenses for the year ended September 30, 2021 decreased $33.6 million, or 17.8%, to $155.0 million as compared to $188.6 million for the corresponding period last year.

For the year ended September 30, 2021, general and administrative expenses as a percentage of revenue decreased to 1.2% from 1.5% in the year ended September 30, 2020.

The decrease in general and administrative expenses was primarily due to the execution of restructuring actions taken by management to increase profitability and simplify our operating structure as well as accelerated depreciation of a project management tool recorded in the prior year that did not repeat in the current year.

Restructuring Costs

In the first quarter of fiscal 2019, we commenced a restructuring plan to improve profitability.

We incurred additional restructuring costs in fiscal 2020 primarily related to optimizing our cost structure and eliminating overhead costs as a result of the sale of the Management Services business and the exit of our self-perform at-risk construction business.

During the year ended September 30, 2020, we incurred restructuring expenses of $188.3 million, primarily related to personnel costs.

During the year ended September 30, 2019, we incurred restructuring expenses of $95.4 million.

Gain on Disposal Activities

Gain on disposal activities in the accompanying statements of operations for the year ended September 30, 2019 was $3.6 million.

The gain on disposal activities in the year ended September 30, 2019 primarily relates to the sale of certain non-core assets as part of our plan to improve profitability and reduce our risk profile.

Impairment of Long-Lived Assets

Impairment of long-lived assets was $24.9 million for the year ended September 30, 2019.

The impairment of long lived assets was primarily related to leasehold improvements that were no longer recoverable.

The impairment loss did not repeat in fiscal year 2020.

Our other income for the year ended September 30, 2020 decreased $3.5 million to $11.1 million as compared to $14.6 million for the corresponding period last year.

Other income is primarily comprised of interest income.

Since the first quarter of fiscal 2019, we have been implementing a restructuring plan to improve profitability.

During the fiscal year ended September 30, 2021, we incurred restructuring expenses of $48.8 million, primarily related to costs optimizing our cost structure and reducing overhead costs.

During the year ended September 30, 2020, we incurred restructuring expenses of $188.3 million, primarily related to the same matters.

Our other income for the year ended September 30, 2021 increased $6.5 million to $17.6 million as compared to $11.1 million for the corresponding period last year.

Other income is primarily comprised of interest income and net periodic pension adjustments.

Interest Expense

Our interest expense for the year ended September 30, 2021 was $238.4 million as compared to $160.0 million for the corresponding period last year.

The decrease in interest expense for the year ended September 30, 2020 was primarily due to lower average outstanding debt during the period.

The increase in interest expense for the year ended September 30, 2021 was primarily due to a $117.5 million prepayment premium related to the redemption of our remaining unsecured 5.875% Senior Notes due 2024 during the three months ended June 30, 2021.

Income Tax Expense

Our income tax expense for the year ended September 30, 2021 was $89.0 million compared to $45.7 million for the year ended September 30, 2020.

The increase in tax expense for the year ended September 30, 2020, compared to the corresponding period last year, is due primarily to a decrease in benefit of $10.6 million related to changes in valuation allowances and an increase in tax expense of $8.2 million related to nondeductible costs, and an increase in tax expense related to foreign rate differential of $6.3 million.

The increase in tax expense for the current period compared to the corresponding period last year was due primarily to the tax impacts of an increase in overall pre-tax income of $176.2 million, tax expense of $13.2 million related to an audit settlement, and a tax benefit of $31.7 million related to the release of a valuation allowance during fiscal 2020, partially offset by a tax benefit of $25.9 million related to a corporate tax rate change in the United Kingdom.

During the third quarter of fiscal 2021, the United Kingdom enacted a corporate tax rate increase from 19% to 25% beginning April 2023 requiring deferred tax assets and liabilities to be remeasured.

The remeasurement resulted in a $25.9 million tax benefit.

During the third quarter of fiscal 2021, we partially settled our U.S.

federal audit for fiscal 2015 and 2016 and recorded tax expense of $13.2 million due primarily to changes in tax attributes.

During fiscal 2020, management approved a tax planning strategy and we restructured certain operations in Canada which resulted in the release of a valuation allowance related to net operating losses and other deferred tax assets in the amount of $31.7 million.

We are now forecasting the utilization of the net operating losses within the foreseeable future.

The new positive evidence was evaluated against any negative evidence to determine the valuation allowance was no longer needed.

During fiscal 2019, a valuation allowance in the amount of $38.1 million related to foreign tax credits was released due to sufficient positive evidence obtained during the fiscal year.

The positive evidence included the issuance of regulations related to the Tax Act and forecasting the utilization of the foreign tax credits within the foreseeable future.

We are currently under tax audit in several jurisdictions including the U.S.

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Net loss from discontinued operations decreased $223.8 million to $116.8 million from $340.6 million for the years ended September 30, 2021 and 2020, respectively.

The decrease in net loss from discontinued operations for the year ended September 30, 2020 was primarily due to a $161.9 million gain recorded on the disposal of our Management Services business.

The decrease in net loss from discontinued operations for the year ended September 30, 2021 was primarily due to fewer losses recorded on sales of the power and civil infrastructure businesses in fiscal year 2021 than impairment losses recorded in fiscal year 2020.

Net loss from discontinued operations for the year ended September 30, 2020 was primarily due to a $161.9 million gain recorded on the disposal of our Management Services business.

The gain was offset by impairment of goodwill of approximately $83.6 million related to the self-perform at-risk construction business, and a $247.2 million loss related to the remeasurement of the businesses within discontinued operations based on estimated fair values less costs to sell.

Net loss from discontinued operations for the year ended September 30, 2019 included a goodwill impairment of $588.0 million related to a reduction in estimated fair value of our at-risk construction businesses and a reduction in our self-perform at-risk construction exposure.

Net Loss Attributable to AECOM

The factors described above resulted in the net loss attributable to AECOM of $186.4 million for the year ended September 30, 2020, as compared to the net loss attributable to AECOM of $261.1 million for the year ended September 30, 2019.

Net Income (Loss) Attributable to AECOM

The factors described above resulted in the net income attributable to AECOM of $173.2 million for the year ended September 30, 2021, as compared to the net loss attributable to AECOM of $186.4 million for the year ended September 30, 2020.

Results of Operations by Reportable Segment

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Cost of revenue

Revenue for our Americas segment for the year ended September 30, 2020 decreased $251.1 million, or 2.4%, to $10,131.5 million as compared to $10,382.6 million for the corresponding period last year.

The decrease in revenue for the year ended September 30, 2020 was primarily driven by near-term headwinds from the coronavirus pandemic and lower oil and gas prices.

Revenue for our Americas segment for the year ended September 30, 2021 increased $94.8 million, or 0.9%, to $10,226.3 million as compared to $10,131.5 million for the corresponding period last year.

The increase in revenue for the year ended September 30, 2021 was primarily driven by increased activity in our construction management of high-rise buildings in New York City.

Gross profit for our Americas segment for the year ended September 30, 2021 increased $51.1 million, or 8.8%, to $631.6 million as compared to $580.5 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.2% of revenue for the year ended September 30, 2021 from 5.7% in the corresponding period last year.

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2020 were primarily due to reduced costs resulting from restructuring activities that commenced during the prior year.

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2021 were primarily due to reduced costs and a more efficient operating structure resulting from a realigned overhead and delivery structure, better operational execution, investments in technology, and shared service centers to enhance efficiencies.

International

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Cost of revenue

Revenue for our International segment for the year ended September 30, 2020 decreased $150.0 million, or 4.6%, to $3,101.7 million as compared to $3,251.7 million for the corresponding period last year.

The decrease in revenue for the year ended September 30, 2020 was primarily attributable to declines in the United Kingdom and Greater China regions due to downtime caused by the impact of the coronavirus pandemic in those regions and the Middle East was impacted by lower oil and gas prices.

Revenue for our International segment for the year ended September 30, 2021 increased $10.9 million, or 0.4%, to $3,112.6 million as compared to $3,101.7 million for the corresponding period last year.

The increase in revenue for the year ended September 30, 2021 was primarily attributable to increases in the Middle East and Australia as well as the benefit of changes in the foreign exchange rates.

Gross profit for our International segment for the year ended September 30, 2021 increased $42.6 million, or 34.9%, to $164.8 million as compared to $122.2 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 5.3% of revenue for the year ended September 30, 2021 from 3.9% in the corresponding period last year.

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2020 was primarily due to reduced costs resulting from restructuring activities that commenced during the prior year.

AECOM Capital

Fiscal Year Ended

September 30,

(in millions)

Equity in earnings of joint ventures

General and administrative expenses

* NM - Not Meaningful

Fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018

Consolidated Results

Fiscal Year Ended

September 30,

($ in millions)

Cost of revenue

Equity in earnings of joint ventures

General and administrative expenses

Restructuring cost

Gain on disposal activities

Impairment of long-lived assets

Income from operations

Interest expense

Income from continuing operations before income tax expense (benefit)

Income tax expense (benefit) from continuing operations

Net income from continuing operations

Net loss from discontinued operations

Net (loss) income

Net income attributable to noncontrolling interests from continuing operations

Net income attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net (loss) income attributable to AECOM

* NM - Not Meaningful

The following table presents the percentage relationship of statement of operations items to revenue:

Fiscal Year Ended

September 30,

Cost of revenue

Equity in earnings of joint ventures

General and administrative expenses

Restructuring costs

Gain on disposal activities

Impairment of long-lived assets

Income from operations

Interest expense

Income from continuing operations before income tax expense (benefit)

Income tax expense (benefit) from continuing operations

Net income from continuing operations

Net loss from discontinued operations

Net (loss) income

Net income attributable to noncontrolling interests from continuing operations

Net income attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net (loss) income attributable to AECOM

Our revenue for the year ended September 30, 2019 decreased $235.8 million, or 1.7%, to $13,642.5 million as compared to $13,878.3 million for the year ended September 30, 2018.

The decrease in revenue for the year ended September 30, 2019 was primarily attributable to a decrease in our subcontractor activity for residential high-rise buildings in New York City compared to the prior year.

In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients.

These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in our revenue and cost of revenue.

Because subcontractor and other direct costs can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends.

Subcontractor and other direct costs for the years ended September 30, 2019 and 2018 were $7.4 billion and $7.7 billion, respectively.

Subcontractor costs and other direct costs as a percentage of revenue decreased to 54% during the year ended September 30, 2019 compared with 56% during the year ended September 30, 2018.

Our gross profit for the year ended September 30, 2019 increased $132.7 million, or 27.7%, to $611.7 million as compared to $479.0 million for the year ended September 30, 2018.

For the year ended September 30, 2019, gross profit, as a percentage of revenue, increased to 4.5% from 3.5% in the year ended September 30, 2018.

Gross profit changes were due to the reasons noted in the Americas and International reportable segments below.

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the year ended September 30, 2019 was $49.3 million as compared to $49.4 million in the year ended September 30, 2018.

General and Administrative Expenses

Our general and administrative expenses for the year ended September 30, 2019 increased $12.4 million, or 9.1%, to $148.2 million as compared to $135.8 million for the year ended September 30, 2018.

For the year ended September 30, 2019, general and administrative expenses remained at 1.1% for the years ended September 30, 2019 and 2018.

Restructuring Costs

In the first quarter of fiscal 2019, we commenced a restructuring plan to improve profitability.

During the year ended September 30, 2019, we incurred restructuring expenses of $95.4 million.

We expect to achieve approximately $225 million of annual cost savings, which is expected to contribute to $150 million of cost savings in fiscal 2020.

Gain on Disposal Activities

Gain on disposal activities in the accompanying statements of operations for the year ended September 30, 2019 was $3.6 million for the year ended September 30, 2018.

The gain on disposal activities primarily relates to incremental gains on the sale of specific non-core oil and gas assets in North America from our CS segment previously classified as assets held for sale.

Impairment of Long-Lived Assets

Impairment of long-lived assets was $24.9 million for the year ended September 30, 2019.

The impairment of long lived assets was primarily related to leasehold improvements that were no longer recoverable.

Our other income for the year ended September 30, 2019 decreased $6.0 million to $14.6 million as compared to $20.6 million for the year ended September 30, 2018.

Other income is primarily comprised of interest income.

The decrease in other income for the year ended September 30, 2019 was primarily due to a $9.1 million gain realized in the year ended September 30, 2018 from a foreign exchange forward contract entered into as part of the refinance of our Credit Agreement in March 2018, as discussed below in “Liquidity and Capital Resources – Debt – 2014 Credit Agreement.”

Interest Expense

Our interest expense for the year ended September 30, 2019 was $161.5 million as compared to $201.0 million for the year ended September 30, 2018.

The decrease in interest expense for the year ended September 30, 2019 was primarily due to a $34.5 million prepayment premium paid on our $800 million unsecured 5.750% Senior Notes due 2022 that was incurred during the year ended September 30, 2018 and did not repeat in 2019.

Income Tax Expense (Benefit)

Our income tax expense for the year ended September 30, 2019 was $13.5 million compared to a benefit of $3.5 million for the year ended September 30, 2018.

The increase in tax expense for the year ended September 30, 2019, compared to the year ended September 30, 2018, is due primarily to one-time items that occurred during the fiscal year ended September 30, 2018, including valuation allowance increases of $37.8 million, a $12.5 million net tax expense related to one-time U.S.

federal tax law changes, a tax benefit of $26.0 million related to changes in uncertain tax positions primarily in the U.S.

and Canada, and a tax benefit of $27.7 million related to an audit settlement in the U.S.

The tax impact of these items was partially offset by a tax benefit of $26.5 million that occurred in fiscal 2019 related to changes in valuation allowances including the release of a valuation allowance in the amount of $38.1 million due to sufficient positive evidence obtained during fiscal 2019.

During fiscal 2018, we recorded a $38.1 million valuation allowance related to foreign tax credits as a result of U.S.

federal tax law changes.

In fiscal 2019, we released this valuation allowance due to sufficient positive evidence obtained during the quarter.

The positive evidence included the issuance of regulations related to the Tax Act during the quarter and forecasting the utilization of the foreign tax credits within the foreseeable future.

During fiscal 2018, we effectively settled a U.S.

federal income tax examination for URS pre-acquisition tax years 2012, 2013 and 2014 and recorded a benefit of $27.7 million related to various adjustments, in addition to the favorable settlement of R&D credits of $19.9 million recorded in fiscal 2018.

During fiscal 2018, President Trump signed The Tax Cuts and Jobs Act (Tax Act) into law.

The Tax Act reduced our U.S.

federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on accumulated earnings of foreign subsidiaries, created new taxes on certain foreign sourced earnings, and eliminated or reduced certain deductions.

In fiscal 2018, we remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future, which is generally 21%.

The amount recorded related to the remeasurement of our deferred tax balance was a $38.9 million tax expense.

In addition, we released the deferred tax liability and recorded a tax benefit related to certain foreign subsidiaries for which the undistributed earnings are not intended to be reinvested indefinitely for $79.8 million and accrued $53.4 million of tax expense on these earnings as part of the one-time transition tax.

We are currently under tax audit in several jurisdictions including the U.S.

and believe the outcomes which are reasonably possible within the next twelve months, including lapses in statutes of limitations, could result in future adjustments, but will not result in a material change in the liability for uncertain tax positions.

We regularly integrate and consolidate our business operations and legal entity structure, and such internal initiatives could impact the assessment of uncertain tax positions, indefinite reinvestment assertions and the realizability of deferred tax assets.

Net Loss From Discontinued Operations

Net loss from discontinued operations increased $401.1 million to $419.7 million compared to $18.6 million for the years ended September 30, 2019 and 2018, respectively.

The increase in net loss from discontinued operations for the year ended September 30, 2019 was primarily related to goodwill impairment of $588.0 million recognized due to a reduction in the estimated fair value of our at-risk construction business and a reduction in our self-perform at-risk construction exposure.

Net (Loss) Income Attributable to AECOM

The factors described above resulted in the net loss attributable to AECOM of $261.1 million for the year ended September 30, 2019, as compared to the net income attributable to AECOM of $136.5 million for the year ended September 30, 2018.

Results of Operations by Reportable Segment

Fiscal Year Ended

September 30,

( in millions)

Cost of revenue

The following table presents the percentage relationship of statement of operations items to revenue:

Fiscal Year Ended

September 30,

Cost of revenue

Revenue for our Americas segment for the year ended September 30, 2019 decreased $129.7 million, or 1.2%, to $10,382.6 million as compared to $10,512.3 million for the year ended September 30, 2018.

The decrease in revenue for the year ended September 30, 2019 was primarily attributable to decreased construction management of airports in the U.S.

and residential high-rise buildings in New York City of approximately $340 million, partially offset by an increase in design consulting services, largely due to increased work performed on a residential housing storm disaster relief program.

Gross profit for our Americas segment for the year ended September 30, 2019 increased $107.7 million, or 26.7%, to $511.5 million as compared to $403.8 million for the year ended September 30, 2018.

As a percentage of revenue, gross profit increased to 4.9% of revenue for the year ended September 30, 2019 from 3.8% in the year ended September 30, 2018.

The increases in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2019 were primarily due to reduced costs resulting from restructuring activities taken earlier in fiscal 2019.

International

Fiscal Year Ended

September 30,

(in millions)

Cost of revenue

The following table presents the percentage relationship of statement of operations items to revenue:

Fiscal Year Ended

September 30,

Cost of revenue

Revenue for our International segment for the year ended September 30, 2019 decreased $114.3 million, or 3.4%, to $3,251.7 million as compared to $3,366.0 million for the year ended September 30, 2018.

Gross profit for our International segment for the year ended September 30, 2019 increased $16.7 million, or 22.2%, to $91.9 million as compared to $75.2 million for the year ended September 30, 2018.

As a percentage of revenue, gross profit increased to 2.8% of revenue for the year ended September 30, 2019 from 2.2% in the year ended September 30, 2018.

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2021 was primarily due to reduced costs resulting from actions taken to improve efficiency, including consolidating real estate, implementing a streamlined overhead structure, better operational execution, and exiting lower-returning countries.

AECOM Capital

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General and administrative expenses

* NM — Not Meaningful

Equity in earnings of joint ventures included a gain on the sale of a property.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations, borrowings under our credit facilities, and access to financial markets.

Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of common stock, and repayment of debt.

Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of common stock, and refinancing or repayment of debt.

We believe our anticipated sources of liquidity including operating cash flows, existing cash and cash equivalents, borrowing capacity under our revolving credit facility and our ability to issue debt or equity, if required, will be sufficient to meet our projected cash requirements for at least the next twelve months.

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Based on the available sources of cash flows discussed above, we anticipate we will continue to have the ability to permanently reinvest these remaining amounts.

At September 30, 2020, cash and cash equivalents were $1,708.3 million, an increase of $882.7 million, or 92.9%, from $885.6 million at September 30, 2019.

The increase in cash and cash equivalents was primarily attributable to positive cash flows from operating activities and proceeds from the sale of our Management Services business, partially offset by repurchases of common stock and repayments of our credit agreement.

At September 30, 2021, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,234.8 million, a decrease of $583.4 million, or 32.1%, from $1,818.2 million at September 30, 2020.

The decrease in cash and cash equivalents was primarily attributable to cash used to repurchase common stock and cash disposed with the sales of the at-risk power and civil infrastructure construction businesses.

Net cash provided by operating activities was $704.7 million for the year ended September 30, 2021 as compared to $329.6 million for the year ended September 30, 2020.

The change was primarily attributable to the timing of receipts and payments of working capital, which includes accounts receivable, contract assets, accounts payable, accrued expenses, and contract liabilities.

The sale of trade receivables to financial institutions during the year ended September 30, 2020 provided a net unfavorable impact of $143.3 million as compared to a net benefit of $21.9 million during the year ended September 30, 2019.

The year over year improvement in operating cash flow was partly due to sales of the Management Services business in the second quarter of fiscal 2020, the power construction business in the first quarter of 2021 and the civil infrastructure business in the second quarter of fiscal 2021, which led to a net favorable year over year impact to operating cash flow of approximately $284.1 million when comparing the year ended September 30, 2021 with the prior year.

The remaining increase in operating cash flow in the year ended September 30, 2021 compared to the prior year was attributable to an increase in earnings adjusted for non-cash items of approximately $132.8 million offset by a decrease in the change in working capital of approximately $41.9 million for the year ended September 30, 2021 compared to the prior year.

The sale of trade receivables to financial institutions during the year ended September 30, 2021 provided a net benefit of $90.2 million as compared to a net unfavorable impact of $143.3 million during the year ended September 30, 2020.

We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to us.

Net cash provided by investing activities was $2,037.4 million for the year ended September 30, 2020, as compared to net cash used of $146.8 million for the year ended September 30, 2019.

This increase in cash provided was primarily attributable to the sale of our Management Services business in fiscal 2020.

Net cash used in investing activities was $421.1 million for the year ended September 30, 2021, as compared to net cash provided by investing activities of $2,037.4 million for the year ended September 30, 2020.

Cash flow from investing activities decreased primarily due to the change in proceeds, net of cash disposed, from the sales of the at-risk power and civil infrastructure construction businesses during the year ended September 30, 2021, which was an outflow of $265.9 million, compared to the $2,218.9 million of proceeds, net of cash disposed, received from the sale of the Management Services business in year ended September 30, 2020.

Capital expenditures, net of proceeds from disposals, were $121.4 million in the year ended September 30, 2021 compared to $110.8 million in the year ended September 30, 2020.

The increase in net capital expenditures in fiscal year 2021 was primarily due to an increase in investments in information technology compared to the prior year.

Net cash used in financing activities was $872.5 million for the year ended September 30, 2021, as compared to $1,628.0 million for the year ended September 30, 2020.

This change was primarily attributable to repayments of our credit agreement and the redemption of our unsecured senior notes.

Total borrowings outstanding varied during the period.

For the year ended September 30, 2020, our weighted average floating rate borrowings were $292.4 million.

AECOM Caribe, a subsidiary of the Company, has incurred payment delays supporting the storm recovery work in the U.S.

Virgin Islands.

AECOM Caribe signed several contracts with Virgin Islands authorities to provide emergency design, construction and technical services after two Category Five hurricanes devastated the Virgin Islands in 2017, that were dependent on federal funding.

AECOM Caribe and its subcontractors have performed over $750 million of work under the Virgin Islands contracts and payment delays have increased working capital by over $150 million from September 30, 2018 to September 30, 2019.

We are currently negotiating with the Virgin Island authorities and U.S.

Federal Emergency Management Agency to modify the contract and accelerate funding for current and future contractual payments;

however, we can provide no certainty as to the timing or amount of future payments.

The decrease from the prior year was primarily attributable to debt repayment using the proceeds from the sale of the Management Services business in the year ended September 30, 2020, offset by increased stock repurchases under the Stock Repurchase Program during the year ended September 30, 2021.

Total borrowings under our credit agreement may vary during the period as we regularly draw and repay amounts to fund working capital.

Working Capital

Working capital, or current assets less current liabilities, increased $367.0 million, or 34.2%, to $1,439.9 million at September 30, 2020 from $1,072.9 million at September 30, 2019.

Working capital, or current assets less current liabilities, decreased $788.1 million, or 54.7%, to $651.8 million at September 30, 2021 from $1,439.9 million at September 30, 2020.

Net accounts receivable and contract assets, net of contract liabilities, decreased to $2,929.9 million at September 30, 2021 from $3,535.3 million at September 30, 2020.

The change in working capital is primarily due to the change in cash and cash equivalents during the year ended September 30, 2021, as described above.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 76 days at September 30, 2021 compared to 93 days at September 30, 2020.

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2027 Senior Notes

URS Senior Notes

Current portion of debt and short-term borrowings

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Credit Agreement

We entered into a credit agreement (Credit Agreement) on October 17, 2014, which, as amended to date, consists of (i) a term loan A facility that includes a $510 million (USD) term loan A facility with a term expiring on March 13, 2021 and a $500 million Canadian dollar (CAD) term loan A facility and a $250 million Australian dollar (AUD) term loan A facility, each with terms expiring on March 13, 2023;

(ii) a $600 million term loan B facility with a term expiring on March 13, 2025;

and (iii) a revolving credit facility in an aggregate principal amount of $1.35 billion with a term expiring on March 13, 2023.

Some of our subsidiaries (Guarantors) have guaranteed the obligations of the borrowers under the Credit Agreement.

The borrowers’ obligations under the Credit Agreement are secured by a lien on substantially all of our assets and the Guarantors’ pursuant to a security and pledge agreement (Security Agreement).

The collateral under the Security Agreement is subject to release upon fulfillment of conditions specified in the Credit Agreement and Security Agreement.

The Credit Agreement contains covenants that limit our ability and the ability of some of our subsidiaries to, among other things:

(i) create, incur, assume, or suffer to exist liens;

(ii) incur or guarantee indebtedness;

(iii) pay dividends or repurchase stock;

(iv) enter into transactions with affiliates;

(v) consummate asset sales, acquisitions or mergers;

(vi) enter into various types of burdensome agreements;

or (vii) make investments.

On July 1, 2015, the Credit Agreement was amended to revise the definition of “Consolidated EBITDA” to increase the allowance for acquisition and integration expenses related to our acquisition of URS.

On December 22, 2015, the Credit Agreement was amended to further revise the definition of “Consolidated EBITDA” by further increasing the allowance for acquisition and integration expenses related to the acquisition of URS and to allow for an internal corporate restructuring primarily involving our international subsidiaries.

On September 29, 2016, the Credit Agreement and the Security Agreement were amended to (i) lower the applicable interest rate margins for the term loan A and the revolving credit facilities, and lower the applicable letter of credit fees and commitment fees to the revised consolidated leverage levels;

(ii) extend the term of the term loan A and the revolving credit facility to September 29, 2021;

(iii) add a new delayed draw term loan A facility tranche in the amount of $185.0 million;

(iv) replace the then existing $500 million performance letter of credit facility with a $500 million basket to enter into secured letters of credit outside the Credit Agreement;

and (v) revise covenants, including the Maximum Consolidated Leverage Ratio, so that the step down from a 5.00 to a 4.75 leverage ratio is effective as of March 31, 2017 as well as the investment basket for our ACAP business.

On March 31, 2017, the Credit Agreement was amended to (i) expand the ability of restricted subsidiaries to borrow under “Incremental Term Loans;” (ii) revise the definition of “Working Capital” as used in “Excess Cash Flow;” (iii) revise the definitions for “Consolidated EBITDA” and “Consolidated Funded Indebtedness” to reflect the expected gain and debt repayment of an AECOM Capital disposition, which disposition was completed on April 28, 2017;

and (iv) amend provisions relating to our ability to undertake internal restructuring steps to accommodate changes in tax laws.

On March 13, 2018, the Credit Agreement was amended to (i) refinance the existing term loan A facility to include a $510 million (US) term loan A facility with a term expiring on March 13, 2021 and a $500 million CAD term loan A facility and a $250 million AUD term loan A facility each with terms expiring on March 13, 2023;

(ii) issue a new $600 million term loan B facility to institutional investors with a term expiring on March 13, 2025;

(iii) increase the capacity of our revolving credit facility from $1.05 billion to $1.35 billion and extend its term until March 13, 2023;

(iv) reduce our interest rate borrowing costs as follows:

(a) the term loan B facility, at our election, Base Rate (as defined in the Credit Agreement) plus 0.75% or Eurocurrency Rate (as defined in the Credit Agreement) plus 1.75%, (b) the (USD) term loan A facility, at our election, Base Rate plus 0.50% or Eurocurrency Rate plus 1.50%, and (c) the Canadian (CAD) term loan A facility, the Australian (AUD) term loan A facility, and the revolving credit facility, an initial rate of, at our election, Base Rate plus 0.75% or Eurocurrency Rate plus 1.75%, and after the end of our fiscal quarter ended June 30, 2018, Base Rate loans plus a margin ranging from 0.25% to 1.00% or Eurocurrency Rate plus a margin from 1.25% to 2.00%, based on the Consolidated Leverage Ratio (as defined in the Credit Agreement);

and (v) revise covenants including increasing the amounts available under the restricted payment negative covenant and revising the Maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) to include a 4.5 leverage ratio through September 30, 2019 after which the leverage ratio stepped down to 4.0.

On November 13, 2018, the Credit Agreement was amended to revise the definition of “Consolidated EBITDA” to increase corporate restructuring allowances and provide for additional flexibility under the covenants for non-core asset dispositions, among other changes.

On January 28, 2020, AECOM entered into Amendment No.

7 to the Credit Agreement which modifies the asset disposition covenant to permit the sale of our Management Services business and the mandatory prepayment provision so that only outstanding term loans were prepaid using the net proceeds from the sale.

On May 1, 2020, the Company entered into Amendment No.

8 to the Credit Agreement which allows for borrowings to be made, until three months after closing, up to an aggregate principal amount of $400,000,000 under a secured delayed draw term loan facility, the proceeds of which are permitted to be used to pay all or a portion of the amounts payable in connection with any tender for or redemption or repayment of the Company's or its subsidiaries' existing senior unsecured notes and any associated fees and expenses.

The amendment also revised certain terms and covenants in the Credit Agreement, including by, among other things, revising the maximum leverage ratio covenant to 4.00:1.00, subject to increases to 4.50:1.00 for certain specified periods in connection with certain material acquisitions, increasing the potential size of incremental facilities under the Credit Agreement, revising the definition of "Consolidated EBITDA"

to provide for additional flexibility in the calculation thereof and adding a Eurocurrency Rate floor of 0.75% to the interest rate under the revolving credit facility.

On July 30, 2020, we drew $248.5 million on our secured delayed draw term loan facility for the purpose of redeeming all of the 2022 URS Senior Notes.

Under the Credit Agreement, we are subject to a maximum consolidated leverage ratio and minimum consolidated interest coverage ratio at the end of each fiscal quarter.

On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement (the “Credit Agreement”), pursuant to which we amended and restated our Syndicated Credit Facility Agreement, dated as of October 17, 2014 (as amended prior to February 8, 2021, the “Original Credit Agreement”), between the Company, as borrower, Bank of America, N.A., as administrative agent, and other parties thereto.

The Credit Agreement consists of a $1,150,000,000 revolving credit facility (the “Revolving Credit Facility”) and a $246,968,737.50 term loan A facility (the “Term A Facility,” together with the Revolving Credit Facility, the “Credit Facilities”), each of which mature on February 8, 2026.

The outstanding loans under the Term A Facility were borrowed in U.S.

Loans under the Revolving Credit Facility may be borrowed, and letters of credit thereunder may be issued, in U.S.

dollars or in certain foreign currencies.

The proceeds of the Revolving Credit Facility may be used from time to time for ongoing working capital and for other general corporate purposes.

The proceeds of the Revolving Credit Facility and the Term A Loan facility borrowed on February 8, 2021 were used to refinance the existing revolving credit facility and the existing term loan facility under the Original Credit Agreement and pay related fees and expenses.

The Credit Agreement permits us to designate certain of its subsidiaries as additional co-borrowers from time to time.

Currently, there are no co-borrowers under the Credit Facilities.

The applicable interest rate under the Credit Agreement is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus an applicable margin (the “LIBOR Applicable Margin”), which is currently at 1.50% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin” and together with the LIBOR Applicable Margin, the “Applicable Margins”), which is currently at 0.50%.

The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to our CO 2 emissions and our percentage of employees who identify as women (each, a “Sustainability Metric”).

The Applicable Margins and the commitment fees for the revolving credit facility will be adjusted on an annual basis based on our achievement of preset thresholds for each Sustainability Metric.

Some of our material subsidiaries (the “Guarantors”) have guaranteed the obligations of the borrowers under the Credit Agreement, subject to certain exceptions.

The borrowers’ obligations under the Credit Agreement are secured by a lien on substantially all of our assets and our Guarantors’ assets, subject to certain exceptions.

The Credit Agreement contains customary negative covenants that include, among other things, limitations or restrictions on our ability and certain of our subsidiaries, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of their business, consummate mergers, consolidations and the sale of all or substantially all of their respective assets, taken as a whole, and transact with affiliates.

We are also required to maintain a consolidated interest coverage ratio of at least 3.00 to 1.00 and a consolidated leverage ratio of less than or equal to 4.00 to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the “Financial Covenants”).

Our consolidated leverage ratio was 2.4 at September 30, 2021.

Our Consolidated Interest Coverage Ratio was 5.0 at September 30, 2020.

As of September 30, 2021, we were in compliance with the covenants of the Credit Agreement.

At September 30, 2020 and September 30, 2019, outstanding standby letters of credit totaled $19.0 million and $22.8 million, respectively, under our revolving credit facilities.

The Credit Agreement contains customary affirmative covenants, including, among other things, compliance with applicable law, preservation of existence, maintenance of properties and of insurance, and keeping proper books and records.

The Credit Agreement contains customary events of default, including, among other things, nonpayment of principal, interest or fees, cross-defaults to other debt, inaccuracies of representations and warranties, failure to perform covenants, events of bankruptcy and insolvency, change of control and unsatisfied judgments, subject in certain cases to notice and cure periods and other exceptions.

On April 13, 2021, we entered into Amendment No.

10 to the Credit Agreement, pursuant to which the lenders thereunder provided a secured term “B” credit facility (the “Term B Facility”) to the Company in an aggregate principal amount of $700,000,000.

The Term B Facility matures on April 13, 2028.

The proceeds of the Term B Facility were used to fund the purchase price, fees and expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.

The Term B Facility is subject to the same affirmative and negative covenants and events of default as the Term A Facility previously incurred pursuant to the existing Credit Agreement (except that the Financial Covenants in the Credit Agreement do not apply to the Term B Facility).

The applicable interest rate for the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.

On June 25, 2021, we entered into Amendment No.

11 to the Credit Agreement, pursuant to which lenders have provided us with an additional $215,000,000 in aggregate principal amount under the Term A Facility.

We used the net proceeds from the increase in the Term A Facility (together with cash on hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.

At September 30, 2021 and September 30, 2020, letters of credit totaled $5.2 million and $19.0 million, respectively, under our revolving credit facilities.

As of September 30, 2021 and September 30, 2020, we had $1,144.8 million and $1,331.0 million, respectively, available under our revolving credit facility.

2024 Senior Notes

On October 6, 2014, we completed a private placement offering of $800,000,000 aggregate principal amount of the unsecured 5.750% Senior Notes due 2022 (2022 Notes) and $800,000,000 aggregate principal amount of the unsecured 5.875% Senior Notes due 2024 (the 2024 Notes and, together with the 2022 Notes, the 2014 Senior Notes).

On November 2, 2015, we completed an exchange offer to exchange the unregistered 2014 Senior Notes for registered notes, as well as all related guarantees.

On March 16, 2018, we redeemed all of the 2022 Notes at a redemption price that was 104.313% of the principal amount outstanding plus accrued and unpaid interest.

The March 16, 2018 redemption resulted in a $34.5 million prepayment premium, which was included in interest expense.

As of September 30, 2020, the estimated fair value of the 2024 Notes was approximately $863.0 million.

The fair value of the 2024 Notes as of September 30, 2020 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2024 Notes.

On July 21, 2020, we completed a cash tender offer at par for up to $639 million in aggregate principal amount of the 2024 Notes and the 2017 Senior Notes.

We accepted for purchase all of 2024 Notes validly tendered and not validly withdrawn pursuant to the cash tender offer, amounting to $2.7 million aggregate principal amount of the 2024 Notes at par.

We made the cash tender offer at par to satisfy obligations under the indentures governing the 2024 Notes and the 2017 Senior Notes relating to the use of certain cash proceeds from our disposition of the Management Services business, which was completed on January 31, 2020.

At any time prior to July 15, 2024, we may redeem on one or more occasions all or part of the 2024 Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a “make-whole” premium as of the date of the redemption, plus any accrued and unpaid interest to the date of redemption.

In addition, on or after July 15, 2024, the 2024 Notes may be redeemed at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption.

The indenture pursuant to which the 2024 Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events.

The indenture also contains customary negative covenants.

We were in compliance with the covenants relating to the 2024 Notes as of September 30, 2020.

On October 6, 2014, we completed a private placement offering of $800,000,000 aggregate principal amount of the unsecured 5.875% Senior Notes due 2024 (the “2024 Notes”).

On June 25, 2021, we redeemed the remaining principal amount of the 2024 Notes outstanding at such time.

The redemption price of the 2024 Notes was 115.108% of the remaining outstanding aggregate principal amount, amounting to $217.5 million, plus accrued and unpaid interest.

The amounts paid were funded using the proceeds from the additional draw down from the Term A Facility described above and cash on hand.

The redemption of the 2024 Notes in the third quarter of fiscal 2021 resulted in a $117.5 million prepayment premium, which was included in interest expense.

2027 Senior Notes

On February 21, 2017, we completed a private placement offering of $1,000,000,000 aggregate principal amount of our unsecured 5.125% Senior Notes due 2027 (the 2017 Senior Notes) and used the proceeds to immediately retire the remaining $127.6 million outstanding on the then existing term loan B facility as well as repay $600 million of the term loan A facility and $250 million of the revolving credit facility under our Credit Agreement.

On February 21, 2017, we completed a private placement offering of $1,000,000,000 aggregate principal amount of our unsecured 5.125% Senior Notes due 2027 (the “2027 Senior Notes”).

On June 30, 2017, we completed an exchange offer to exchange the unregistered 2027 Senior Notes for registered notes, as well as related guarantees.

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The fair value of the 2027 Senior Notes as of September 30, 2021 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes.

Interest will be payable on the 2017 Senior Notes at a rate of 5.125% per annum.

Interest is payable on the 2027 Senior Notes at a rate of 5.125% per annum.

Interest on the 2027 Senior Notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017.

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At any time and from time to time prior to December 15, 2026, we may redeem all or part of the 2027 Senior Notes, at a redemption price equal to 100% of their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest to the redemption date.

At any time on or after December 15, 2026, we may redeem on one or more occasions all or part of the 2017 Senior Notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest.

On or after December 15, 2026, we may redeem all or part of the 2027 Senior Notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to the redemption date.

The indenture pursuant to which the 2027 Senior Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events.

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URS Senior Notes

In connection with the URS acquisition, we assumed the URS 3.85% Senior Notes due 2017 (2017 URS Senior Notes) and the URS 5.00% Senior Notes due 2022 (2022 URS Senior Notes), totaling $1.0 billion (URS Senior Notes).

The URS acquisition triggered change in control provisions in the URS Senior Notes that allowed the holders of the URS Senior Notes to redeem their URS Senior Notes at a cash price equal to 101% of the principal amount and, accordingly, we redeemed $572.3 million of the URS Senior Notes on October 24, 2014.

The remaining 2017 URS Senior Notes matured and were fully redeemed on April 3, 2017 for $179.2 million using proceeds from a $185 million delayed draw term loan A facility tranche under the Credit Agreement.

In connection with the 2014 acquisition of the URS Corporation (URS), we assumed the URS 5.00% Senior Notes due 2022 (the “2022 URS Senior Notes”).

The remaining $248.5 million principal amount of the 2022 URS Senior Notes were fully redeemed on August 31, 2020 using proceeds from a $248.5 million secured delayed draw term loan facility under the Credit Agreement, at a redemption price that was 106.835% of the principal amount outstanding plus accrued and unpaid interest.

The August 31, 2020 redemption resulted in a $17.0 million prepayment premium, which was included in interest expense.

The August 31, 2020 redemption resulted in a $17.0 million prepayment premium, which was included in interest expense during the year ended September 30, 2020.

Other Debt and Other Items

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Effective Interest Rate

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements, during the years ended September 30, 2020, 2019 and 2018 was 5.3%, 5.1% and 5.1%, respectively.

Interest expense in the consolidated statement of operations included amortization of deferred debt issuance costs for the years ended September 30, 2020, 2019 and 2018 of $5.4 million, $5.0 million and $12.5 million, respectively.

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements and excluding the effects of prepayment premiums included in interest expense, during the years ended September 30, 2021, 2020 and 2019 was 4.4%, 5.3% and 5.1%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the years ended September 30, 2021, 2020 and 2019 of $10.2 million, $5.4 million and $5.0 million, respectively.

Other Commitments

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However, if we acquire additional businesses in the future or if we embark on other capital-intensive initiatives, additional working capital may be required.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of September 30, 2020, there was approximately $529.1 million outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of September 30, 2021, there was approximately $483.0 million including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

For those projects for which we have issued a performance guarantee, if the project subsequently fails to meet guaranteed performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.

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In addition, we have collective bargaining agreements with unions that require us to contribute to various third party multiemployer pension plans that we do not control or manage.

In addition, we have collective bargaining agreements with unions that require us to contribute various third party multiemployer plans that we do not control or manage.

For the year ended September 30, 2021, we contributed $3.7 million to multiemployer pension plans.

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Net loss from continuing operations

Net income from discontinued operations

Net income attributable to AECOM

Net loss from discontinued operations

Net loss attributable to AECOM

Commitments and Contingencies

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Generally, under joint venture arrangements, if a partner is financially unable to complete its share of the contract, the other partner(s) may be required to complete those activities.

At September 30, 2020 and 2019, we were contingently liable in the amount of approximately $529.1 million and $493.7 million, respectively, in issued standby letters of credit and $6.2 billion and $4.8 billion, respectively, in issued surety bonds primarily to support project execution.

At September 30, 2021, we were contingently liable in the amount of approximately $483.0 million in issued standby letters of credit and $4.3 billion in issued surety bonds primarily to support project execution.

In the ordinary course of business, we enter into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated partnerships, joint ventures and other jointly executed contracts.

These agreements are entered into primarily to support the project execution commitments of these entities.

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

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

(the “Fund”), in which we indirectly hold an equity interest and have an ongoing capital commitment to fund investments.

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On September 25, 2020, the DOE denied the Former Affiliate’s 2019 Claims.

The Company intends to appeal these decisions by December 30, 2020.

The Company filed an appeal of these decisions on December 20, 2020 in the Court of Federal Claims.

Deconstruction, decommissioning and site restoration activities are complete.

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In December 2019, the refinery owner claimed $93.0 million in damages and offsets against the Company’s Former Affiliate.

On January 31, 2020, the Company completed the sale of its Management Services business to the Purchaser including the Former Affiliate, however, the Refinery Turnaround project, including related claims and liabilities, remained as part of the Company's self-perform at-risk construction business which is classified within discontinued operations.

The parties have agreed on a February 28, 2022 deadline for close of discovery in this matter.

On January 31, 2020, the Company completed the sale of its Management Services business to the Purchaser including the Former Affiliate, however, the Refinery Turnaround Project, including related claims and liabilities, has been retained by the Company.

The Company intends to vigorously prosecute and defend this matter;

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New Accounting Pronouncements and Changes in Accounting

In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance which amended the existing accounting standards for revenue recognition.

The new accounting guidance establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services.

We adopted the new standard on October 1, 2018, using the modified retrospective method, which resulted in an adjustment to retained earnings of $7.0 million, net of tax.

Detailed disclosures regarding the adoption and other required disclosures can be found in Note 4.

In February 2016, the FASB issued new accounting guidance which changes accounting requirements for leases.

In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance which changes accounting requirements for leases.

The new guidance requires lessees to recognize the assets and liabilities arising from all leases, including those classified as operating leases under previous accounting guidance, on the balance sheet.

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In June 2016, the FASB issued a new credit loss standard that changes the impairment model for most financial assets and some other instruments.

The new guidance will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

The new guidance replaces the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

It also simplifies the accounting model for purchased credit-impaired debt securities and loans.

The guidance will be effective for the fiscal year starting October 1, 2020.

We do not expect that the adoption of this standard will have a material impact on our consolidated financial statements.

We adopted the new guidance effective October 1, 2020 using a modified retrospective approach that resulted in an $8.0 million, net of tax, reduction to retained earnings without restating comparative periods.

Additional disclosures regarding the adoption can be found in Note 4.

In February 2018, the FASB issued new accounting guidance which provides entities the option to reclassify certain tax effects from other comprehensive income to retained earnings.

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Under the guidance, an entity may elect to reclassify the income tax effects of the Tax Act on items within accumulated other comprehensive income to retained earnings.

We have determined that we will not make this election.

We determined that we will not make this election.

In August 2018, the FASB issued new accounting guidance aligning the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract with previously existing guidance for capitalizing costs incurred to develop internal-use software.

The new guidance will be effective for the fiscal year starting October 1, 2020.

We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.

The new guidance was effective for our fiscal year starting October 1, 2020.

The adoption of this guidance did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued new accounting guidance amending the disclosure requirements for fair value measurements.

These improvements will require more disclosure for amounts measured at fair value, and specifically unobservable inputs used in fair value measurements.

We expect to adopt the new guidance starting on October 1, 2020.

We are currently evaluating the impact that the new guidance will have on our financial reporting process.

These improvements require more disclosure for amounts measured at fair value, and specifically unobservable inputs used in fair value measurements.

We adopted the new guidance starting on October 1, 2020.

Adoption of the new guidance did not have a significant impact on our financial reporting process.

In August 2018, the FASB issued new accounting guidance for the disclosure requirements of defined benefit pension plans.

The amended guidance eliminates certain disclosure requirements that were no longer considered to be cost beneficial.

We expect to adopt the new guidance starting on October 1, 2021 and do not expect adoption of the new guidance will have a significant impact on our financial reporting process.

In March 2020, the Securities and Exchange Commission (SEC) adopted final rules that amend the financial disclosure requirement for guarantors of registered debt securities in Rule 3-10 of Regulation S-X.

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Among other things, the new disclosures may be located outside the financial statements.

The new rule is effective January 4, 2021, and early adoption is permitted.

The new rule was effective January 4, 2021, and early adoption is permitted.

We adopted the new rule on March 31, 2020.

Accordingly, the revised condensed consolidating financial information is presented in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Accordingly, the revised condensed consolidating financial information is presented outside of these consolidated financial statements.

Off-Balance Sheet Arrangements

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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 7. Management’s Discussion and Analysis