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Item 7. Management’s Discussion and Analysis

2023-11-15 compared with 2022-11-17 · 103 added, 126 removed, 506 unchanged (31% of the section changed)

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This Annual Report on Form 10-K 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, 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;

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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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, 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.

We refer to the fiscal year ended September 30, 2022 as “fiscal 2022” and the fiscal year ended September 30, 2023 as “fiscal 2023.” Fiscal years 2023, 2022, and 2021 each contained 52, 52, and 52 weeks, respectively, and ended on September 29, September 30, and October 1, respectively.

In this section, we discuss the results of our operations for the year ended September 30, 2023 compared to the year ended September 30, 2022.

For a discussion on the year ended September 30, 2021 compared to the year ended September 30, 2020, please refer to Part II, Item 7.

“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.

For a discussion on the year ended September 30, 2022 compared to the year ended September 30, 2021, please refer to Part II, Item 7, “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, 2022.

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.

We provide advisory, planning, consulting, architectural and engineering design, construction and

program management services, and investment and development services to public and private 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.

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

Planning, consulting, architectural and engineering design, 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.

Planning, consulting, architectural and engineering design, construction management and program management services to public and private 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.

Planning, consulting, architectural and engineering design services and program management to public and private 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.

Primarily invests 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.

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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 September 30, 2022, we have approximately $0.6 billion 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 September 30, 2023, we have approximately $220 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.

In fiscal year 2023, we initiated a process to explore strategic options for the AECOM Capital business.

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

AECOM Capital will continue to support AECOM’s existing investment vehicles and investments in a manner consistent with their current obligations.

We initiated a project-by-project review of the existing investment portfolio, including an analysis of the incremental cash requirements that might be required to carry the investments on our balance sheet if current market conditions persist.

We determined that the incremental investments to these assets did not meet the objectives of our capital allocation policy.

We reflected this change in strategy and the expected acceleration of these investment exits as an impairment charge of $307.0 million in the third quarter of fiscal 2023.

This impairment did not relate to investments in respect of which affiliates of AECOM Capital provide advisory services or manage third party capital.

We expect to incur restructuring costs of approximately $50 million to $70 million in fiscal 2024, 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, 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.

Our estimated restructuring costs include the ongoing optimization of our office real estate portfolio and 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.

There were no acquisitions consummated during the years ended September 30, 2023, 2022 and 2021.

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Income from operations

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.

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

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

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Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that we seek to collect from customers or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved contracts as to both scope and price or other causes of unanticipated additional costs.

Judgment is required to estimate the amount, if any, of revenue to be recognized on claims.

We record contract revenue related to claims only if it is probable that the claim will result in additional contract revenue and only to the extent that a significant reversal would not be probable.

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● General economic conditions.

In October 2020, we adopted the credit loss model that replaced the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

Under the credit loss model, we maintain an allowance for credit losses, which represents the portion of our financial assets that we do not expect to collect over their contractual life.

Contract Assets and Contract Liabilities

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Our impairment tests are performed at the operating segment level as they represent our reporting units.

During the impairment test, we estimate the fair value of the reporting unit using income and market approaches, and compare that amount to the carrying value of that reporting unit.

Goodwill is evaluated for impairment either by assessing qualitative factors or by performing a quantitative assessment.

Qualitative factors, such as overall financial performance, industry or market considerations, or other relevant events, are assessed to determine if it is more likely than not that the fair value of the reporting units is less than their carrying amounts.

During a quantitative impairment test, we estimate the fair value of the reporting unit using income and market approaches, and compare that amount to the carrying value of that reporting unit.

In the event the fair value of the reporting unit is determined to be less than the carrying value, goodwill is impaired, and an impairment loss is recognized equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.

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If the discount rate was reduced by 25 basis points, plan liabilities would increase by approximately $26.6 million.

If the discount rate and return on plan assets were reduced by 25 basis points, plan expense would decrease by approximately $0.5 million and increase by approximately $2.6 million, respectively.

If the discount rate and return on plan assets were reduced by 25 basis points, plan expense would increase by approximately $0.3 million and increase by approximately $2.7 million, respectively.

If inflation increased by 25 basis points, plan liabilities in the United Kingdom would increase by approximately $17.1 million and plan expense would increase by approximately $2.0 million.

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Cost of revenue

Equity in earnings of joint ventures

Equity in (losses) earnings of joint ventures

General and administrative expenses

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Income from operations

Interest income

Interest expense

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Net income attributable to noncontrolling interests from continuing operations

Net income attributable to noncontrolling interests from discontinued operations

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

Net income attributable to noncontrolling interests

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Cost of revenue

Equity in earnings of joint ventures

Equity in (losses) earnings of joint ventures

General and administrative expenses

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Income from operations

Interest income

Interest expense

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Net income attributable to noncontrolling interests from continuing operations

Net income attributable to noncontrolling interests from discontinued operations

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

Net income attributable to noncontrolling interests

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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.

Our revenue for the year ended September 30, 2023 increased $1,230.3 million, or 9.4%, to $14,378.5 million as compared to $13,148.2 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.

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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 year ended September 30, 2022 was $53.6 million as compared to $35.0 million in the corresponding period last year.

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.

Equity in (Losses) Earnings of Joint Ventures

Our equity in losses of joint ventures for the year ended September 30, 2023 was $279.4 million as compared to equity in earnings of $53.6 million in the corresponding period last year.

The decrease in earnings of joint ventures for the year ended September 30, 2023 compared to the same period in the prior year was primarily due to impairment losses recorded in our AECOM Capital segment during the third quarter of fiscal 2023.

These impairments were primarily as a result of a project-by-project review of the existing investment portfolio, the expected acceleration of exits from certain investments caused by a change in strategy, and volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.

General and Administrative Expenses

Our general and administrative expenses for the year ended September 30, 2022 decreased $7.7 million, or 5.0%, to $147.3 million as compared to $155.0 million for the corresponding period last year.

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.

Our general and administrative expenses for the year ended September 30, 2023 increased $6.3 million, or 4.3%, to $153.6 million as compared to $147.3 million for the corresponding period last year.

For the years ended September 30, 2023 and 2022, general and administrative expenses as a percentage of revenue remained unchanged at 1.1%.

Restructuring Costs

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.

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.

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

During fiscal year ended September 30, 2023, we incurred total restructuring expenses of $188.4 million primarily related to actions taken to align our real estate portfolio with our employee flexibility initiatives and costs incurred in preparation for the exit of certain countries in Southeast Asia.

During fiscal year ended September 30, 2022, we incurred restructuring expenses of $107.5 million, primarily related to costs associated with exit of Russia-related businesses and management actions to deliver margin improvement and efficiencies that result in a more agile organization.

Interest Income

Our interest income for the year ended September 30, 2023 increased to $40.3 million from $8.2 million for the corresponding period last year.

The increase in interest income for the year ended September 30, 2023 was primarily due to an increase in interest rates on our interest-bearing assets.

Interest Expense

Our interest expense for the year ended September 30, 2023 was $159.3 million as compared to $110.2 million for the corresponding period last year.

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.

The increase in interest expense for the year ended September 30, 2023 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 year ended September 30, 2023 was $56.1 million compared to $136.1 million for the year ended September 30, 2022.

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.

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.

The decrease in tax expense for the current period compared to the corresponding period last year was due primarily to a tax benefit of $65.0 million related to the AECOM Capital impairment charge, including an increase in valuation allowances of $21.0 million for the portion of the charge that is not expected to be realized, and a net tax benefit recorded in fiscal 2022 related 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.

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

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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.

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Net loss from discontinued operations was $57.2 million for the year ended September 30, 2023 and net loss was $79.9 million for the year ended September 30, 2022, a decrease of $22.7 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.

The decrease in net loss from discontinued operations for the year ended September 30, 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

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Cost of revenue

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.

Revenue for our Americas segment for the year ended September 30, 2023 increased $1,036.4 million, or 10.4%, to $10,975.7 million as compared to $9,939.3 million for the corresponding period last year.

The increase in revenue for the year ended September 30, 2023 was primarily driven by increased project activity in the Americas design business including growth in the Water, Transportation, and Environment markets.

Gross profit for our Americas segment for the year ended September 30, 2023 increased $59.8 million, or 9.3%, to $699.7 million as compared to $639.9 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, 2022 was primarily due a more efficient execution, reduction in real estate costs, and investments in shared service centers and digital solutions.

Gross profit, as a percentage of revenue, remained unchanged at 6.4% for the years ended September 30, 2023 and 2022.

The increase in gross profit for the year ended September 30, 2023 was primarily due to revenue growth and execution efficiency.

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

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Revenue for our International segment for the year ended September 30, 2023 increased $195.4 million, or 6.1%, to $3,402.1 million as compared to $3,206.7 million for the corresponding period last year.

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.

The increase in revenue for the year ended September 30, 2023 was primarily due to increased growth in the United Kingdom, Middle East and Australia compared to the prior year, which more than offset the impact of the stronger U.S.

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

Growth was led by the Transportation, Facilities, and Water markets.

Gross profit for our International segment for the year ended September 30, 2023 increased $39.2 million, or 19.0%, to $245.1 million as compared to $205.9 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 7.2% of revenue for the year ended September 30, 2023 from 6.4% 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, 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.

The increase in gross profit and gross profit as a percentage of revenue for the year ended September 30, 2023 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 delivery efficiency.

AECOM Capital

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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.

* Not Meaningful

Equity in earnings of joint ventures for the year ended September 30, 2023 decreased $328.3 million, or 1345.5%, to a loss of $303.9 million compared to earnings of $24.4 million for the corresponding period in the prior year.

The decrease was primarily due to impairment losses recognized in the third quarter of fiscal 2023.

Liquidity and Capital Resources

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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 $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.

We expect to spend approximately $110 million in restructuring costs in fiscal 2024 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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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 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 $473.0 million of cash used to repurchase common stock of which $422.9 million was under the existing Board repurchase authorization.

At September 30, 2023, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,262.2 million, an increase of $85.4 million, or 7.3%, from $1,176.8 million at September 30, 2022.

The increase in cash and cash equivalents was primarily attributable to a decrease of $93.7 million of cash used to repurchase common stock, of which $67.9 million was related to a decrease in repurchases under the existing Board repurchase authorization.

Net cash provided by operating activities was $696.0 million for the year ended September 30, 2023 as compared to $713.6 million for the year ended September 30, 2022.

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.

The change was primarily attributable to a decrease in cash provided by working capital of approximately $84.2 million, offset by an increase in adjustments for non-cash items of approximately $301.1 million and a decrease in net income of approximately $234.6 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $50.0 million during the year ended September 30, 2023 compared to the year ended September 30, 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 $138.2 million for the year ended September 30, 2023, as compared to $175.0 million for the year ended September 30, 2022.

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.

The increase in net capital expenditures in fiscal year 2022 was primarily due to an increase in investments in information technology compared to the prior year.

The decrease in cash used in investing activities was primarily due to cash outflows for sale of discontinued operations of $42.3 million in fiscal year 2022 that did not repeat in the current year.

Net cash used in financing activities was $472.9 million for the year ended September 30, 2023, as compared to $588.3 million for the year ended September 30, 2022.

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Working capital, or current assets less current liabilities, decreased $99.4 million, or 23.7%, to $319.2 million at September 30, 2023 from $418.6 million at September 30, 2022.

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.

Net accounts receivable and contract assets, net of contract liabilities, increased to $2,880.8 million at September 30, 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 65 days at September 30, 2023 compared to 68 days at September 30, 2022.

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Except for claims, substantially all contract assets are expected to be billed and collected within twelve months.

Contract assets related to claims are recorded only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated.

Contract assets related to claims are recorded only if it is probable that the claim will result in additional contract revenue and only to the extent that a significant reversal would not be probable.

In such cases, revenue is recorded only to the extent that contract costs relating to the claim have been incurred.

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Credit Agreement

On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement (the “Credit Agreement”), pursuant to which we amended and restated our Syndicated Credit Facility Agreement, dated as of October 17, 2014 (as amended prior to February 8, 2021, the “Original Credit Agreement”), between the Company, as borrower, Bank of America, N.A., as administrative agent, and other parties thereto.

On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement (as amended, modified or otherwise supplemented, 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.

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.

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

We are also required to maintain a consolidated interest coverage ratio of at least 3.00 to 1.00 and a consolidated leverage ratio of less than or equal to 4.00 to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the “Financial Covenants”).

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

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

The Credit Agreement contains customary affirmative covenants, including, among other things, compliance with applicable law, preservation of existence, maintenance of properties and of insurance, and keeping proper books and records.

The Credit Agreement contains customary events of default, including, among other things, nonpayment of principal, interest or fees, cross-defaults to other debt, inaccuracies of representations and warranties, failure to perform covenants, events of bankruptcy and insolvency, change of control and unsatisfied judgments, subject in certain cases to notice and cure periods and other exceptions.

On April 13, 2021, we entered into Amendment No.

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The proceeds of the Term B Facility were used to fund the purchase price, fees and expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.

The Term B Facility is subject to the same affirmative and negative covenants and events of default as the Term A Facility previously incurred pursuant to the existing Credit Agreement (except that the Financial Covenants in the Credit Agreement do not apply to the Term B Facility).

The applicable interest rate for the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.

On June 25, 2021, we entered into Amendment No.

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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 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.

On May 23, 2023, the Company entered into Amendment No.

12 to the Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by, in the case of US Dollar-denominated loans, a secured overnight financing rate subject to a spread adjustment, and, in the case of loans denominated in other currencies, other customary successor rates, subject in certain cases to a spread adjustment.

On May 23, 2023, the Company entered into Amendment No.

13 to the Credit Agreement, pursuant to which the spread adjustments with respect to the Revolving Credit Facility and the Term A Facility was amended.

The applicable interest rate for loans under the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.

The applicable interest rate for U.S.

Dollar-denominated loans under the Revolving Credit Facility and the Term A Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus an applicable margin (the “SOFR 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 SOFR Applicable Margin, the “Applicable Margins”), which is currently at 0.2250%.

The applicable interest rate for loans under the Revolving Credit Facility denominated in other currencies is calculated at a per annum rate equal to a customary floating reference rate for such currency specified in the Credit Agreement plus the SOFR Applicable Margin.

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

The Applicable Margins

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

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

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

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.

The Financial Covenants do not apply to the Term B Facility.

Our consolidated leverage ratio was 2.00 to 1.00 at September 30, 2023.

As of September 30, 2023, we were in compliance with the covenants of the Credit Agreement.

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

As of September 30, 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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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.

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Other Debt and Other Items

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.

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 September 30, 2023 and 2022, these outstanding standby letters of credit totaled $878.9 million and $640.3 million, respectively.

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Effective Interest Rate

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements and excluding the effects of prepayment premiums included in interest expense, during the years ended September 30, 2022, 2021 and 2020 was 3.8%, 4.4% and 5.3%, 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 years ended September 30, 2023, 2022 and 2021 was 5.3%, 3.8% and 4.4%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the years ended September 30, 2023, 2022 and 2021 of $4.9 million, $4.9 million and $10.2 million, respectively.

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

Some of these joint ventures are considered variable interest.

Some of these joint ventures are considered variable interest entities.

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

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

In addition, we have collective bargaining agreements with unions that require us to contribute to various third-party multiemployer pension plans that we do not control or manage.

In addition, we have collective bargaining agreements with unions that require us to contribute to various third-party multiemployer plans that we do not control or manage.

For the year ended September 30, 2023, we contributed $3.0 million to multiemployer pension plans.

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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

In September 2017, AECOM USA, Inc.

was advised by the New York State Department of Environmental Conservation (DEC) of allegations that it committed environmental permit violations pursuant to the New York Environmental Conservation Law (ECL) associated with AECOM USA, Inc.’s oversight of a stream restoration project for Schoharie County which could result in substantial penalties if calculated under the ECL’s maximum civil penalty provisions.

AECOM USA, Inc.

disputes this claim and intends to continue to defend this matter vigorously;

however, AECOM USA, Inc.

cannot provide assurances that it will be successful in these efforts.

The potential range of loss in excess of any current accrual cannot be reasonably estimated at this time primarily because the matter involves complex and unique environmental and regulatory issues;

the project site involves the oversight and involvement of various local, state and federal government agencies;

there is substantial uncertainty regarding any alleged damages;

and the matter is in its preliminary stages.

Refinery Turnaround Project

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New Accounting Pronouncements and Changes in Accounting

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.

It also simplifies the accounting model for purchased credit-impaired debt securities and loans.

We adopted the new guidance effective October 1, 2020 using a modified retrospective approach that resulted in an $8.0 million, net of tax, reduction to retained earnings without restating comparative periods.

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

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 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.

In December 2019, the Financial Accounting Standards Board (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.

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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.

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

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.

We adopted the new guidance starting on October 1, 2022 on a prospective basis and the revised guidance will be applied to any business combinations the Company undertakes.

Off-Balance Sheet Arrangements

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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-K

Item 7. Management’s Discussion and Analysis