What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2023-02-07 · 108 added, 76 removed, 281 unchanged (40% of the section changed)

68 unchanged sentences

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.

At March 31, 2023, we have approximately $502 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.

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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 initiated a process to explore strategic options for the AECOM Capital business.

AECOM Capital will continue to manage existing investment products.

This process is consistent with our focus on our professional services business.

We expect to incur restructuring costs of approximately $40 million to $50 million in fiscal 2023, primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies.

1 unchanged sentence

Results of Operations

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

Three and six months ended March 31, 2023 compared to the three and six months ended March 31, 2022

Consolidated Results

Three Months Ended

Six Months Ended

($ in millions)

10 unchanged sentences

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 loss (income) attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net income (loss) attributable to AECOM from discontinued operations

Net loss attributable to AECOM from discontinued operations

Net income attributable to AECOM

1 unchanged sentence

Three Months Ended

Six Months Ended

Cost of revenue

9 unchanged sentences

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 loss (income) attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net income (loss) attributable to AECOM from discontinued operations

Net loss attributable to AECOM from discontinued operations

Net income attributable to AECOM

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.

Our revenue for the three months ended March 31, 2023 increased $276.4 million, or 8.6%, to $3,490.1 million as compared to $3,213.7 million for the corresponding period last year.

Our revenue for the six months ended March 31, 2023 increased $392.1 million, or 6.1%, to $6,872.5 million as compared to $6,480.4 million for the corresponding period last year.

The increase in revenue for the three months ended March 31, 2023 was primarily attributable to an increase in our Americas segment of $230.3 million, as discussed further below.

The increase in revenue for the six months ended March 31, 2023 was primarily attributable to an increase in our Americas segment of $346.1 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.

1 unchanged sentence

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

Pass-through revenues for the quarters ended December 31, 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.

Pass-through revenues for the three months ended March 31, 2023 and 2022 were $1.8 billion and $1.6 billion, respectively.

Pass-through revenues for the six months ended March 31, 2023 and 2022 were $3.6 billion and $3.3 billion, respectively.

Pass-through revenue as a percentage of revenue was 52% and 50% during the three months ended March 31, 2023 and 2022, respectively.

Pass-through revenue as a percentage of revenue, was 52% and 51% during the six months ended March 31, 2023 and 2022, respectively.

Our gross profit for the three months ended March 31, 2023 increased $18.1 million, or 8.6%, to $228.1 million as compared to $210.0 million for the corresponding period last year.

For the three months ended March 31, 2023, gross profit, as a percentage of revenue, was 6.5%, which was the same as in the three months ended March 31, 2022.

Our gross profit for the six months ended March 31, 2023 increased $32.9 million, or 8.0%, to $443.1 million as compared to $410.2 million for the corresponding period last year.

For the six months ended March 31, 2023, gross profit, as a percentage of revenue, increased to 6.4% from 6.3% in the six months ended March 31, 2022.

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 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.

Our equity in earnings of joint ventures for the three months ended March 31, 2023 was $7.5 million as compared to $12.0 million in the corresponding period last year.

Our equity in earnings of joint ventures for the six months ended March 31, 2023 was $17.3 million as compared to $19.9 million in the corresponding period last year.

The decreases in earnings of joint ventures for the three and six months ended March 31, 2023 compared to the same period in the prior year were primarily due to decreased earnings in our AECOM Capital segment compared to the prior year.

General and Administrative Expenses

Our general and administrative expenses for the three months ended 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.

Our general and administrative expenses for the three months ended March 31, 2023 decreased $3.0 million, or 8.1%, to $34.2 million as compared to $37.2 million for the corresponding period last year.

For the three months ended March 31, 2023, general and administrative expenses, as a percentage of revenue, decreased to 0.9% from 1.1% in the three months ended March 31, 2022.

Our general and administrative expenses for the six months ended March 31, 2023 decreased $3.8 million, or 5.2%, to $69.8 million as compared to $73.6 million for the corresponding period last year.

For the six months ended March 31, 2023, general and administrative expenses, as a percentage of revenue, decreased to 1.0% from 1.1% in the six months ended March 31, 2022.

Restructuring Costs

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.

During the three and six months ended March 31, 2023, we incurred total restructuring expenses of $3.9 million and $41.4 million, respectively, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

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

Our other income for the three months ended March 31, 2023 increased to $12.3 million from $3.3 million for the corresponding period last year.

Our other income for the six months ended March 31, 2023 increased to $20.2 million from $6.2 million for the corresponding period last year.

The increases in other income for the three and six months ended March 31, 2023 were 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 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.

Our interest expense for the three months ended March 31, 2023 was $42.4 million as compared to $24.2 million for the corresponding period last year.

Our interest expense for the six months ended March 31, 2023 was $79.1 million as compared to $49.6 million for the corresponding period last year.

The increases in interest expense for the three and six months ended March 31, 2023 were 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 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.

Our income tax expense for the three months ended March 31, 2023 was $41.1 million as compared to $36.0 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 impact of an increase in pre-tax income of $76.8 million, partially offset by a decrease in tax expense of $5.2 million related to nondeductible costs and a decrease in tax expense of $4.5 million related to changes in valuation allowances.

Our income tax expense for the six months ended March 31, 2023 was $66.9 million as compared to $58.6 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, a decrease in nondeductible costs of $4.1 million, and the tax impact of an increase in pre-tax income of $53.9 million.

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

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That classification was applied for all periods presented.

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 loss from discontinued operations was $41.8 million for the three months ended March 31, 2023 and net loss was $6.0 million for the three months ended March 31, 2022, an increase of $35.8 million.

The increase in net loss from discontinued operations for the three months ended March 31, 2023 was primarily due to a $38.9 million loss on a revised estimate of contingent consideration receivable related to the sale of the civil infrastructure business.

Net loss from discontinued operations was $42.2 million for the six months ended March 31, 2023 and net loss was $68.0 million for the six months ended March 31, 2022, a decrease of $25.8 million.

The decrease in net loss from discontinued operations for the six months ended March 31, 2023 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 half of fiscal 2022 that did not recur to the same extent in fiscal 2023.

Net Income Attributable to AECOM

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.

The factors described above resulted in net income attributable to AECOM of $76.7 million and $164.6 million for the three and six months ended March 31, 2023 as compared to net income attributable to AECOM of $41.6 million and $103.1 million for the three and six months ended March 31, 2022.

Results of Operations by Reportable Segment:

Three Months Ended

Six Months Ended

($ in millions)

2 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

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.

Revenue for our Americas segment for the three months ended March 31, 2023 increased $230.3 million, or 9.6%, to $2,630.2 million as compared to $2,399.9 million for the corresponding period last year.

Revenue for our Americas segment for the six months ended March 31, 2023 increased $346.1 million, or 7.1%, to $5,209.5 million as compared to $4,863.4 million for the corresponding period last year.

The increases in revenue for the three and six months ended March 31, 2023 were primarily driven by growth in the Americas design business and our construction management business.

Gross profit for our Americas segment for the three months ended March 31, 2023 increased $12.9 million, or 8.0%, to $173.3 million as compared to $160.4 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.6% of revenue for the three months ended March 31, 2023 from 6.7% in the corresponding period last year.

Gross profit for our Americas segment for the six months ended March 31, 2023 increased $25.8 million, or 8.3%, to $336.2 million as compared to $310.4 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.5% of revenue for the six months ended March 31, 2023 from 6.4% for the corresponding period last year.

The increases in gross profit for the three and six months ended March 31, 2023 were primarily due to revenue growth and execution efficiency.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

($ in millions)

2 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

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.

Revenue for our International segment for the three months ended March 31, 2023 increased $46.5 million, or 5.7%, to $859.8 million as compared to $813.3 million for the corresponding period last year.

Revenue for our International segment for the six months ended March 31, 2023 increased $46.9 million, or 2.9%, to $1,662.6 million as compared to $1,615.7 million for the corresponding period last year.

The increases in revenue for the three and six months ended March 31, 2023 were primarily due to increased growth in the 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.

Gross profit for our International segment for the three months ended March 31, 2023 increased $5.6 million, or 11.4%, to $54.7 million as compared to $49.1 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.4% of revenue for the three months ended March 31, 2023 from 6.0% in the corresponding period last year.

Gross profit for our International segment for the six months ended March 31, 2023 increased $8.0 million, or 8.1%, to $106.5 million as compared to $98.5 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 6.4% of revenue for the six months ended March 31, 2023 from 6.1% in the corresponding period last year.

The increases in gross profit and gross profit as a percentage of revenue for the three and six months ended March 31, 2023 were primarily due to an increase in revenue and reduced costs resulting from country exits, ongoing investments in enterprise capability centers, shared service centers, and delivery efficiency.

AECOM Capital

Three Months Ended

Six Months Ended

($ in millions)

1 unchanged sentence

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.

Equity in earnings of joint ventures for the three months ended March 31, 2023 decreased $5.9 million, or 190.3%, to $(2.8) million as compared to $3.1 million for the corresponding period last year.

Equity in earnings of joint ventures for the six months ended March 31, 2023 decreased $1.4 million, or 33.3%, to $2.8 million as compared to $4.2 million for the corresponding period last year.

The decreases in equity of earnings in joint ventures for the three and six months ended March 31, 2023 were primarily due to the timing of transactions for its real estate investments.

We experience seasonal trends in our business.

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

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.

At March 31, 2023, 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 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.

At March 31, 2023, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,080.9 million, a decrease of $95.9 million, or 8.1%, from $1,176.8 million at September 30, 2022.

The decrease in cash and cash equivalents was primarily attributable to $95.2 million of cash used to repurchase common stock of which $75.0 million was under the existing Board repurchase authorization.

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.

Net cash provided by operating activities was $131.5 million for the six months ended March 31, 2023, as compared to $193.2 million for the six months ended March 31, 2022.

The change was primarily attributable to a decrease in cash provided by working capital of approximately $134.7 million, partially offset by an increase in adjustments for non-cash items of approximately $1.5 million and an increase in net income of approximately $71.5 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $36.4 million during the six months ended March 31, 2023, compared to the six months ended March 31, 2022.

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 $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.

Net cash used in investing activities was $83.6 million for the six months ended March 31, 2023, as compared to $93.9 million for the six months ended March 31, 2022.

Net cash used in financing activities was $147.4 million for the six months ended March 31, 2023, as compared to $368.6 million for the six months ended March 31, 2022.

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, 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.

Working capital, or current assets less current liabilities, increased $83.3 million, or 19.9%, to $501.9 million at March 31, 2023 from $418.6 million at September 30, 2022.

Net accounts receivable and contract assets, net of contract liabilities, increased to $2,855.2 million at March 31, 2023 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 71 days at March 31, 2023 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 the our debt as of December 31, 2022:

2023 (nine months remaining)

The following table presents, in millions, scheduled maturities of our debt as of March 31, 2023:

2023 (six months remaining)

Credit Agreement

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

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

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

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

The applicable interest rate under the Credit Agreement is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus an applicable margin (the “LIBOR Applicable Margin”), which is currently at 1.2250% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin” and together with the LIBOR Applicable Margin, the “Applicable Margins”), which is currently at 0.2250%.

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

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

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

The 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.

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.

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

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

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

The Credit Agreement contains customary negative covenants that include, among other things, limitations on our and certain of our subsidiaries’ ability, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of our business, consummate mergers, consolidations and the sale of all or substantially all of our 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 2.20 to 1.00 at December 31, 2022.

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

Our consolidated leverage ratio was 2.20 to 1.00 at March 31, 2023.

As of March 31, 2023, 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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We used the net proceeds from the increase in the Term A Facility (together with cash on hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.

At December 31, 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.

At March 31, 2023 and September 30, 2022, letters of credit totaled $4.4 million and $4.4 million, respectively, under our Revolving Credit Facility.

As of March 31, 2023 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 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.

As of March 31, 2023, the estimated fair value of the 2027 Senior Notes was approximately $972.4 million.

The fair value of the 2027 Senior Notes as of March 31, 2023 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes.

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

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The indenture also contains customary negative covenants.

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

We were in compliance with the covenants relating to the 2027 Senior Notes as of March 31, 2023.

Other Debt and Other Items

1 unchanged sentence

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.

At March 31, 2023 and September 30, 2022, these outstanding standby letters of credit totaled $860.5 million and $640.3 million, respectively.

As of March 31, 2023, we had $441.6 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 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.

Our average effective interest rate on our total debt, including the effects of the interest rate swap and interest rate cap agreements, during the six months ended March 31, 2023 and 2022 was 5.2% and 3.3%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three and six months ended March 31, 2023 of $1.2 million and $2.4 million, respectively, and for the three and six months ended March 31, 2022 of $1.2 million and $2.5 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 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.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of March 31, 2023, there was approximately $864.9 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 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.

At March 31, 2023, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $194.4 million.

The total amounts of employer contributions paid for the six months ended March 31, 2023 were $4.0 million for U.S.

plans and $12.6 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 three months ended December 31, 2022.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the six months ended March 31, 2023.

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 December 31, 2022 and September 30, 2022, and for the three months ended December 31, 2022.

Amounts provided do not represent our total consolidated amounts as of March 31, 2023 and September 30, 2022, and for the six months ended March 31, 2023.

Condensed Combined Balance Sheets

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(unaudited - in millions)

December 31, 2022

March 31, 2023

September 30, 2022

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(unaudited - in millions)

For the three months ended

December 31, 2022

For the six months ended

March 31, 2023

Cost of revenue

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis