What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-09 compared with 2021-08-11 · 139 added, 243 removed, 222 unchanged (63% of the section changed)

11 unchanged sentences

future post-retirement expenses;

future tax benefits and expenses , and the impacts of future tax legislation;

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

future compliance with regulations;

15 unchanged sentences

high leverage and potential inability to service our debt and guarantees;

ability to continue payment of dividends;

exposure to Brexit and tariffs;

10 unchanged sentences

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;

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 Quarterly Report on Form 10-Q and any subsequent reports we file with the SEC.

4 unchanged sentences

Please review “Part II, Item 1A—Risk Factors” in this Quarterly Report for a discussion of the factors, risks and uncertainties that could affect our future results.

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.

We are a leading global provider of professional infrastructure consulting services for governments, businesses and organizations throughout the world.

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

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

We primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees’ time spent on client projects and our ability to manage our costs.

AECOM Capital primarily derives its income from real estate development sales and management fees.

During the first quarter of fiscal 2020, we reorganized our operating and reporting structure to better align with our ongoing professional services business.

This reorganization better reflected our continuing operations after the sale of our Management Services segment, our self-perform at-risk construction businesses, including our civil infrastructure and power construction businesses and the planned disposal of our oil & gas construction business.

Our Management Services and self-perform at-risk construction businesses were part of our former Management Services segment and a substantial portion of our former Construction Services segment, respectively.

These businesses are classified as discontinued operations in all periods presented.

We report our continuing business through three segments, each of which is described in further detail below:

2 unchanged sentences

We have aggregated various operating segments into our reportable segments based on their similar characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.

Planning, consulting, architectural and engineering design, and construction management services to commercial and government clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy.

Planning, consulting, architectural and engineering design, and construction and program management services to commercial and government clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy.

● International :

Planning, consulting, architectural and engineering design services to commercial and government clients in Europe, the Middle East, Africa and the Asia-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy.

Planning, consulting, architectural and engineering design services and program management to commercial and government clients in Europe, the Middle East, Africa and the Asia-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy.

● AECOM Capital (ACAP) :

Invests primarily in real estate projects.

ACAP typically partners with investors and experienced developers as co-general partners.

ACAP may, but is not required to, enter into contracts with our other AECOM affiliates to provide design, engineering, construction management, development and operations and maintenance services for ACAP funded projects.

Invests primarily in and develops real estate projects.

Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, integrate and maximize the value of our recent acquisitions, allocate our labor resources to profitable and high growth markets, secure new contracts, and renew existing client agreements.

2 unchanged sentences

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, in connection with 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 November 13, 2020, the Board approved an increase in our repurchase authorization to $1.0 billion.

At June 30, 2021, we have approximately $590 million remaining of the Board’s repurchase authorization.

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

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

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

At December 31, 2021, we have approximately $790 million remaining of the Board’s repurchase authorization.

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

We have exited substantially all of our self-perform at-risk construction businesses and divested our remaining non-core oil and gas businesses in January 2022.

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 $40 to $50 million in fiscal year 2021 primarily related to previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies.

We expect to incur restructuring costs of approximately $20 million to $30 million in fiscal year 2022, including $3.4 million in the first quarter, primarily related to previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies.

Total cash costs for these restructuring actions are expected to be approximately $20 million to $30 million.

Coronavirus Impacts

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

Covid-19 Coronavirus Impacts

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 may reduce demand for our services and impact client spending in certain circumstances;

which could in turn adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends;

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 or facilitated employees to work remotely where appropriate.

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

● State and local budget shortfalls in the U.S.

have negatively impacted our pipeline of pursuits and the pace of award activity.

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

Results of Operations

Three and nine months ended June 30, 2021 compared to the three and nine months ended June 30, 2020

Three months ended December 31, 2021 compared to the three months ended December 31, 2020

Consolidated Results

Three Months Ended

Nine Months Ended

(unaudited - in millions)

(in millions)

Cost of revenue

5 unchanged sentences

Income from continuing operations before taxes

Income tax (benefit) expense for continuing operations

Income tax expense for continuing operations

Net income from continuing operations

1 unchanged sentence

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 loss (income) attributable to noncontrolling interests from discontinued operations

Net loss (income) attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

1 unchanged sentence

Net income attributable to AECOM

*NM - Not Meaningful

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

Three Months Ended

Nine Months Ended

Cost of revenue

5 unchanged sentences

Income from continuing operations before taxes

Income tax (benefit) expense for continuing operations

Income tax expense for continuing operations

Net income from continuing operations

1 unchanged sentence

Net income attributable to noncontrolling interests from continuing operations, net of tax

Net income attributable to noncontrolling interests from discontinued operations, net of tax

Net income attributable to noncontrolling interests

Net loss (income) attributable to noncontrolling interests from discontinued operations, net of tax

Net loss (income) attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

1 unchanged sentence

Net income attributable to AECOM

Our revenue for the three months ended June 30, 2021 increased $218.7 million, or 6.9%, to $3,408.4 million as compared to $3,189.7 million for the corresponding period last year.

Our revenue for the nine months ended June 30, 2021 increased $316.1 million, or 3.3%, to $9,987.1 million as compared to $9,671.0 million for the corresponding period last year.

The increase in revenue for the three months ended June 30, 2021 was primarily attributable to an increase in our Americas and International segments of $146.9 million and $71.4 million, respectively, as discussed further below.

The increase in revenue for the nine months ended June 30, 2021 was primarily attributable to an increase in our Americas and International segments of $244.9 million and $70.8 million, respectively, as discussed further below.

Our revenue for the three months ended December 31, 2021 decreased $46.5 million, or 1.4%, to $3,266.7 million as compared to $3,313.2 million for the corresponding period last year.

The decrease in revenue for the three months ended December 31, 2021 was primarily attributable to a decrease in our Americas segment of $93.8 million, offset by an increase in our International segment of $46.8 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 pass through costs included in revenues can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends.

Pass through costs included in revenues for the three months ended June 30, 2021 and 2020 were $1.9 billion and $1.7 billion, respectively.

Pass through costs included in revenues for the nine months ended June 30, 2021 and 2020 were $5.4 billion and $5.1 billion, respectively.

Pass through costs included in revenues as a percentage of total revenue were 55% and 53% during the three months ended June 30, 2021 and 2020, respectively.

Pass through costs included in revenues as a percentage of total revenue were 54% and 52% during the nine months ended June 30, 2021 and 2020, respectively.

Our gross profit for the three months ended June 30, 2021 increased $16.5 million, or 8.9%, to $201.6 million as compared to $185.1 million for the corresponding period last year.

For the three months ended June 30, 2021, gross profit, as a percentage of revenue, increased to 5.9% from 5.8% in the three months ended June 30, 2020.

Our gross profit for the nine months ended June 30, 2021 increased $61.5 million, or 11.8%, to $581.2 million as compared to $519.7 million for the corresponding period last year.

For the nine months ended June 30, 2021, gross profit, as a percentage of revenue, increased to 5.8% from 5.4% in the nine months ended June 30, 2020.

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 quarters ended December 31, 2021 and 2020 were $1.7 billion and $1.8 billion, respectively.

Pass-through revenue as a percentage of revenue, was 53% and 55% during the three months ended December 31, 2021 and 2020, respectively.

Our gross profit for the three months ended December 31, 2021 increased $15.8 million, or 8.6%, to $200.2 million as compared to $184.4 million for the corresponding period last year.

For the three months ended December 31, 2021, gross profit, as a percentage of revenue, increased to 6.1% from 5.6% in the three months ended December 31, 2020.

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

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended June 30, 2021 was $8.2 million as compared to $8.6 million in the corresponding period last year.

Our equity in earnings of joint ventures for the nine months ended June 30, 2021 was $23.6 million as compared to $32.0 million in the corresponding period last year.

The decrease in earnings of joint ventures for the three and nine months ended June 30, 2021 compared to the same period in the prior year is primarily due to the completion of a sports arena construction project in the Americas.

Our equity in earnings of joint ventures for the three months ended December 31, 2021 was $7.9 million as compared to $8.2 million in the corresponding period last year.

The decrease in earnings of joint ventures for the three months ended December 31, 2021 compared to the same period in the prior year is primarily due to decreased earnings in our AECOM Capital segment compared to the prior year.

General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2021 decreased $18.2 million, or 33.4%, to $36.3 million as compared to $54.5 million for the corresponding period last year.

For the three months ended June 30, 2021, general and administrative expenses, as a percentage of revenue, decreased to 1.0% from 1.8% in the three months ended June 30, 2020.

Our general and administrative expenses for the nine months ended June 30, 2021 decreased $28.5 million, or 20.5%, to $110.7 million as compared to $139.2 million for the corresponding period last year.

For the nine months ended June 30, 2021, general and administrative expenses, as a percentage of revenue, decreased to 1.1% from 1.4% in the nine months ended June 30, 2020.

The decreases in general and administrative expenses were primarily due to the execution of restructuring actions taken by management to increase profitability and simplify our operating structure.

Our general and administrative expenses for the three months ended December 31, 2021 decreased $2.0 million, or 5.2%, to $36.4 million as compared to $38.4 million for the corresponding period last year.

For the three months ended December 31, 2021, general and administrative expenses, as a percentage of revenue, decreased to 1.0% from 1.1% in the three months ended December 31, 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.

Restructuring Costs

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

During the three and nine months ended June 30, 2020, we incurred restructuring expenses of $20.3 million and $96.4 million, respectively, primarily related to personnel costs associated with recent executive transitions.

During the three and nine months ended June 30, 2021, we incurred restructuring expenses of $13.0 million and $34.8 million, respectively, primarily related to personnel costs.

We expect to incur additional restructuring costs in the last quarter of fiscal 2021 primarily related to costs optimizing our cost structure and reducing overhead costs.

Our other income for the three months ended June 30, 2021 increased to $4.5 million from $3.1 million for the corresponding period last year.

Our other income for the nine months ended June 30, 2021 increased to $11.9 million from $9.5 million for the corresponding period last year.

Other income is primarily comprised of interest income.

During the first quarter of fiscal 2021, we incurred restructuring expenses of $13.0 million, primarily related to personnel costs, including costs associated with recent executive transitions.

During the first quarter of fiscal 2022, we incurred restructuring expenses of $3.4 million, primarily related to costs associated with advancing our previously announced actions to deliver margin improvement and efficiencies that result in a more agile organization.

Our other income for the three months ended December 31, 2021 decreased to $2.9 million from $3.9 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 three months ended June 30, 2021 was $149.0 million as compared to $34.9 million for the corresponding period last year.

Our interest expense for the nine months ended June 30, 2021 was $212.5 million as compared to $112.4 million for the corresponding period last year.

The increase in interest expense for the three and nine months ended June 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 (Benefit) Expense

Our income tax benefit for the three months ended June 30, 2021 was $17.8 million as compared to $7.1 million in the corresponding period last year.

The increase in tax benefit for the current period compared to the corresponding period last year is due primarily to a tax benefit of $25.9 million related to a corporate tax rate change in the United Kingdom and the tax impacts of a decrease in overall pre-tax income of $71.1 million, partially offset by tax expense of $13.2 million due to a partial settlement of an audit in the U.S.

and a tax benefit of $25.4 million related to the release of a valuation allowance in the third quarter of fiscal 2020.

Our income tax expense for the nine months ended June 30, 2021 was $42.9 million as compared to $30.3 million in the corresponding period last year.

The increase in tax expense for the current period compared to the corresponding period last year is due primarily to a tax benefit of $25.4 million related to the release of a valuation allowance during fiscal 2020 and the tax impacts of an increase in overall pre-tax income of $45.5 million, 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 the third quarter of fiscal 2020, management approved a tax planning strategy and we began restructuring certain operations in Canada which resulted in the release of a valuation allowance related to net operating losses in the amount of $25.4 million.

Our interest expense for the three months ended December 31, 2021 was $25.4 million as compared to $30.7 million for the corresponding period last year.

The decrease in interest expense for the three months ended December 31, 2021 was primarily due to lower interest rates on our outstanding debts compared to the prior year.

Income Tax Expense

Our income tax expense for the three months ended December 31, 2021 was $22.6 million as compared to $25.6 million in the corresponding period last year.

The decrease in tax expense for the current period compared to the corresponding period last year is due primarily to a tax benefit of $21.9 million related to changes in valuation allowances, a tax expense of $16.1 million related to changes in foreign uncertain positions, offset by the tax impacts of an increase in overall pre-tax income of $31.4 million.

During the first quarter of fiscal 2022, valuation allowances in the amount of $21.9 million primarily related to net operating losses in certain foreign entities were released due to sufficient positive evidence obtained during the quarter.

The positive evidence included a realignment of our global transfer pricing methodology that was implemented during the quarter which resulted in forecasting the utilization of the net operating losses within the foreseeable future.

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

During the first quarter of fiscal 2020, management approved a plan to dispose via sale our Management Services business and our self-perform at-risk construction businesses.

As a result of these strategic actions, the Management Services and self-perform at-risk construction businesses were classified as discontinued operations.

That classification was applied retrospectively for all periods presented.

Net loss from discontinued operations increased $15.3 million to a loss of $15.4 million from a loss of $0.1 million for the three months ended June 30, 2021 and 2020, respectively.

The increase in net loss from discontinued

operations for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due to losses recorded on a potential transaction in our oil and gas business during the three months ended June 30, 2021.

Net loss from discontinued operations increased $6.4 million to a loss of $119.1 million from a loss of $112.7 million for the nine months ended June 30, 2021 and 2020, respectively.

The increase in net loss from discontinued operations for the nine-month period ended June 30, 2021 compared to the nine-month period ended June 30, 2020 was primarily due to losses recorded in fiscal year 2021 on the sales of our power and civil infrastructure construction businesses compared to prior year losses on a combined cycle power plant, offset by the prior year gain on disposal of the Management Services business recorded in fiscal year 2020.

During the first quarter of fiscal 2020, management approved a plan to dispose via sale our self-perform at-risk construction businesses.

As a result of these strategic actions, the self-perform at-risk construction businesses were classified as discontinued operations.

That classification was applied for all periods presented.

Net loss from discontinued operations was $62.0 million for the three months ended December 31, 2021 and net loss was $55.8 million for the three months ended December 31, 2020, an increase of $6.2 million.

The increase in net loss from discontinued operations for the three months ended December 31, 2021 was primarily due to losses recorded in the first quarter of fiscal year 2022 related to revisions of estimates for our working capital obligation to be paid and contingent consideration receivable related to the

civil infrastructure business, partially offset by the losses recorded on the sales of our power business and losses related to the remeasurement of our civil infrastructure businesses to fair value recorded in the first quarter of fiscal year 2021 that did not recur in fiscal year 2022.

Net Income Attributable to AECOM

The factors described above resulted in net income attributable to AECOM of $11.5 million and $77.0 million for the three and nine months ended June 30, 2021, respectively, as compared to net income attributable to AECOM of $89.3 million and $43.8 million for the three and nine months ended June 30, 2020, respectively.

The factors described above resulted in net income attributable to AECOM of $61.5 million for the three months ended December 31, 2021 as compared to net income attributable to AECOM of $26.1 million for the three months ended December 31, 2020.

Results of Operations by Reportable Segment:

Three Months Ended

Nine Months Ended

( in millions)

Cost of revenue

1 unchanged sentence

Three Months Ended

Nine Months Ended

Cost of revenue

Revenue for our Americas segment for the three months ended June 30, 2021 increased $146.9 million, or 5.9%, to $2,618.5 million as compared to $2,471.6 million for the corresponding period last year.

Revenue for our Americas segment for the nine months ended June 30, 2021 increased $244.9 million, or 3.3%, to $7,644.1 million as compared to $7,399.2 million for the corresponding period last year.

The increase in revenue for the nine months ended June 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 three months ended June 30, 2021 increased $5.3 million, or 3.4%, to $160.6 million as compared to $155.3 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.1% of revenue for the three months ended June 30, 2021 from 6.3% in the corresponding period last year.

Gross profit for our Americas segment for the nine months ended June 30, 2021 increased $27.0 million, or 6.3%, to $457.3 million as compared to $430.3 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.0% of revenue for the nine months ended June 30, 2021 from 5.8% in the corresponding period last year.

The increase in gross profit and gross profit as a percentage of revenue for the three and nine months ended June 30, 2021 was primarily due to reduced costs and a more efficient operating structure resulting from a realigned overhead and delivery structure, investments in technology, and shared service centers to enhance efficiencies.

Revenue for our Americas segment for the three months ended December 31, 2021 decreased $93.8 million, or 3.7%, to $2,463.5 million as compared to $2,557.3 million for the corresponding period last year.

The decrease in revenue for the three months ended December 31, 2021 was primarily driven by a decrease in pass through revenues primarily in our construction management business for high-rise buildings in New York City.

Gross profit for our Americas segment for the three months ended December 31, 2021 increased $5.0 million, or 3.4%, to $150.0 million as compared to $145.0 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.1% of revenue for the three months ended December 31, 2021 from 5.7% in the corresponding period last year.

The increase in gross profit for the three months ended December 31, 2021 was primarily due to reduced costs of 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 and underlying revenue growth excluding pass through revenues.

International

Three Months Ended

Nine Months Ended

(in millions)

Cost of revenue

1 unchanged sentence

Three Months Ended

Nine Months Ended

Cost of revenue

Revenue for our International segment for the three months ended June 30, 2021 increased $71.4 million, or 9.9%, to $789.3 million as compared to $717.9 million for the corresponding period last year.

Revenue for our International segment for the nine months ended June 30, 2021 increased $70.8 million, or 3.1% to $2,341.4 million as compared to $2,270.6 million for the corresponding period last year.

The increase in revenue for the three and nine months ended June 30, 2021 was primarily due to increases in the United Kingdom and Australia as well as the benefit of changes in the foreign exchange rates.

Gross profit for our International segment for the three months ended June 30, 2021 increased $10.8 million, or 36.5%, to $40.4 million as compared to $29.6 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 5.1% of revenue for the three months ended June 30, 2021 from 4.1% in the corresponding period last year.

Gross profit for our International segment for the nine months ended June 30, 2021 increased $34.1 million, or 38.7%, to $122.3 million as compared to $88.2 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 5.2% of revenue for the nine months ended June 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 three and nine months ended June 30, 2021 was primarily due to reduced costs resulting from actions taken to improve efficiency, including consolidating real estate, implementing a streamlined overhead structure, and exiting lower-returning countries.

Revenue for our International segment for the three months ended December 31, 2021 increased $46.8 million, or 6.2%, to $802.4 million as compared to $755.6 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2021 was primarily attributable to increased volume in the Europe, Middle East, Asia and Australia compared to the prior year.

Gross profit for our International segment for the three months ended December 31, 2021 increased $10.3 million, or 26.3%, to $49.4 million as compared to $39.1 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.2% of revenue for the three months ended December 31, 2021 from 5.2% in the corresponding period last year.

The increase in gross profit and gross profit as a percentage of revenue for the three months ended December 31, 2021 was primarily due to an increase in revenue and reduced costs resulting from actions taken to improve efficiency, including consolidating real estate, implementing a streamlined overhead structure, and better operational execution.

AECOM Capital

Three Months Ended

Nine Months Ended

(in millions)

Equity in earnings of joint ventures

4 unchanged sentences

Our revenue is typically higher in the last half of the fiscal year.

state governments with fiscal years ending on June 30 tend to increase spending during their first quarter, when new funding becomes available.

state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available.

In addition, we find that the U.S.

5 unchanged sentences

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 refinancing or repayment of debt.

Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of common stock, dividend payments, 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.

3 unchanged sentences

subsidiaries because such basis differences are able to and intended to be reinvested indefinitely.

At June 30, 2021, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax outside of the one-time transition tax required under the Tax Cuts and Jobs Act that was enacted on December 22, 2017.

At December 31, 2021, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and therefore we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax.

Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

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 June 30, 2021, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,054.9 million, a decrease of $763.3 million, or 42.0%, 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 $386.6 million for the nine months ended June 30, 2021, compared to net cash used in operating activities of $319.7 million for the nine months ended June 30, 2020.

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 favorable year over year impact to operating cash flow of approximately $223.9 million when comparing the nine months ended June 30, 2021 with the prior year.

The remaining increase in operating cash flow in the nine-month period ended June 30, 2021 compared to the prior year was attributable to improvements in working capital of approximately $415.1 million and an increase in earnings adjusted for non-cash items of approximately $67.3 million for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020.

The sale of trade receivables to financial institutions during the nine months ended June 30, 2021 provided a net benefit of $73.7 million as compared to a net unfavorable impact of $156.9 million during the nine months ended June 30, 2020.

At December 31, 2021, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,091.4 million, a decrease of $143.4 million, or 11.6%, from $1,234.8 million at September 30, 2021.

The decrease in cash and cash equivalents was primarily attributable to $262.3 million of cash used to repurchase common stock.

Net cash provided by operating activities was $194.9 million for the three months ended December 31, 2021 as compared to $7.1 million for the three months ended December 31, 2020.

The change was primarily attributable to an increase in cash provided by working capital of approximately $229.2 million, partially driven by an 11-day improvement in days sales outstanding from prior year, and an increase in net income of approximately $28.2 million, offset by a decrease in adjustments for non-cash items of approximately $69.6 million.

The improvement in operating cash flow was also partly due to the sales of our power construction business in the first quarter of fiscal year 2021 and the civil construction business in the second quarter of fiscal year 2021, which led to a net favorable year over year impact to operating cash flow of approximately $22.6 million.

The sale of trade receivables to financial institutions during the three months ended December 31, 2021 provided a net use of cash of $17.7 million as compared to a net cash provided of $26.8 million during the three months ended December 31, 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 used in investing activities was $401.7 million for the nine months ended June 30, 2021, as compared to net cash provided by investing activities of $2,074.1 million for the nine months ended June 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 nine months ended June 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 the nine months ended June 30, 2020.

Net cash used in financing activities was $754.9 million for the nine months ended June 30, 2021 as compared to $1,405.5 million for the nine months ended June 30, 2020.

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 nine months ended June 30, 2020, offset by increased stock repurchases under the Stock Repurchase Program during the nine months ended June 30, 2021.

Net cash used in investing activities was $48.6 million for the three months ended December 31, 2021, as compared to $141.3 million for the three months ended December 31, 2020.

Cash used in investing activities decreased primarily due to a $72.0 million decrease in cash disposed as a result of the sales of discontinued operations.

Net cash used in financing activities was $288.9 million for the three months ended December 31, 2021 as compared to $469.5 million for the three months ended December 31, 2020.

The decrease was primarily attributable to decreased stock repurchases under the Stock Repurchase Program.

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, decreased $871.4 million, or 60.5%, to $568.5 million at June 30, 2021 from $1,439.9 million at September 30, 2020.

Net accounts receivable and contract assets, net of contract liabilities, decreased to $3,087.4 million at June 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 nine months ended June 30, 2021, as described above.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 79 days at June 30, 2021 compared to 93 days at September 30, 2020.

Working capital, or current assets less current liabilities, decreased $235.0 million, or 36.1%, to $416.8 million at December 31, 2021 from $651.8 million at September 30, 2021.

Net accounts receivable and contract assets, net of contract liabilities, decreased to $2,919.2 million at December 31, 2021 from $2,929.9 million at September 30, 2021.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 78 days at December 31, 2021 compared to 76 days at September 30, 2021.

In Note 4, Revenue Recognition, in the notes to our consolidated financial statements, a comparative analysis of the various components of accounts receivable is provided.

12 unchanged sentences

2027 Senior Notes

Current portion of debt and short-term borrowings

1 unchanged sentence

Long-term debt

The following table presents, in millions, scheduled maturities of our debt as of June 30, 2021:

2021 (three months remaining)

The following table presents, in millions, scheduled maturities of our debt as of December 31, 2021:

2022 (nine months remaining)

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 included a $510 million (US) term loan A facility with a term that expired 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 our Guarantors’ assets 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 the URS Corporation (URS) in October 2014.

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 (1) 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;

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

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

(4) 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 (5) 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 AECOM Capital business.

On March 31, 2017, the Credit Agreement was amended to (1) expand the ability of restricted subsidiaries to borrow under “Incremental Term Loans;” (2) revise the definition of “Working Capital” as used in “Excess Cash Flow;” (3) 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 (4) amend provisions relating to the our ability to undertake internal restructuring steps to accommodate changes in tax laws.

On March 13, 2018, the Credit Agreement was amended to (1) 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;

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

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

(4) 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 (US) 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 (5) 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, we 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 are prepaid using the net proceeds from the sale.

On May 1, 2020, we 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 our or our 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, 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 its secured delayed draw term loan facility (Term A Facility) for the purpose of redeeming all of the 2022 URS Senior Notes.

On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement, pursuant to which the maturity of the revolving credit facility and the term loans outstanding under the Credit Agreement were extended to February 8, 2026.

In addition, the refinancing amendment reduced the size of the revolving credit facility to $1,150,000,000.

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 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 to 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 1.2250% 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 0.2250%.

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.

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 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 2.40 to 1.00 at December 31, 2021.

As of December 31, 2021, we were in compliance with the covenants of the Credit Agreement.

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 (Term B Facility) to the Company in an aggregate principal amount of $700,000,000.

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 existing term loans previously incurred pursuant to the existing Credit Agreement (except that the financial covenants in the existing Credit Agreement do not apply to the Term B Facility).

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 the lenders have provided to the Company an additional $215,000,000 in aggregate principal amount under the Term A Facility.

The Term A Facility matures on February 8, 2026.

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

We are 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.

Our consolidated leverage ratio was 2.5 at June 30, 2021.

Our consolidated interest coverage ratio was 6.8 at June 30, 2021.

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

At June 30, 2021 and September 30, 2020, letters of credit totaled $11.2 million and $19.0 million, respectively, under our revolving credit facilities.

As of June 30, 2021 and September 30, 2020, we had $1,138.8 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 5.875% Senior Notes due 2024 (the 2024 Notes).

On November 2, 2015, we completed an exchange offer to exchange the unregistered 2024 Senior Notes for registered notes, as well as all related guarantees.

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 2027 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 2027 Senior Notes relating to the use of certain cash proceeds from the disposition of our Management Services business, which was completed on January 31, 2020.

On April 26, 2021, we completed a cash tender offer for up to $700 million in aggregate purchase price (not including any accrued and unpaid interest) of the 2024 Notes.

We accepted for purchase all of 2024 Notes validly tendered and not validly withdrawn pursuant to the cash tender offer, amounting to $608.3 million aggregate principal amount of the 2024 Notes.

The aggregate purchase price paid in connection with the tender offer was $697.2 million (inclusive of the tender offer premiums paid pursuant to the terms of the tender offer), plus accrued and unpaid interest.

The amounts paid were funded using the proceeds from the Term B Facility described above and cash on hand.

On April 6, 2021, we, the guarantors with respect to the 2024 Notes, and the trustee with respect to the 2024 Notes executed and delivered a supplemental indenture to the 2024 Notes (Supplemental Indenture), which became effective on April 6, 2021.

The Supplemental Indenture became operative on April 13, 2021, upon our acceptance of the 2024 Notes for purchase and payment therefore at the early settlement date of the April 2021 tender offer.

With respect to the Supplemental Indenture, each of the following sections in the indenture relating to the 2024 Notes were deleted:

(i) Section 4.03, “SEC Reports”;

(ii) Section 4.04, “Compliance Certificate”;

(iii) Section 4.05, “Taxes”;

(iv) Section 4.06, “Stay, Extension and Usury Laws”;

(v) Section 4.07, “Limitation on Restricted Payments”;

(vi) Section 4.08, “Limitation on Restrictions on Distributions from Restricted Subsidiaries”;

(vii) Section 4.09, “Limitations on Indebtedness”;

(viii) Section 4.10, “Limitation on Sales of Assets and Subsidiary Stock”;

(ix) Section 4.11, Limitation on Transactions with Affiliates”;

(x) Section 4.12, “Limitation on Liens”;

(xi) Section 4.14, “Change of Control”;

(xii) Section 4.18, “Future Subsidiary Guarantors”;

(xiii) Section 4.19, “Suspension of Covenants”;

(xiv) Section 4.20, “Additional Interest Notice”;

and (xv) Section 6.01(a), “Events of Default” (subsections (3) through (7) thereof (inclusive)).

Certain modifications to Section 3.01, “Notices to Trustee”;

Section 3.02(a) “Selection of Notes to Be Redeemed”;

Section 3.03(a) “Notice of Redemption”;

Section 4.15 “Corporate Existence”;

Section 5.01, “Merger and Consolidation”;

and Section 5.02, “Successor Corporation” were also made.

On June 25, 2021, we redeemed the remaining 2024 Notes.

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 interest expense.

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 December 31, 2021 and September 30, 2021, letters of credit totaled $5.2 million and $5.2 million, respectively, under our Revolving Credit Facility.

As of December 31, 2021 and September 30, 2021, we had $1,144.8 million and $1,144.8 million, respectively, available under our Revolving Credit Facility.

2027 Senior Notes

1 unchanged sentence

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

As of June 30, 2021, the estimated fair value of the 2027 Senior Notes was approximately $1,109.5 million.

The fair value of the 2027 Senior Notes as of June 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.

As of December 31, 2021, the estimated fair value of the 2027 Senior Notes was approximately $1,052.1 million.

The fair value of the 2027 Senior Notes as of December 31, 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 is payable on the 2027 Senior Notes at a rate of 5.125% per annum.

1 unchanged sentence

The 2027 Senior Notes will mature on March 15, 2027.

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.

unpaid interest to the redemption date.

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.

The indenture also contains customary negative covenants.

We were in compliance with the covenants relating to the 2027 Senior Notes as of June 30, 2021.

URS Senior Notes

In connection with the 2014 acquisition of the URS Corporation (URS), we assumed the URS 5.00% Senior Notes due 2022 (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 during the year ended September 30, 2020.

Other Debt and Other Items

Other debt consists primarily of obligations under capital leases and loans, and unsecured credit facilities.

Our unsecured credit facilities are primarily used for standby letters of credit issued in connection with general and professional liability insurance programs and for contract performance guarantees.

At June 30, 2021 and September 30, 2020, these outstanding standby letters of credit totaled $489.6 million and $510.1 million, respectively.

As of June 30, 2021, we had $443.1 million available under these unsecured credit facilities.

We were in compliance with the covenants relating to the 2027 Senior Notes as of December 31, 2021.

Other debt consists primarily of obligations under finance leases and loans and unsecured credit facilities.

Effective Interest Rate

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 nine months ended June 30, 2021 and 2020 was 4.7% and 5.2%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three and nine months ended June 30, 2021 of $4.6 million and $9.0 million, respectively, and for the three and nine months ended June 30, 2020 of $1.3 million and $3.8 million, respectively.

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements, during the three months ended December 31, 2021 and 2020 was 3.4% and 5.2%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2021 and 2020 of $1.2 million and $1.8 million, respectively.

Other Commitments

7 unchanged sentences

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 June 30, 2021, there was approximately $500.2 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.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of December 31, 2021, there was approximately $470.4 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.

We recognized on our balance sheet the funded status of our pension benefit plans, measured as the difference between the fair value of plan assets and the projected benefit obligation.

At June 30, 2021, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $400.0 million.

The total amounts of employer contributions paid for the nine months ended June 30, 2021 were $10.1 million for U.S.

At December 31, 2021, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $332.7 million.

The total amounts of employer contributions paid for the three months ended December 31, 2021 were $2.4 million for U.S.

plans and $5.4 million for non-U.S.

4 unchanged sentences

In the future, such pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan performance and other factors.

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 to 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.

1 unchanged sentence

Refer to our Annual Report on Form 10-K for the year ended September 30, 2021 for a discussion of our contractual obligations.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the nine months ended June 30, 2021.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the three months ended December 31, 2021.

Condensed Combined Financial Information

In connection with the registration of the Company's 2014 Senior Notes that were declared effective by the SEC on September 29, 2015, AECOM became subject to the requirements of Rule 3-10 of Regulation S-X, as amended, regarding financial statements of guarantors and issuers of guaranteed securities.

Both the 2014 Senior Notes and the 2027 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by some of AECOM's directly and indirectly 100% owned subsidiaries (the Subsidiary Guarantors).

The 2027 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by some of AECOM's directly and indirectly 100% owned subsidiaries (the Subsidiary Guarantors).

Other than customary restrictions imposed by applicable statutes, there are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to AECOM in the form of cash dividends, loans or advances.

1 unchanged sentence

All intercompany balances and transactions are eliminated in the presentation of the combined financial statements.

Amounts provided do not represent our total consolidated amounts as of June 30, 2021 and September 30, 2020, and for the nine months ended June 30, 2021.

Amounts provided do not represent our total consolidated amounts as of December 31, 2021 and September 30, 2021, and for the three months ended December 31, 2021.

Condensed Combined Balance Sheets

1 unchanged sentence

(unaudited - in millions)

June 30, 2021

December 31, 2021

September 30, 2021

9 unchanged sentences

(unaudited - in millions)

For the nine months ended

June 30, 2021

For the three months ended

December 31, 2021

Cost of revenue

Net loss from continuing operations

Net income from continuing operations

Net loss from discontinued operations

Net loss attributable to AECOM

Net income attributable to AECOM

New Accounting Pronouncements and Changes in Accounting

For information regarding recent accounting pronouncements, see Notes to Consolidated Financial Statements included in Part I, Item 1.

Critical Accounting Policies and Estimates

Our accounting policies 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, revenues and expenses.

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

The Notes to Consolidated Financial Statements in Part II, Item 8 of the 2021 Form 10-K, and "Critical Accounting Policies and Estimates"

in Part II, Item 7 of the 2021 Form 10-K describe the significant accounting policies and estimates used in the preparation of our consolidated financial statements.

We have not materially changed our estimation methodology since the 2021 Form 10-K.

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-Q

Item 2. Management’s Discussion and Analysis