What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-07 compared with 2022-08-10 · 101 added, 142 removed, 256 unchanged (49% of the section changed)

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This Quarterly Report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect the Company’s current beliefs, expectations or intentions regarding future events.

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;

future revenues, expenditures and business trends;

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

future reduction of our self-perform at-risk construction exposure;

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Such segments are organized by the differing specialized needs of the respective clients and how we manage the business.

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.

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, 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-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy.

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

● AECOM Capital (ACAP) :

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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.

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

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.

In September 2021, the Board approved an increase in our stock repurchase authorization to $1.0 billion.

At December 31, 2022, we have approximately $527 million remaining of the Board’s repurchase authorization.

We intend to deploy future available cash towards dividends and stock repurchases consistent with our return driven 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.

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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, 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.

Total cash costs are expected to be approximately $20 million to $30 million for restructuring actions related to efficiencies and margin improvements and approximately $10 million related to the exit of our Russia-related businesses.

Covid-19 Coronavirus Impacts

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

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

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

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

● We have 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.

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

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 ongoing exit of certain countries in Southeast Asia, subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile.

Results of Operations

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

Three months ended December 31, 2022 compared to the three months ended December 31, 2021

Consolidated Results

Three Months Ended

Nine Months Ended

(in millions)

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Income from continuing operations before taxes

Income tax expense (benefit) for continuing operations

Income tax expense for continuing operations

Net income from continuing operations

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Net income attributable to noncontrolling interests from continuing operations

Net income attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net loss attributable to noncontrolling interests from discontinued operations

Net (income) loss attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net income (loss) attributable to AECOM from discontinued operations

Net income attributable to AECOM

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Three Months Ended

Nine Months Ended

Cost of revenue

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Income from continuing operations before taxes

Income tax expense (benefit) for continuing operations

Income tax expense for continuing operations

Net income from continuing operations

Net loss from discontinued operations

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

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

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests from continuing operations

Net loss attributable to noncontrolling interests from discontinued operations

Net (income) loss attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net income (loss) attributable to AECOM from discontinued operations

Net income attributable to AECOM

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.

Our revenue for the three months ended December 31, 2022 increased $115.7 million, or 3.5%, to $3,382.4 million as compared to $3,266.7 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2022 was primarily attributable to an increase in our Americas segment of $115.8 million, as discussed further below.

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

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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 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.

Pass-through revenues for the quarters ended December 31, 2022 and 2021 were $1.8 billion and $1.7 billion, respectively.

Pass-through revenue as a percentage of revenue was 53% and 53% during the three months ended December 31, 2022 and 2021, respectively.

Our gross profit for the three months ended December 31, 2022 increased $14.8 million, or 7.4%, to $215.0 million as compared to $200.2 million for the corresponding period last year.

For the three months ended December 31, 2022, gross profit, as a percentage of revenue, increased to 6.4% from 6.1% in the three months ended December 31, 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 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.

Our equity in earnings of joint ventures for the three months ended December 31, 2022 was $9.8 million as compared to $7.9 million in the corresponding period last year.

The increase in earnings of joint ventures for the three months ended December 31, 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

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%.

Our general and administrative expenses for the three months ended December 31, 2022 decreased $0.8 million, or 2.2%, to $35.6 million as compared to $36.4 million for the corresponding period last year.

For the three months ended December 31, 2022, general and administrative expenses, as a percentage of revenue, was 1.1% as compared to 1.0% for the corresponding period last year.

Restructuring Costs

In the second quarter of fiscal 2022, we exited our business in Russia, and we incurred restructuring expenses related to asset impairment charges, personnel and real estate costs.

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 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.

Restructuring expenses are comprised of personnel costs, real estate costs, and costs associated with business exits.

During the three months ended December 31, 2022, we incurred total restructuring expenses of $37.5 million, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

During the three months ended December 31, 2021, we incurred restructuring expenses of $3.4 million, primarily related to costs associated with management actions to deliver margin improvement and efficiencies that result in a more agile organization.

Our other income for the three months ended December 31, 2022 increased to $7.9 million from $2.9 million for the corresponding period last year.

The increase in other income is primarily due to an increase in interest income compared to the period in the prior year.

Interest Expense

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.

Our interest expense for the three months ended December 31, 2022 was $36.7 million as compared to $25.4 million for the corresponding period last year.

The increase in interest expense for the three months ended December 31, 2022 was primarily due to an increase in interest rates on the variable component of our debt.

Income Tax Expense

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.

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 second quarter of fiscal 2022, valuation allowances in the amount of $6.4 million on the net deferred tax assets of our Russia business were recorded due to exiting all our business operations in Russia.

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.

Our income tax expense for the three months ended December 31, 2022 was $25.8 million as compared to $22.6 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 changes in valuation allowances providing a tax benefit of $21.9 million and foreign uncertain tax provisions generating a tax expense of $16.1 million in the first quarter of fiscal 2022, offset by the tax impact of lower pre-tax income of $22.9 million.

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

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

Net Loss From Discontinued Operations

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

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

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

That classification was applied for all periods presented.

Net loss from discontinued operations was $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 loss from discontinued operations was $0.4 million for the three months ended December 31, 2022 and was $62.0 million for the three months ended December 31, 2021, a decrease of $61.6 million.

The decrease in net loss from discontinued operations for the three months ended December 31, 2022 was primarily due to losses related to revisions of estimates for our working capital obligations to be paid and contingent consideration receivable related to the civil infrastructure business recorded in the first quarter of fiscal 2022 that did not recur in fiscal 2023.

Net Income Attributable to AECOM

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.

The factors described above resulted in net income attributable to AECOM of $87.9 million for the three months ended December 31, 2022 as compared to net income attributable to AECOM of $61.5 million for the three months ended December 31, 2021.

Results of Operations by Reportable Segment:

Three Months Ended

Nine Months Ended

(in millions)

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Three Months Ended

Nine Months Ended

Cost of revenue

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.

Revenue for our Americas segment for the three months ended December 31, 2022 increased $115.8 million, or 4.7%, to $2,579.3 million as compared to $2,463.5 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2022 was primarily driven by growth in our Americas design business and our construction management business.

Gross profit for our Americas segment for the three months ended December 31, 2022 increased $12.9 million, or 8.6%, to $162.9 million as compared to $150.0 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.3% of revenue for the three months ended December 31, 2022 from 6.1% in the corresponding period last year.

The increase in gross profit for the three months ended December 31, 2022 was primarily due to revenue growth, efficient execution, and reduced real estate costs.

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

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Three Months Ended

Nine Months Ended

(in millions)

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Three Months Ended

Nine Months Ended

Cost of revenue

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.

Revenue for our International segment for the three months ended December 31, 2022 increased $0.4 million, or 0.0%, to $802.8 million as compared to $802.4 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2022 was primarily due to increased growth in Middle East and Australia compared to the prior year partially offset by the strengthening of the U.S.

dollar as compared to the functional currencies of our foreign operations.

Gross profit for our International segment for the three months ended December 31, 2022 increased $2.4 million, or 4.9%, to $51.8 million as compared to $49.4 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.5% of revenue for the three months ended December 31, 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 three months ended December 31, 2022 was primarily due to an increase in revenue and reduced costs resulting from country exits, ongoing investments in enterprise capability centers, shared service centers, and digital solutions.

AECOM Capital

Three Months Ended

Nine Months Ended

(in millions)

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General and administrative expenses

Equity in earnings of joint ventures for the three months ended December 31, 2022 increased $4.5 million, or 409.1%, to $5.6 million compared to $1.1 million for the corresponding period last year.

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

We experience seasonal trends in our business.

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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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 $40 million to $50 million in restructuring costs in fiscal 2022 associated with our previously announced restructuring actions that are expected to deliver continued margin improvement and efficiencies and the exit of our Russia-related businesses.

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.

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

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.

At December 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.

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

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

At June 30, 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.

At December 31, 2022, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,162.7 million, a decrease of $14.1 million, or 1.2%, from $1,176.8 million at September 30, 2022.

The decrease in cash and cash equivalents was primarily attributable to $70.0 million of cash used to repurchase common stock of which $50.0 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 $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.

Net cash provided by operating activities was $120.0 million for the three months ended December 31, 2022 as compared to $194.9 million for the three months ended December 31, 2021.

The change was primarily attributable to a decrease in cash provided by working capital of approximately $88.8 million and a decrease in adjustments for non-cash items of approximately $21.6 million, partially offset by an increase in net income of approximately $35.5 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $18.4 million during the three months ended December 31, 2022 compared to the three months ended December 31, 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 $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 $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.

Net cash used in investing activities was $45.2 million for the three months ended December 31, 2022, as compared to $48.6 million for the three months ended December 31, 2021.

Net cash used in financing activities was $91.4 million for the three months ended December 31, 2022 as compared to $288.9 million for the three months ended December 31, 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 $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.

Working capital, or current assets less current liabilities, increased $51.1 million, or 12.2%, to $469.7 million at December 31, 2022 from $418.6 million at September 30, 2022.

Net accounts receivable and contract assets, net of contract liabilities, increased to $2,699.9 million at December 31, 2022 from $2,671.9 million at September 30, 2022.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 69 days at December 31, 2022 compared to 68 days at September 30, 2022.

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 June 30, 2022:

2022 (three months remaining)

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

2023 (nine months remaining)

Credit Agreement

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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.

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

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

dollars or certain foreign currencies.

dollars or in certain foreign currencies.

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

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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 June 30, 2022.

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

Our consolidated leverage ratio was 2.20 to 1.00 at December 31, 2022.

As of December 31, 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 the lenders thereunder 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 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.

At December 31, 2022 and September 30, 2022, letters of credit totaled $4.4 million and $4.4 million, respectively, under our Revolving Credit Facility.

As of December 31, 2022 and September 30, 2022, we had $1,145.6 million and $1,145.6 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 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.

As of December 31, 2022, the estimated fair value of the 2027 Senior Notes was approximately $959.9 million.

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

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

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

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

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

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

The indenture also contains customary negative covenants.

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

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

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

Other Debt and Other Items

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

The 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 December 31, 2022 and September 30, 2022, these outstanding standby letters of credit totaled $871.1 million and $640.3 million, respectively.

As of December 31, 2022, we had $425.0 million available under these 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 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.

Our average effective interest rate on our total debt, including the effects of the interest rate swap and interest rate cap agreements, during the three months ended December 31, 2022 and 2021 was 5.1% and 3.4%, respectively.

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

Other Commitments

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

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of 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

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of December 31, 2022, there was approximately $875.5 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

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

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

At June 30, 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.

At December 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 $203.7 million.

The total amounts of employer contributions paid for the three months ended December 31, 2022 were $2.5 million for U.S.

plans and $4.8 million for non-U.S.

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Refer to our Annual Report on Form 10-K for the year ended September 30, 2022 for a discussion of our contractual obligations.

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

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the three months ended December 31, 2022.

Condensed Combined Financial Information

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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 June 30, 2022 and September 30, 2021, and for the nine months ended June 30, 2022.

Amounts provided do not represent our total consolidated amounts as of December 31, 2022 and September 30, 2022, and for the three months ended December 31, 2022.

Condensed Combined Balance Sheets

1 unchanged sentence

(unaudited - in millions)

June 30, 2022

December 31, 2022

September 30, 2022

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(unaudited - in millions)

For the nine months ended

June 30, 2022

For the three months ended

December 31, 2022

Cost of revenue

4 unchanged sentences

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

Critical Accounting Policies and Estimates

Critical Accounting Estimates

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

1 unchanged sentence

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 2022 Form 10-K, and “Critical Accounting Estimates” in Part II, Item 7 of the 2022 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 2022 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