What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-11 · 120 added, 114 removed, 278 unchanged (46% of the section changed)

50 unchanged sentences

We provide advisory, 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, water, environmental, and energy.

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.

Our business focuses primarily on providing fee-based 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.

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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 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.

Planning, consulting, architectural and engineering design, construction management 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 :

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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.

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

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

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

Moreover, as a professional services company, maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability.

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

At March 31, 2022, we have approximately $737 million remaining of the Board’s repurchase authorization.

At June 30, 2022, we have approximately $632 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.

As part of our ongoing plan to improve profitability and reduce our risk profile, we continue to evaluate our geographic exposure.

As part of our ongoing plan to improve profitability and maintain a reduced risk profile, we continuously evaluate our geographic exposure.

In March 2022, we substantially completed our exit of all business operations in Russia consistent with our announcement on March 7, 2022.

We expect to incur restructuring costs of approximately $20 million to $30 million in fiscal 2022, including $7.6 million in the first fiscal half, 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 2022, primarily related to previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies.

Additionally, we expect restructuring costs of approximately $70 million to $80 million related to our exit of our Russia-related businesses.

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● 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.

● Certain markets are experiencing project delays that have impacted our performance and results.

● Certain markets in Asia are experiencing project delays that have impacted our performance and results.

Results of Operations

Three and six months ended March 31, 2022 compared to the three and six months ended March 31, 2021

Three and nine months ended June 30, 2022 compared to the three and nine months ended June 30, 2021

Consolidated Results

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Income from continuing operations before taxes

Income tax expense for continuing operations

Income tax expense (benefit) for continuing operations

Net income from continuing operations

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Net income attributable to noncontrolling interests from continuing operations

Net (income) loss attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

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Income from continuing operations before taxes

Income tax expense for continuing operations

Income tax expense (benefit) 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) loss attributable to noncontrolling interests from discontinued operations, net of tax

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

Net income attributable to noncontrolling interests

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Net income attributable to AECOM

Our revenue for the three months ended March 31, 2022 decreased $51.8 million, or 1.6%, to $3,213.7 million as compared to $3,265.5 million for the corresponding period last year.

Our revenue for the six months ended March 31, 2022 decreased $98.3 million, or 1.5%, to $6,480.4 million as compared to $6,578.7 million for the corresponding period last year.

The decrease in revenue for the three months ended March 31, 2022 was primarily attributable to a decrease in our Americas segment of $68.4 million, offset by an increase in our International segment of $16.8 million, as discussed further below.

The decrease in revenue for the six months ended March 31, 2022 was primarily attributable to a decrease in our Americas segment of $162.2 million, offset by an increase in our International segment of $63.6 million, as discussed further below.

Our revenue for the three months ended June 30, 2022 decreased $166.7 million, or 4.9%, to $3,241.7 million as compared to $3,408.4 million for the corresponding period last year.

Our revenue for the nine months ended June 30, 2022 decreased $265.0 million, or 2.7%, to $9,722.1 million as compared to $9,987.1 million for the corresponding period last year.

The decrease in revenue for the three months ended June 30, 2022 was primarily attributable to a decrease in our Americas segment of $161.5 million and a decrease in our International segment of $5.1 million, as discussed further below.

The decrease in revenue for the nine months ended June 30, 2022 was primarily attributable to a decrease in our Americas segment of $323.7 million, offset by an increase in our International segment of $58.5 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.

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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 March 31, 2022 and 2021 were $1.6 billion and $1.7 billion, respectively.

Pass-through revenues for the six months ended March 31, 2022 and 2021 were $3.3 billion and $3.5 billion, respectively.

Pass-through revenue as a percentage of revenue was 50% and 52% during the three months ended March 31, 2022 and 2021, respectively.

Pass-through revenue as a percentage of revenue, was 51% and 54% during the six months ended March 31, 2022 and 2021, respectively.

Our gross profit for the three months ended March 31, 2022 increased $14.8 million, or 7.6%, to $210.0 million as compared to $195.2 million for the corresponding period last year.

For the three months ended March 31, 2022, gross profit, as a percentage of revenue, increased to 6.5% from 6.0% in the three months ended March 31, 2021.

Our gross profit for the six months ended March 31, 2022 increased $30.6 million, or 8.1%, to $410.2 million as compared to $379.6 million for the corresponding period last year.

For the six months ended March 31, 2022, gross profit, as a percentage of revenue, increased to 6.3% from 5.8% in the six months ended March 31, 2021.

Pass-through revenues for the quarters ended June 30, 2022 and 2021 were $1.7 billion and $1.9 billion, respectively.

Pass-through revenues for the nine months ended June 30, 2022 and 2021 were $5.0 billion and $5.4 billion, respectively.

Pass-through revenue as a percentage of revenue was 52% and 55% during the three months ended June 30, 2022 and 2021, respectively.

Pass-through revenue as a percentage of revenue, was 51% and 54% during the nine months ended June 30, 2022 and 2021, respectively.

Our gross profit for the three months ended June 30, 2022 increased $18.9 million, or 9.4%, to $220.5 million as compared to $201.6 million for the corresponding period last year.

For the three months ended June 30, 2022, gross profit, as a percentage of revenue, increased to 6.8% from 5.9% in the three months ended June 30, 2021.

Our gross profit for the nine months ended June 30, 2022 increased $49.5 million, or 8.5%, to $630.7 million as compared to $581.2 million for the corresponding period last year.

For the nine months ended June 30, 2022, gross profit, as a percentage of revenue, increased to 6.5% from 5.8% in the nine months ended June 30, 2021.

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 March 31, 2022 was $12.0 million as compared to $7.2 million in the corresponding period last year.

Our equity in earnings of joint ventures for the six months ended March 31, 2022 was $19.9 million as compared to $15.4 million in the corresponding period last year.

The increases in earnings of joint ventures for the three and six months ended March 31, 2022 compared to the same period in the prior year were primarily due to increased earnings in our AECOM Capital segment compared to the prior year.

Our equity in earnings of joint ventures for the three months ended June 30, 2022 was $7.5 million as compared to $8.2 million in the corresponding period last year.

Our equity in earnings of joint ventures for the nine months ended June 30, 2022 was $27.4 million as compared to $23.6 million in the corresponding period last year.

The increase in earnings of joint ventures for the nine months ended June 30, 2022 compared to the same period in the prior year were primarily due to increased 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 March 31, 2022 increased $1.2 million, or 3.3%, to $37.2 million as compared to $36.0 million for the corresponding period last year.

For the three months ended March 31, 2022, general and administrative expenses, as a percentage of revenue, was 1.1% which was the same as in the three months ended March 31, 2021.

Our general and administrative expenses for the six months ended March 31, 2022 decreased $0.8 million, or 1.1%, to $73.6 million as compared to $74.4 million for the corresponding period last year.

For the six months ended March 31, 2022, general and administrative expenses, as a percentage of revenue, decreased to 1.1% from 1.2% in the six months ended March 31, 2021.

Our general and administrative expenses for the three months ended June 30, 2022 decreased $3.5 million, or 9.6%, to $32.8 million as compared to $36.3 million for the corresponding period last year.

For the three months ended June 30, 2022 and 2021, general and administrative expenses, as a percentage of revenue, remained unchanged at 1.0%.

Our general and administrative expenses for the nine months ended June 30, 2022 decreased $4.3 million, or 3.9%, to $106.4 million as compared to $110.7 million for the corresponding period last year.

For the nine months ended June 30, 2022 and 2021, general and administrative expenses, as a percentage of revenue, remained unchanged at 1.1%.

Restructuring Costs

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We also incurred approximately $19.5 million of expenses resulting from the reclassification of other comprehensive income into earnings of our cumulative translation adjustment related to Russian ruble.

During the three and six months ended March 31, 2022, we incurred restructuring expenses of $73.3 million and $76.7 million, respectively, primarily related to costs associated with our previously announced actions to exit our Russia-related businesses, improve margins and deliver efficiencies that result in a more agile organization.

Our other income for the three months ended March 31, 2022 decreased to $3.3 million from $3.5 million for the corresponding period last year.

Our other income for the six months ended March 31, 2022 decreased to $6.2 million from $7.4 million for the corresponding period last year.

During the three and nine months ended June 30, 2022, we incurred restructuring expenses of $12.2 million and $88.9 million, respectively, primarily related to costs associated with our previously announced actions to exit our Russia-related businesses, improve margins and deliver efficiencies that result in a more agile organization.

Our other income for the three months ended June 30, 2022 decreased to $4.3 million from $4.5 million for the corresponding period last year.

Our other income for the nine months ended June 30, 2022 decreased to $10.5 million from $11.9 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 March 31, 2022 was $24.2 million as compared to $32.8 million for the corresponding period last year.

Our interest expense for the six months ended March 31, 2022 was $49.6 million as compared to $63.5 million for the corresponding period last year.

The decreases in interest expense for the three and six months ended March 31, 2022 were primarily due to lower interest rates on our outstanding debts compared to the prior year.

Our interest expense for the three months ended June 30, 2022 was $27.4 million as compared to $149.0 million for the corresponding period last year.

Our interest expense for the nine months ended June 30, 2022 was $77.0 million as compared to $212.5 million for the corresponding period last year.

The decreases in interest expense for the three and nine months ended June 30, 2022 were primarily due to a $117.5 million prepayment premium recognized in interest expense for the three months ended June 30, 2021 that did not repeat in 2022.

Income Tax Expense

Our income tax expense for the three months ended March 31, 2022 was $36.0 million as compared to $35.1 million in the corresponding period last year.

The increase in tax expense for the current period compared to the corresponding period last year was due primarily to an increase in tax expense of $5.6 million related to changes in valuation allowances and an increase in tax expense of $5.2 million related to an increase in nondeductible costs, partially offset by the tax impacts of a decrease in overall pre-tax income of $37.7 million.

Our income tax expense for the six months ended March 31, 2022 was $58.6 million as compared to $60.7 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 $16.4 million related to changes in valuation allowances and an increase in tax expense of $12.8 million related to changes in foreign uncertain tax positions.

Our income tax expense for the three months ended June 30, 2022 was $44.5 million as compared to tax benefit of $17.8 million in the corresponding period last year.

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 $143.9 million and a tax benefit of $25.9 million recorded in the third quarter of fiscal 2021 related to a corporate tax rate change in the United Kingdom, partially offset by tax expense of $13.2 million due to a partial settlement of an audit in the U.S recorded in the third quarter of fiscal 2021.

Our income tax expense for the nine months ended June 30, 2022 was $103.1 million as compared to $42.9 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 the tax impacts of an increase in overall pre-tax income of $137.6 million, a tax benefit of $25.9 million recorded in the third quarter of fiscal 2021 related to a corporate tax rate change in the United Kingdom, an increase in tax expense of $13.0 million related to changes in foreign uncertain tax positions, an increase in tax expense of $7.2 million related to nondeductible costs, an increase in tax expense of $7.1 million related to foreign residual income, partially offset by an increase in tax benefit of $13.8 million related to changes in valuation allowances, and tax expense of $13.2 million due to a partial settlement of an audit in the U.S.

recorded in the third quarter of fiscal 2021.

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.

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It is now more likely than not the net deferred tax assets will not be realized.

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.

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.

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That classification was applied for all periods presented.

Net loss from discontinued operations was $6.0 million for the three months ended March 31, 2022 and net loss was $47.9 million for the three months ended March 31, 2021, a decrease of $41.9 million.

The decrease in net loss from discontinued operations for the three months ended March 31, 2022 was primarily due to the loss on the sale of our civil infrastructure construction business in the second quarter of fiscal 2021 that did not recur in fiscal 2022.

Net loss from discontinued operations was $68.0 million for the six months ended March 31, 2022 and net loss was $103.7 million for the six months ended March 31, 2021, a decrease of $35.7 million.

The decrease in net loss from discontinued operations for the six months ended March 31, 2022 was primarily due to losses recorded on the sales of our power business and our civil infrastructure businesses in the first half of fiscal 2021 that did not recur in fiscal 2022, partially offset by a $3.0 million gain on sale, net of transaction costs, of our oil and gas construction business and losses recorded in the first half of fiscal 2022 of $43.9 million related to revisions of estimates for our working capital obligation to be paid and contingent consideration receivable related to the civil infrastructure business.

Net loss from discontinued operations was $3.5 million for the three months ended June 30, 2022 and net loss was $15.4 million for the three months ended June 30, 2021, a decrease of $11.9 million.

The decrease in net loss from discontinued operations for the three months ended June 30, 2022 was primarily due to losses recorded on our oil and gas business in the third quarter of fiscal 2021 that did not recur in fiscal 2022.

Net loss from discontinued operations was $71.5 million for the nine months ended June 30, 2022 and net loss was $119.1 million for the nine months ended June 30, 2021, a decrease of $47.6 million.

The decrease in net loss from discontinued operations for the nine months ended June 30, 2022 was primarily due to losses recorded on the sales of our power business and our civil infrastructure businesses in the first half of fiscal 2021 that did not recur in fiscal 2022, partially offset by a $3.0 million gain on sale, net of transaction costs, of our oil and gas construction business and losses recorded in the first half of fiscal 2022 of $43.9 million related to revisions of estimates for our working capital obligation to be paid and contingent consideration receivable related to the civil infrastructure business.

Net Income Attributable to AECOM

The factors described above resulted in net income attributable to AECOM of $41.6 million and $103.1 million for the three and six months ended March 31, 2022 as compared to net income attributable to AECOM of $39.4 million and $65.5 million for the three and six months ended March 31, 2021.

The factors described above resulted in net income attributable to AECOM of $101.9 million and $205.0 million for the three and nine months ended June 30, 2022 as compared to net income attributable to AECOM of $11.5 million and $77.0 million for the three and nine months ended June 30, 2021.

Results of Operations by Reportable Segment:

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

Revenue for our Americas segment for the three months ended March 31, 2022 decreased $68.4 million, or 2.8%, to $2,399.9 million as compared to $2,468.3 million for the corresponding period last year.

Revenue for our Americas segment for the six months ended March 31, 2022 decreased $162.2 million, or 3.2%, to $4,863.4 million as compared to $5,025.6 million for the corresponding period last year.

The decreases in revenue for the six months ended March 31, 2022 were 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 March 31, 2022 increased $8.7 million, or 5.7%, to $160.4 million as compared to $151.7 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.7% of revenue for the three months ended March 31, 2022 from 6.1% in the corresponding period last year.

Gross profit for our Americas segment for the six months ended March 31, 2022 increased $13.7 million, or 4.6%, to $310.4 million as compared to $296.7 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.4% of revenue for the six months ended March 31, 2022 from 5.9% in the corresponding period last year.

The increases in gross profit for the three and six months ended March 31, 2022 were primarily due to a more efficient execution, investments in digital solutions, enterprise capability centers and shared service centers and underlying revenue growth excluding pass-through revenues.

Revenue for our Americas segment for the three months ended June 30, 2022 decreased $161.5 million, or 6.2%, to $2,457.0 million as compared to $2,618.5 million for the corresponding period last year.

Revenue for our Americas segment for the nine months ended June 30, 2022 decreased $323.7 million, or 4.2%, to $7,320.4 million as compared to $7,644.1 million for the corresponding period last year.

The decreases in revenue for the three and nine months ended June 30, 2022 were primarily driven by a decrease in pass-through revenues primarily in our construction management business for high-rise buildings in New York City as well as changes in foreign exchange rates.

Gross profit for our Americas segment for the three months ended June 30, 2022 increased $4.1 million, or 2.6%, to $164.7 million as compared to $160.6 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.7% of revenue for the three months ended June 30, 2022 from 6.1% in the corresponding period last year.

Gross profit for our Americas segment for the nine months ended June 30, 2022 increased $17.8 million, or 3.9%, to $475.1 million as compared to $457.3 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.5% of revenue for the nine months ended June 30, 2022 from 6.0% in the corresponding period last year.

The increases in gross profit for the three and nine months ended June 30, 2022 were primarily due to a more efficient execution, reduction in real estate costs, and investments in enterprise capability centers, shared service centers, and digital solutions.

In addition, underlying revenue excluding pass-through revenues increased.

International

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

Revenue for our International segment for the three months ended March 31, 2022 increased $16.8 million, or 2.1%, to $813.3 million as compared to $796.5 million for the corresponding period last year.

Revenue for our International segment for the six months ended March 31, 2022 increased $63.6 million, or 4.1%, to $1,615.7 million as compared to $1,552.1 million for the corresponding period last year.

The increases in revenue for the three and six months ended March 31, 2022 were primarily attributable to increased growth in Europe, Middle East, India, and Asia compared to the prior year.

Gross profit for our International segment for the three months ended March 31, 2022 increased $6.3 million, or 14.7%, to $49.1 million as compared to $42.8 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.0% of revenue for the three months ended March 31, 2022 from 5.4% in the corresponding period last year.

Gross profit for our International segment for the six months ended March 31, 2022 increased $16.6 million, or 20.3%, to $98.5 million as compared to $81.9 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.1% of revenue for the six months ended March 31, 2022 from 5.3% in the corresponding period last year.

The increases in gross profit and gross profit as a percentage of revenue for the three and six months ended March 31, 2022 were primarily due to an increase in revenue and reduced costs resulting from investments in digital solutions, enterprise capability centers and shared service centers, and more efficient operational execution.

Revenue for our International segment for the three months ended June 30, 2022 decreased $5.1 million, or 0.6%, to $784.2 million as compared to $789.3 million for the corresponding period last year.

Revenue for our International segment for the nine months ended June 30, 2022 increased $58.5 million, or 2.5%, to $2,399.9 million as compared to $2,341.4 million for the corresponding period last year.

The decrease in revenue for the three months ended June 30, 2022 was primarily due to adverse changes in foreign exchange rates partially offset by revenue growth excluding the impact of foreign exchange rates.

The increase in revenue for the nine months ended June 30, 2022 was primarily attributable to increased growth in Middle East, India, and Asia compared to the prior year.

Gross profit for our International segment for the three months ended June 30, 2022 increased $14.9 million, or 36.9%, to $55.3 million as compared to $40.4 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 7.1% of revenue for the three months ended June 30, 2022 from 5.1% in the corresponding period last year.

Gross profit for our International segment for the nine months ended June 30, 2022 increased $31.5 million, or 25.8%, to $153.8 million as compared to $122.3 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.4% of revenue for the nine months ended June 30, 2022 from 5.2% in the corresponding period last year.

The increases in gross profit and gross profit as a percentage of revenue for the three and nine months ended June 30, 2022 were primarily due to an increase in revenue and reduced costs resulting from investments in enterprise capability centers, shared service centers, and digital solutions, and more efficient operational execution.

AECOM Capital

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

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The first quarter of our fiscal year (October 1 to December 31) is typically our weakest quarter.

The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season schedule affects our productivity during this period.

The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season

schedule affects our productivity during this period.

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

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

At March 31, 2022, 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.

At June 30, 2022, 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 March 31, 2022, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $967.2 million, a decrease of $267.6 million, or 21.7%, from $1,234.8 million at September 30, 2021.

The decrease in cash and cash equivalents was primarily attributable to $312.8 million of cash used to repurchase common stock.

Net cash provided by operating activities was $193.2 million for the six months ended March 31, 2022 as compared to $66.3 million for the six months ended March 31, 2021.

At June 30, 2022, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,011.9 million, a decrease of $222.9 million, or 18.1%, from $1,234.8 million at September 30, 2021.

The decrease in cash and cash equivalents was primarily attributable to $417.9 million of cash used to repurchase common stock of which $367.9 million was under the existing Board repurchase authorization.

Net cash provided by operating activities was $398.1 million for the nine months ended June 30, 2022 as compared to $386.6 million for the nine months ended June 30, 2021.

The change was primarily attributable to an increase in cash provided by working capital of approximately $124.4 million, partially driven by a 3-day improvement in days sales outstanding from prior year, and an increase in net income of approximately $125.0 million, offset by a decrease in adjustments for non-cash items of approximately $237.9 million.

The improvement in operating cash flow was also partly offset by a net unfavorable year over year impact of $6.9 million due to the sale of our oil and gas construction business in the current quarter and the sales of our power construction and civil construction businesses in fiscal 2021.

The sale of trade receivables to financial institutions included in operating cash flows decreased $4.1 million during the six months ended March 31, 2022 compared to the six months ended March 31, 2021.

The improvement in operating cash flow was also partly offset by a net unfavorable year over year impact of $7.5 million due to the sale of our oil and gas construction business in the current fiscal year and the sales of our power construction and civil construction businesses in fiscal 2021.

The sale of trade receivables to financial institutions included in operating cash flows decreased $34.1 million during the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021.

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 $93.9 million for the six months ended March 31, 2022, as compared to $362.5 million for the six months ended March 31, 2021.

Net cash used in investing activities was $121.6 million for the nine months ended June 30, 2022, as compared to $401.7 million for the nine months ended June 30, 2021.

Cash used in investing activities decreased primarily due to a $223.6 million decrease in cash disposed as a result of the sales of discontinued operations.

Net cash used in financing activities was $368.6 million for the six months ended March 31, 2022 as compared to $580.4 million for the six months ended March 31, 2021.

Net cash used in financing activities was $495.9 million for the nine months ended June 30, 2022 as compared to $754.9 million for the nine months ended June 30, 2021.

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

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Working Capital

Working capital, or current assets less current liabilities, decreased $238.1 million, or 36.5%, to $413.7 million at March 31, 2022 from $651.8 million at September 30, 2021.

Net accounts receivable and contract assets, net of contract liabilities, decreased to $2,845.2 million at March 31, 2022 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 77 days at March 31, 2022 compared to 76 days at September 30, 2021.

Working capital, or current assets less current liabilities, decreased $321.0 million, or 49.2%, to $330.8 million at June 30, 2022 from $651.8 million at September 30, 2021.

Net accounts receivable and contract assets, net of contract liabilities, decreased to $2,823.4 million at June 30, 2022 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 76 days at June 30, 2022 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.

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Long-term debt

The following table presents, in millions, scheduled maturities of our debt as of March 31, 2022:

2022 (six months remaining)

The following table presents, in millions, scheduled maturities of our debt as of June 30, 2022:

2022 (three months remaining)

Credit Agreement

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.

At the time of amendment, the Credit Agreement consisted 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.

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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.

The Credit Agreement contains provisions addressing the end of the use of LIBOR as a benchmark rate of interest and a mechanism for determining an alternative benchmark rate of interest.

If the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, if one can be determined, or, if not, LIBOR may be replaced by a rate selected by the Company and the administrative agent under the Credit Agreement.

Any replacement rate would also be subject to a spread adjustment which may be positive, negative or zero.

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

When the provisions are triggered, LIBOR would be replaced by a secured overnight financing rate (SOFR)-based rate, which will be subject to a spread adjustment which may be positive, negative or zero.

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 2.30 to 1.00 at March 31, 2022.

As of March 31, 2022, we were in compliance with the covenants of the Credit Agreement.

Our consolidated leverage ratio was 2.30 to 1.00 at June 30, 2022.

As of June 30, 2022, 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.

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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.

11 to the Credit Agreement, pursuant to which the lenders thereunder 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 March 31, 2022 and September 30, 2021, letters of credit totaled $4.5 million and $5.2 million, respectively, under our Revolving Credit Facility.

As of March 31, 2022 and September 30, 2021, we had $1,145.5 million and $1,144.8 million, respectively, available under our Revolving Credit Facility.

At June 30, 2022 and September 30, 2021, letters of credit totaled $4.5 million and $5.2 million, respectively, under our Revolving Credit Facility.

As of June 30, 2022 and September 30, 2021, we had $1,145.5 million and $1,144.8 million, respectively, available under our Revolving Credit Facility.

2027 Senior Notes

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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 March 31, 2022, the estimated fair value of the 2027 Senior Notes was approximately $1,017.2 million.

The fair value of the 2027 Senior Notes as of March 31, 2022 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 June 30, 2022, the estimated fair value of the 2027 Senior Notes was approximately $935.0 million.

The fair value of the 2027 Senior Notes as of June 30, 2022 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.

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The indenture also contains customary negative covenants.

We were in compliance with the covenants relating to the 2027 Senior Notes as of March 31, 2022.

We were in compliance with the covenants relating to the 2027 Senior Notes as of June 30, 2022.

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, during the six months ended March 31, 2022 and 2021 was 3.3% and 5.1%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three and six months ended March 31, 2022 of $1.2 million and $2.5 million, respectively, and for the three and six months ended March 31, 2021 of $2.6 million and $4.4 million, respectively.

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements, during the nine months ended June 30, 2022 and 2021 was 3.4% and 4.7%, 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, 2022 of $1.2 million and $3.7 million, respectively, and for the three and nine months ended June 30, 2021 of $4.6 million and $9.0 million, respectively.

Other Commitments

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The ownership percentage of these joint ventures is typically representative of the work to be performed or the amount of risk assumed by each joint venture partner.

Some of these joint ventures are considered variable interest.

Some of these joint ventures are considered variable interest entities.

We have consolidated all joint ventures for which we have control.

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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 March 31, 2022, there was approximately $492.0 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.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of June 30, 2022, there was approximately $645.4 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

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 March 31, 2022, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $312.5 million.

The total amounts of employer contributions paid for the six months ended March 31, 2022 were $4.8 million for U.S.

At June 30, 2022, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $285.7 million.

The total amounts of employer contributions paid for the nine months ended June 30, 2022 were $6.8 million for U.S.

plans and $18.2 million for non-U.S.

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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 six months ended March 31, 2022.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the nine months ended June 30, 2022.

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.

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).

Accordingly, 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.

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.

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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 March 31, 2022 and September 30, 2021, and for the six months ended March 31, 2022.

Amounts provided do not represent our total consolidated amounts as of June 30, 2022 and September 30, 2021, and for the nine months ended June 30, 2022.

Condensed Combined Balance Sheets

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(unaudited - in millions)

March 31, 2022

June 30, 2022

September 30, 2021

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(unaudited - in millions)

For the six months ended

March 31, 2022

For the nine months ended

June 30, 2022

Cost of revenue

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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.

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