What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-11-17 compared with 2021-11-17 · 115 added, 167 removed, 517 unchanged (35% of the section changed)

2 unchanged sentences

These statements include forward-looking statements with respect to the Company, including the Company’s business, operations and strategy, and the engineering and construction industry.

Statements that are not historical facts, without limitation, including statements that use terms such as "anticipates,"

"believes,"

"expects,"

"estimates,"

"intends,"

"may,"

"plans,"

"potential,"

"projects,"

and "will"

and that relate to future impacts caused by the Covid-19 coronavirus pandemic and the related economic instability and market volatility, including the reaction of governments to the coronavirus, including any prolonged period of travel, commercial or other similar restrictions, the delay in commencement, or temporary or permanent halting of construction, infrastructure or other projects, requirements that we remove our employees or personnel from the field for their protection, and delays or reductions in planned initiatives by our governmental or commercial clients or potential clients;

Statements that are not historical facts, without limitation, including statements that use terms such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “may,” “plans,” “potential,” “projects,” and “will” and that relate to future impacts caused by the Covid-19 coronavirus pandemic, economic instability and market volatility, including the reaction of governments, such as any prolonged period of travel, commercial or other similar restrictions, the delay in commencement, or temporary or permanent halting of construction, infrastructure or other projects, requirements that we remove our employees or personnel from the field for their protection, and delays or reductions in planned initiatives by our governmental or commercial clients or potential clients;

future revenues, expenditures and business trends;

22 unchanged sentences

maintaining adequate surety and financial capacity;

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

exposure to Brexit and tariffs;

exposure to political and economic risks in different countries;

currency exchange rate fluctuations;

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

ability to continue payment of dividends;

exposure to political and economic risks in different countries, including tariffs;

currency exchange rate and interest fluctuations;

retaining and recruiting key technical and management personnel;

7 unchanged sentences

cybersecurity issues, IT outages and data privacy;

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;

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

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

6 unchanged sentences

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

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

We refer to the fiscal year ended September 30, 2021 as “fiscal 2021” and the fiscal year ended September 30, 2022 as “fiscal 2022.” Fiscal years 2022, 2021, and 2020 each contained 52, 52, and 53 weeks, respectively, and ended on September 30, October 1, and October 2, respectively.

In this section, we discuss the results of our operations for the year ended September 30, 2022 compared to the year ended September 30, 2021.

1 unchanged sentence

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended September 30, 2021.

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.

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 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 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 and planned disposal of our self-perform at-risk construction businesses, including our civil infrastructure, power, and oil & gas construction businesses.

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:

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

Americas, International, and AECOM Capital (ACAP).

1 unchanged sentence

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.

Our Americas segment delivers 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.

Our International segment delivers planning, consulting, and 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.

Revenue for these two segments is primarily derived from fees for services we provide.

Our ACAP segment primarily invests in and develops 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.

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.

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 :

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

● AECOM Capital (ACAP) :

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, 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.

Given the global nature of our business, our revenue is exposed to currency rate fluctuations that could change from period to period and year to year.

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

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

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

At September 30, 2022, we have approximately $0.6 billion 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 divest all of our remaining non-core oil and gas markets.

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

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

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

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 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 $30 million to $40 million in fiscal 2023 primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies.

Our estimated restructuring costs include the exit of specific countries in Southeast Asia, subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile.

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;

● 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.

● We have required or facilitated employees to work remotely where appropriate.

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

● 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.

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

There were no acquisitions consummated during the years ended September 30, 2022, 2021 and 2020.

10 unchanged sentences

Impairment of long-lived assets

Acquisition and integration expenses

Income from operations

We generate revenue primarily by providing planning, consulting, architectural and engineering design services to commercial and government clients around the world.

Our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs.

We generate revenue primarily by providing planning, consulting, architectural and engineering design, construction and program management services to commercial and government clients around the world.

Our revenue consists of both services provided by our employees and pass-through revenues from subcontractors and other direct costs.

We generally recognize revenue over time as performance obligations are satisfied and control over promised goods or services are transferred to our customers.

8 unchanged sentences

Such amortization expense, although non-cash in the period expensed, directly impacts our results of operations.

It is difficult to predict with any precision the amount of expense we may record relating to acquired intangible assets.

Equity in Earnings of Joint Ventures

2 unchanged sentences

General and administrative expenses include corporate expenses, including personnel, occupancy, and administrative expenses.

Acquisition and Integration Expenses

Acquisition and integration expenses are comprised of transaction costs, professional fees, and personnel costs, including due diligence and integration activities, primarily related to business acquisitions.

Goodwill Impairment

See Critical Accounting Policies and Consolidated Results below.

Income Tax Expense (Benefit)

As a global enterprise, income tax expense/(benefit) and our effective tax rates can be affected by many factors, including changes in our worldwide mix of pre-tax losses/earnings, the effect of non-controlling interest in income of consolidated subsidiaries, the extent to which the earnings are indefinitely reinvested outside of the United States, our acquisition strategy, tax incentives and credits available to us, changes in judgment regarding the realizability of our deferred tax assets, changes in existing tax laws and our assessment of uncertain tax positions.

Our tax returns are routinely audited by the taxing authorities and settlements of issues raised in these audits can also sometimes affect our effective tax rate.

Restructuring Expenses

Restructuring expenses are comprised of personnel and other costs, real estate costs, and costs associated with the exit of our Russia-related businesses primarily related to actions that are expected to deliver continued margin improvements and efficiencies.

Geographic Information

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

Critical Accounting Policies and Estimates

Critical Accounting Estimates

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

2 unchanged sentences

Our most critical accounting policies and estimates are described below.

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

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

Revenue Recognition

32 unchanged sentences

Contract Assets and Contract Liabilities

Contract assets represent the contract revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end.

Contract assets represent the contract revenue recognized but not yet billed pursuant to contract terms.

Contract liabilities represent the billings to date, as allowed under the terms of a contract, but not yet recognized as contract revenue using our revenue recognition policy.

40 unchanged sentences

In our assessment, we determine whether identifiable intangible assets exist, which typically include backlog and customer relationships.

We test goodwill for impairment annually for each reporting unit in the fourth quarter of the fiscal year and between annual tests, if events occur or circumstances change which suggest that goodwill should be evaluated.

We test goodwill for impairment annually for each reporting unit in the beginning of the fourth quarter of the fiscal year and between annual tests, if events occur or circumstances change which suggest that goodwill should be evaluated.

Such events or circumstances include significant changes in legal factors and business climate, recent losses at a reporting unit, and industry trends, among other factors.

4 unchanged sentences

The impairment evaluation process includes, among other things, making assumptions about variables such as revenue growth rates, profitability, discount rates, and industry market multiples, which are subject to a high degree of judgment.

Material assumptions used in the impairment analysis included the weighted average cost of capital (WACC) percent and terminal growth rates.

For example, as of September 30, 2021, a 1% increase in the WACC rate represents a $400 million decrease to the fair value of our reporting units.

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

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

33 unchanged sentences

It is possible that our estimate of loss may be revised based on the actual or revised estimate of liability of the claims.

Foreign Currency Translation

Our functional currency is the U.S.

Results of operations for foreign entities are translated to U.S.

dollars using the average exchange rates during the period.

Assets and liabilities for foreign entities are translated using the exchange rates in effect as of the date of the balance sheet.

Resulting translation adjustments are recorded as a foreign currency translation adjustment into other accumulated comprehensive income/(loss) in stockholders’ equity.

We limit exposure to foreign currency fluctuations in most of our contracts through provisions that require client payments in currencies corresponding to the currency in which costs are incurred.

As a result of this natural hedge, we generally do not need to hedge foreign currency cash flows for contract work performed.

However, we will use foreign exchange derivative financial instruments from time to time to mitigate foreign currency risk.

The functional currency of all significant foreign operations is the respective local currency.

Fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021

14 unchanged sentences

Net loss from discontinued operations

Net income (loss)

Net income attributable to noncontrolling interests from continuing operations

3 unchanged sentences

Net loss attributable to AECOM from discontinued operations

Net income (loss) attributable to AECOM

Net income attributable to AECOM

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

12 unchanged sentences

Net loss from discontinued operations

Net income (loss)

Net income attributable to noncontrolling interests from continuing operations

3 unchanged sentences

Net loss attributable to AECOM from discontinued operations

Net income (loss) attributable to AECOM

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

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

Net income attributable to AECOM

Our revenue for the year ended September 30, 2022 decreased $192.7 million, or 1.4%, to $13,148.2 million as compared to $13,340.9 million for the corresponding period last year.

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

2 unchanged sentences

Pass-through revenues for the years ended September 30, 2022 and 2021 were $6.8 billion and $7.2 billion, respectively.

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

Pass-through revenue as a percentage of total revenue was 52% and 54% during the year ended September 30, 2022 and 2021, respectively.

Our gross profit for the year ended September 30, 2022 increased $49.6 million, or 6.2%, to $848.0 million as compared to $798.4 million for the corresponding period last year.

3 unchanged sentences

Our equity in earnings of joint ventures for the year ended September 30, 2022 was $53.6 million as compared to $35.0 million in the corresponding period last year.

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

The increase in earnings of joint ventures for the year ended September 30, 2022 compared to the same period in the prior year was primarily due to increased earnings in our AECOM Capital segment compared to the prior year.

General and Administrative Expenses

1 unchanged sentence

For the year ended September 30, 2022, general and administrative expenses as a percentage of revenue decreased to 1.1% from 1.2% in the year ended September 30, 2021.

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

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.

Restructuring expenses are comprised of personnel costs, real estate costs, and costs associated with business exits including our exit from Russia.

During fiscal year ended September 30, 2022, we incurred total restructuring expenses of 107.5 million, of which $69.1 million was related to the exit of our Russia-related businesses.

The restructuring costs to exit our Russia-related businesses was comprised of $49.6 million for asset impairment charges, personnel and real estate costs, and approximately $19.5 million resulting from the reclassification of other comprehensive income into earnings of our cumulative translation adjustment related to the Russian ruble.

The remaining restructuring expenses, excluding the exit of our Russia-related businesses, for the fiscal year ended September 30, 2022 was primarily related to actions that are expected to deliver continued margin improvements and deliver efficiencies.

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

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

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

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

Our other income for the year ended September 30, 2022 decreased $3.5 million to $14.1 million as compared to $17.6 million for the corresponding period last year.

The decrease in other income is primarily due to a decrease in net periodic pension adjustments partially offset by an increase in interest income.

Interest Expense

Our interest expense for the year ended September 30, 2022 was $110.2 million as compared to $238.4 million for the corresponding period last year.

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

The decrease in interest expense for the year ended September 30, 2022 was primarily due to a $117.5 million prepayment premium recognized in interest expense in 2021 that did not repeat in 2022 and a lower cost of borrowing in 2022 compared to 2021.

Income Tax Expense

Our income tax expense for the year ended September 30, 2022 was $136.1 million compared to $89.0 million for the year ended September 30, 2021.

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

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 $141.8 million, a tax benefit of $25.9 million recorded in fiscal 2021 related to a corporate tax rate change in the United Kingdom, an increase in tax expense of $13.8 million related to nondeductible costs, and an increase in tax expense of $12.1 million related to state income taxes, partially offset by an increase in tax benefit of $30.3 million related to changes in valuation allowance, and a decrease in tax expense of $13.2 million due to a partial settlement of an audit in the U.S.

recorded in 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.

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.

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.

2 unchanged sentences

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

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

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

2 unchanged sentences

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.

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 retrospectively for all periods presented.

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

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

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

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

Net Income (Loss) Attributable to AECOM

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

Net loss from discontinued operations was $79.9 million for the year ended September 30, 2022 and net loss was $116.8 million for the year ended September 30, 2021, a decrease of $36.9 million.

The decrease in net loss from discontinued operations for the year ended September 30, 2022 was primarily due to losses recorded on the sales of our power business and our civil infrastructure businesses in 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 for the year ended September 30, 2021 was primarily due to fewer losses recorded on sales of the power and civil infrastructure businesses in fiscal 2021.

Net Income Attributable to AECOM

The factors described above resulted in the net income attributable to AECOM of $310.6 million for the year ended September 30, 2022, as compared to the net income attributable to AECOM of $173.2 million for the year ended September 30, 2021.

Results of Operations by Reportable Segment

9 unchanged sentences

Cost of revenue

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

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

Revenue for our Americas segment for the year ended September 30, 2022 decreased $287.0 million, or 2.8%, to $9,939.3 million as compared to $10,226.3 million for the corresponding period last year.

The decrease in revenue for the year ended September 30, 2022 was primarily driven by a decrease in pass-through revenues primarily in our construction management business.

Gross profit for our Americas segment for the year ended September 30, 2022 increased $8.3 million, or 1.3%, to $639.9 million as compared to $631.6 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.4% of revenue for the year ended September 30, 2022 from 6.2% in the corresponding period last year.

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

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2022 was primarily due a more efficient execution, reduction in real estate costs, and investments in shared service centers and digital solutions.

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

International

10 unchanged sentences

Revenue for our International segment for the year ended September 30, 2022 increased $94.1 million, or 3.0%, to $3,206.7 million as compared to $3,112.6 million for the corresponding period last year.

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

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

The increase in revenue from the prior year was partially offset by the strengthening of the U.S.

dollar as compared to the functional currencies of our foreign operations, particularly the British pound, Canadian dollar, and Australian dollar.

Revenue growth in the next fiscal year may be affected by future currency fluctuations.

Gross profit for our International segment for the year ended September 30, 2022 increased $41.1 million, or 24.9%, to $205.9 million as compared to $164.8 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.4% of revenue for the year ended September 30, 2022 from 5.3% in the corresponding period last year.

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

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2022 was primarily due to an increase in revenue and reduced costs resulting from investments in enterprise capability centers, shared service centers and digital solutions.

AECOM Capital

5 unchanged sentences

General and administrative expenses

Equity in earnings of joint ventures for the year ended September 30, 2022 increased $13.0 million, or 114%, to $24.4 million compared to $11.4 million for the corresponding period in the prior year.

The increase was primarily due to monetization of two of its real estate investments.

Liquidity and Capital Resources

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

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

We expect to spend approximately $30 million to $40 million in restructuring costs in fiscal 2022 associated with previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies.

We expect to spend approximately $30 million to $40 million in restructuring costs in fiscal 2023 associated with ongoing restructuring actions that are expected to deliver continued margin improvement and efficiencies.

Generally, we do not provide for U.S.

1 unchanged sentence

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

At September 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 September 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.

1 unchanged sentence

At September 30, 2022, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,176.8 million, a decrease of $58.0 million, or 4.7%, from $1,234.8 million at September 30, 2021.

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.

The decrease in cash and cash equivalents was primarily attributable to $473.0 million of cash used to repurchase common stock of which $422.9 million was under the existing Board repurchase authorization.

Net cash provided by operating activities was $713.6 million for the year ended September 30, 2022 as compared to $704.7 million for the year ended September 30, 2021.

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

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

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

The change was primarily attributable to an increase in cash provided by working capital of approximately $61.0 million, partially driven by an 8-day improvement in days sales outstanding from prior year, and an increase in net income of approximately $131.7 million, offset by a decrease in adjustments for non-cash items of approximately $183.8 million.

The improvement in operating cash flow was also partly offset by a net unfavorable year over year impact of $16.5 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 $23.7 million during the year ended September 30, 2022 compared to the year ended September 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 $421.1 million for the year ended September 30, 2021, as compared to net cash provided by investing activities of $2,037.4 million for the year ended September 30, 2020.

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

Net cash used in investing activities was $175.0 million for the year ended September 30, 2022, as compared to $421.1 million for the year ended September 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.

Capital expenditures, net of proceeds from disposals, were $128.1 million in the year ended September 30, 2022 compared to $121.4 million in the year ended September 30, 2021.

1 unchanged sentence

Net cash used in financing activities was $588.3 million for the year ended September 30, 2022, as compared to $872.5 million for the year ended September 30, 2021.

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

The decrease from the prior year 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.

2 unchanged sentences

Net accounts receivable and contract assets, net of contract liabilities, decreased to $2,671.9 million at September 30, 2022 from $2,929.9 million at September 30, 2021.

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

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 68 days at September 30, 2022 compared to 76 days at September 30, 2021.

14 unchanged sentences

2027 Senior Notes

Current portion of debt and short-term borrowings

4 unchanged sentences

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.

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.

2 unchanged sentences

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

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

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

3 unchanged sentences

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.

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 or restrictions on our ability and certain of our subsidiaries, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of their business, consummate mergers, consolidations and the sale of all or substantially all of their respective assets, taken as a whole, and transact with affiliates.

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 2.4 at September 30, 2021.

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

As of September 30, 2022, we were in compliance with the covenants of the Credit Agreement.

8 unchanged sentences

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

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

2024 Senior Notes

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

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

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

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

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

At September 30, 2022 and 2021, letters of credit totaled $4.4 million and $5.2 million, respectively, under our Revolving Credit Facility.

As of September 30, 2022 and 2021, we had $1,145.6 million and $1,144.8 million, respectively, available under our Revolving Credit Facility.

2027 Senior Notes

11 unchanged sentences

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

URS Senior Notes

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

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

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

Other debt consists primarily of obligations under finance 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 September 30, 2021 and September 30, 2020, these outstanding standby letters of credit totaled $478.5 million and $510.1 million, respectively.

At September 30, 2022 and 2021, these outstanding standby letters of credit totaled $640.3 million and $478.5 million, respectively.

As of September 30, 2022, we had $427.4 million available under these unsecured credit facilities.

25 unchanged sentences

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 2024 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).

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.

19 unchanged sentences

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

Commitments and Contingencies

20 unchanged sentences

Department of Energy Deactivation, Demolition, and Removal Project

AECOM Energy and Construction, Inc., an Ohio corporation, a former affiliate of the Company (“Former Affiliate”) executed a cost-reimbursable task order with the Department of Energy (DOE) in 2007 to provide deactivation, demolition and removal services at a New York State project site that, during 2010, experienced contamination and performance issues.

A former affiliate of the Company, Amentum Environment & Energy, Inc., f/k/a AECOM Energy and Construction, Inc.

(“Former Affiliate”), executed a cost-reimbursable task order with the Department of Energy (DOE) in 2007 to provide deactivation, demolition and removal services at a New York State project site that, during 2010, experienced contamination and performance issues.

In February 2011, the Former Affiliate and the DOE executed a Task Order Modification that changed some cost-reimbursable contract provisions to at-risk.

8 unchanged sentences

Deconstruction, decommissioning and site restoration activities are complete.

On January 31, 2020, the Company completed the sale of its Management Services business to the Purchaser including the Former Affiliate who worked on the DOE project.

The Company and the Purchaser agreed that all future DOE project claim recoveries and costs will be split 10% to the Purchaser and 90% to the Company with the Company retaining control of all future strategic legal decisions.

The Company intends to vigorously pursue all claimed amounts but can provide no certainty that the Company will recover 2014 and 2019 Claims submitted against the DOE, or any additional incurred claims or costs, which could have a material adverse effect on the Company’s results of operations.

On January 31, 2020, the Company completed the sale of its Management Services business, including the Former Affiliate who worked on the DOE project, to Maverick Purchaser Sub LLC (MS Purchaser), an affiliate of American Securities LLC and Lindsay Goldberg LLC.

The Company and the MS Purchaser agreed that all future DOE project claim recoveries and costs will be split 10% to the MS Purchaser and 90% to the Company with the Company retaining control of all future strategic legal decisions.

The Company intends to vigorously pursue all claimed amounts but can provide no certainty that the Company will recover 2014 Claims and 2019 Claims submitted against the DOE, or any additional incurred claims or costs, which could have a material adverse effect on the Company’s results of operations.

New York Department of Environmental Conservation

18 unchanged sentences

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

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

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

On January 31, 2020, the Company completed the sale of its Management Services business, including the Former Affiliate, to the MS Purchaser;

however, the Refinery Turnaround Project, including related claims and liabilities, has been retained by the Company.

The Company intends to vigorously prosecute and defend this matter;

12 unchanged sentences

New Accounting Pronouncements and Changes in Accounting

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

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

It also requires disclosure of key information about leasing arrangements to increase transparency and comparability among organizations.

We adopted the new guidance beginning October 1, 2019 using the modified retrospective adoption method, which resulted in a downward adjustment to retained earnings of $87.8 million, net of tax.

Detailed disclosures regarding the adoption and other required disclosures can be found in Note 11.

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

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

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

2 unchanged sentences

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

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

The guidance addresses a narrow-scope financial reporting issue related to the tax effects that may become stranded in accumulated other comprehensive income as a result of the enactment of the Tax Cuts and Jobs Act (Tax Act).

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

We determined that we will not make this election.

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

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

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

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

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

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

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

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

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

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

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

The new rules amend and streamline the disclosures required by guarantors and issuers of guaranteed securities.

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

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

We adopted the new rule on March 31, 2020.

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

We adopted the new guidance starting on October 1, 2021.

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

In December 2019, the FASB issued new accounting guidance which simplifies the accounting for income taxes.

The guidance amends certain exceptions to the general principles of Accounting Standards Codification (ASC) 740, Income Taxes , and simplifies several areas such as accounting for a franchise tax or similar tax that is partially based on income.

We adopted the new guidance starting on October 1, 2021.

The adoption of the new guidance did not have a significant impact on our consolidated financial statements.

In October 2021, the FASB issued final guidance to companies that apply ASC 606, Revenue from Contracts with Customers , to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination.

The new guidance creates an exception to the general requirement to measure acquired assets and liabilities at fair value on the acquisition date.

Under this exception, an acquirer applies ASC 606 to recognize and measure contract assets and contract liabilities on the acquisition date.

We expect to adopt the new guidance starting on October 1, 2022 on a prospective basis for any business combinations we undertake.

Off-Balance Sheet Arrangements

7 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis