AECOM Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect the Company's current beliefs, expectations or intentions regarding future events. These statements include forward-looking statements with respect to the Company, including the Company's business, operations and strategy, and the engineering and construction industry. Statements that are not historical facts, without limitation, including statements that use terms such as "anticipates," "believes," "expects," "estimates," "intends," "may," "plans," "potential," "projects," and "will" and that relate to our future revenues, expenditures and business trends; future reduction of our self-perform at-risk construction exposure; future accounting estimates; future contractual performance obligations; future conversions of backlog; future capital allocation priorities including common stock repurchases, future trade receivables, future debt pay downs; future post-retirement expenses; future tax benefits and expenses; future compliance with regulations; future legal claims and insurance coverage; future effectiveness of our disclosure and internal controls over financial reporting; future costs savings; and other future economic and industry conditions, are forward-looking statements. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion of such statements in this Quarterly Report should not be considered as a representation by us or any other person that our objectives or plans will be achieved. Although management believes that the assumptions underlying the forward-looking statements are reasonable, these assumptions and the forward-looking statements are subject to various factors, risks and uncertainties, many of which are beyond our control, including, but not limited to, our business is cyclical and vulnerable to economic downturns and client spending reductions; government shutdowns; long-term government contracts and subject to uncertainties related to government contract appropriations; governmental agencies may modify, curtail or terminate our contracts; government contracts are subject to audits and adjustments of contractual terms; losses under fixed-price contracts; limited control over operations run through our joint venture entities; liability for misconduct by our employees or consultants; failure to comply with laws or regulations applicable to our business; maintaining adequate surety and financial capacity; high leverage and potential inability to service our debt and guarantees; exposure to Brexit and tariffs; exposure to political and economic risks in different countries; currency exchange rate fluctuations; retaining and recruiting key technical and management personnel; legal claims; inadequate insurance coverage; environmental law compliance and inadequate nuclear indemnification; unexpected adjustments and cancellations related to our backlog; partners and third parties who may fail to satisfy their legal obligations; managing pension costs;AECOM Capital's real estate development; cybersecurity issues, IT outages and data privacy; risks associated with the benefits and costs of the Management Services transaction, including the risk that the expected benefits of the Management Services transaction or any contingent purchase price will not be realized within the expected time frame, in full or at all, or that any purchase price adjustments could be unfavorable or result in lower aggregate cash proceeds; the risk that costs of restructuring transactions and other costs incurred in connection with the Management Services transaction will exceed our estimates or otherwise adversely affect our business or operations; as well as other additional risks and factors discussed in this Quarterly Report on Form 10-Q and any subsequent reports we file with theSEC . Accordingly, actual results could differ materially from those contemplated by any forward-looking statement. All subsequent written and oral forward-looking statements concerning the Company or other matters attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. You are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date they are made. The Company is under no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise. Please review "Part II, Item 1A-Risk Factors" in this Quarterly Report for a discussion of the factors, risks and uncertainties that could affect our future results. Overview We are a leading global provider of professional technical and management support services for governments, businesses and organizations throughout the world. We provide planning, consulting, architectural and engineering design, construction management services and investment and development services to
commercial and government
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clients worldwide in major end markets such as transportation, facilities, environmental, energy, water and government markets.
Our business focuses primarily on providing fee-based planning, consulting, architectural and engineering design services and, therefore, our business is labor intensive. We primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees' time spent on client projects and our ability to manage our costs.AECOM Capital primarily derives its income from real estate development sales and management fees. During the first quarter of fiscal 2020, we reorganized our operating and reporting structure to better align with our ongoing professional services business. This reorganization better reflected our continuing operations after the planned disposals of our Management Services and self-perform at-risk construction businesses, including our civil infrastructure, power and oil & gas construction businesses. Our Management Services and self-perform at-risk construction businesses were part of our former Management Services segment and a substantial portion of our former Construction Services segment. These businesses are classified as discontinued operations in all periods presented. We report our continuing business through three segments:Americas , International, andAECOM Capital (ACAP). Such segments are organized by the differing specialized needs of the respective clients, and how we manage the business. We have aggregated various operating segments into our reportable segments based on their similar characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers. OurAmericas segment delivers planning, consulting, architectural and engineering design, and construction management services to commercial and government clients inthe United States ,Canada , andLatin America in major end markets such as transportation, facilities, environmental, energy, water and government. Revenue is primarily derived from fees from services we provide. Our International segment delivers planning, consulting, architectural and engineering design services to commercial and government clients inEurope , theMiddle East ,Africa and theAsia-Pacific regions in major end markets such as transportation, facilities, environment, energy, water, and government. Our ACAP segment primarily invests in and develops real estate projects. ACAP typically partners with investors and experienced developers as co-general partners. ACAP may, but is not required to, enter into contracts with our otherAECOM affiliates to provide design, engineering, construction management, development and operations and maintenance services for ACAP funded projects. Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, integrate and maximize the value of our recent acquisitions, allocate our labor resources to profitable and high growth markets, secure new contracts and renew existing client agreements. Demand for our services is cyclical and may be vulnerable to sudden economic downturns and reductions in government and private industry spending, which may result in clients delaying, curtailing or canceling proposed and existing projects. Moreover, as a professional services company, maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability.
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.
InDecember 2015 , the federal legislation referred to as the Fixing America's Surface Transportation Act (FAST Act) was authorized. The FAST Act is a five-year federal program expected to provide infrastructure spending on roads, bridges, and public transit and rail systems. We expect that the passage of the FAST Act will continue to positively impact our transportation services business. TheU.S. federal government has proposed significant legislative and executive infrastructure initiatives that, if enacted, could have a positive impact to our infrastructure business. 35 Table of Contents
As part of our capital allocation commitments, we repurchased common stock under our$1 billion authorization in the first, second and fourth quarters of fiscal 2019 and we intend to deploy future free cash flow towards debt reduction and stock repurchases.United States and foreign trade policy actions and tariffs such as theMarch 2018 imposition of tariffs on steel and aluminum imports could impact client spending and affect the profitability of our fixed-price construction projects and other services.
Recent political unrest in
We expect to exit the fixed-price combined cycle gas power plant construction and non-core oil and gas markets. We are evaluating our geographic exposure as part of our ongoing plan to exit more than 30 countries, subject to applicable laws, to improve profitability and reduce our risk profile. We expect to incur restructuring costs of$160 to$190 million in fiscal year 2020 primarily related to costs associated with the sale of the Management Services business and expected exit of at-risk, self-perform construction in the civil infrastructure, power, and oil and gas businesses. Total cash costs for the restructuring are expected to be between$185 and$205 million , including capital expenditures associated with real estate restructuring of approximately$40 million . We cannot determine if future climate change and greenhouse gas laws and policies, such as theUnited Nations' COP-21 Paris Agreement, will have a material impact on our business or our clients' business; however, we expect future environmental laws and policies could negatively impact demand for our services related to fossil fuel projects and positively impact demand for our services related to environmental, infrastructure, nuclear and alternative energy projects. OnOctober 12, 2019 ,AECOM entered into a purchase and sale agreement with an affiliate ofAmerican Securities LLC andLindsay Goldberg LLC to sell our Management Services business segment for a purchase price of$2.405 billion , subject to customary cash, debt and working capital adjustments. The transaction closed onJanuary 31, 2020 . 36 Table of Contents Results of Operations Three months endedDecember 31, 2019 compared to the three months ended December 31, 2018 Consolidated Results Three Months Ended December 31, December 31, Change 2019 2018 $ % (in millions) Revenue$ 3,235.6 $ 3,356.3 $ (120.7) (3.6) % Cost of revenue 3,069.8 3,232.9 (163.1) (5.0) Gross profit 165.8 123.4 42.4 34.4 Equity in earnings of joint ventures 9.9 6.6 3.3 50.0 General and administrative expenses (43.6)
(35.9) (7.7) 21.4
Restructuring costs (44.9) (63.3) 18.4 (29.1)
Income from operations 87.2 30.8 56.4 183.1
Other income 4.0 3.0 1.0 33.3
Interest expense (40.4) (39.4) (1.0) 2.5Income (loss) from continuing operations before taxes 50.8 (5.6) 56.4 NM* Income tax expense (benefit) for continuing operations 15.9 (42.5) 58.4 (137.4) Net income from continuing operations 34.9 36.9 (2.0) (5.4) Net income from discontinued operations 18.2 28.2 (10.0) (35.5) Net income 53.1 65.1 (12.0) (18.4)
Net income attributable to noncontrolling interests from continuing operations
(4.0) (5.0) 1.0 (20.0)
Net income attributable to noncontrolling interests from discontinued operations
(8.5) (8.6) 0.1 (1.2)
Net income attributable to noncontrolling interests (12.5) (13.6) 1.1 (8.1)
Net income attributable to AECOM from continuing
operations 30.9 32.0 (1.1) (3.4)
Net income attributable to AECOM from discontinued
operations 9.7 19.5 (9.8) (50.3)
Net income attributable to AECOM $ 40.6 $ 51.5$ (10.9) (21.2) % *NM - Not meaningful 37 Table of Contents The following table presents the percentage relationship of statement of operations items to revenue: Three Months Ended December 31, December 31, 2019 2018 Revenue 100.0 % 100.0 % Cost of revenue 94.9 96.3 Gross profit 5.1 3.7
Equity in earnings of joint ventures 0.3 0.2 General and administrative expenses (1.3) (1.1) Restructuring costs (1.4) (1.9) Income from operations 2.7 0.9 Other income 0.1 0.1 Interest expense (1.2) (1.2)
Income (loss) before income tax expense (benefit) 1.6 (0.2) Income tax expense (benefit) 0.5 (1.3) Net income from continuing operations 1.1 1.1 Net income from discontinued operations 0.5 0.8 Net income 1.6 1.9
Net income attributable to noncontrolling interests from continuing operations, net of tax
(0.1) (0.1)
Net income attributable to noncontrolling interests from discontinued operations, net of tax
(0.3) (0.3)
Net income attributable to noncontrolling interests (0.4) (0.4)
Net income attributable to AECOM from continuing operations 1.0 1.0
Net income attributable to AECOM from discontinued operations 0.2 0.5
Net income attributable to AECOM 1.2 % 1.5 % Revenue
Our revenue for the three months ended
The decrease in revenue for the three months ended
In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients. These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in our revenue and cost of revenue. Because subcontractor and other direct costs can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends. Subcontractor and other direct costs for the quarters endedDecember 31, 2019 and 2018 were$1.7 billion and$1.8 billion , respectively. Subcontractor costs and other direct costs as a percentage of revenue, were 52% and 55% during the three months endedDecember 31, 2019 and 2018, respectively. Gross Profit Our gross profit for the three months endedDecember 31, 2019 increased$42.4 million , or 34.4%, to$165.8 million as compared to$123.4 million for the corresponding period last year. For the three months endedDecember 31, 2019 , gross profit, as a percentage of revenue, increased to 5.1% from 3.7% in the three months endedDecember 31, 2018 .
Gross profit changes were due to the reasons noted in
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Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the three months endedDecember 31, 2019 was$9.9 million as compared to$6.6 million in the corresponding period last year.
General and Administrative Expenses
Our general and administrative expenses for the three months endedDecember 31, 2019 increased$7.7 million , or 21.4%, to$43.6 million as compared to$35.9 million for the corresponding period last year. For the three months endedDecember 31, 2019 , general and administrative expenses, as a percentage of revenue, increased to 1.3% from 1.1% in the three months endedDecember 31 ,
2018. Restructuring Costs In the first quarter of fiscal 2019, we commenced a restructuring plan to improve profitability. We expect to incur additional restructuring costs in fiscal 2020 primarily related to costs associated with the sale of the Management Services business and the exit of our self-perform at-risk construction business. During the first quarter of fiscal 2019, we incurred restructuring expenses of$63.3 million , primarily related to personnel and real estate costs. During the first quarter of fiscal 2020, we incurred restructuring expenses of$44.9 million , primarily related to personnel costs, including costs associated with recent executive transitions. Other Income
Our other income for the three months ended
Other income is primarily comprised of interest income.
Interest Expense
Our interest expense for the three months ended
Income Tax Expense / Benefit
Our income tax expense for the three months endedDecember 31, 2019 was$15.9 million as compared to an income tax benefit of$42.5 million in the corresponding period last year. The increase in tax expense for the current period compared to the corresponding period last year is due primarily to a$38.1 million benefit recorded in the first quarter of fiscal 2019 related to the release of a valuation allowance on foreign tax credits and the tax impacts of an increase in overall pre-tax income of$56.4 million . During the first quarter of fiscal 2019, a valuation allowance in the amount of$38.1 million related to foreign tax credits was released due to sufficient positive evidence obtained during the quarter. The positive evidence included the issuance of regulations related to the Tax Act during the quarter and forecasting the utilization of the foreign tax credits within the foreseeable future.
Certain operations in
We regularly integrate and consolidate our business operations and legal entity structure, and such internal initiatives could impact the assessment of uncertain tax positions, indefinite reinvestment assertions and the realizability of deferred tax assets.
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Net Income From Discontinued Operations
During the first quarter of fiscal 2020, management approved a plan to dispose via sale our Management Services business and our self-perform at-risk construction businesses. As a result of these strategic actions, the Management Services and self-perform at-risk construction businesses were classified as discontinued operations. That classification was applied retrospectively for all periods presented.
Net income from discontinued operations decreased
Net Income Attributable to
The factors described above resulted in net income attributable to
Results of Operations by Reportable Segment:
Americas Three Months Ended December 31, December 31, Change 2019 2018 $ % (in millions) Revenue$ 2,452.0 $ 2,560.4 $ (108.4) (4.2) % Cost of revenue 2,312.6 2,453.2 (140.6) (5.7) Gross profit $ 139.4 $ 107.2$ 32.2 30.0 %
The following table presents the percentage relationship of statement of operations items to revenue:
Three Months Ended
December 31, December 31,
2019 2018
Revenue 100.0 % 100.0 %
Cost of revenue 94.3 95.8
Gross profit 5.7 % 4.2 %
Revenue
Revenue for our Americas segment for the three months ended December 31, 2019
decreased $108.4 million , or 4.2%, to $2,452.0 million as compared to $2,560.4
million for the corresponding period last year.
The decrease in revenue for the three months ended December 31, 2019 was
primarily attributable to a decrease in the Americas design and consulting
services of $100 million , largely due to decreased work performed on a
residential housing storm disaster relief program. Additionally, the decrease
was due to reduced subcontractor activity for residential high-rise buildings in
the city of New York .
Gross Profit
Gross profit for our Americas segment for the three months ended December 31,
2019 increased $32.2 million , or 30.0%, to $139.4 million as compared to $107.2
million for the corresponding period last year. As a percentage of revenue,
gross profit increased to 5.7% of revenue for the three months ended December
31, 2019 from 4.2% in the corresponding period last year.
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The increase in gross profit and gross profit as a percentage of revenue for the
quarter ended December 31, 2019 was primarily due to reduced costs resulting
from restructuring activities taken in the prior period and strong project
execution.
International
Three Months Ended
December 31, December 31, Change
2019 2018 $ %
(in millions)
Revenue $ 783.1 $ 792.0 $ (8.9) (1.1) %
Cost of revenue 757.2 779.7 (22.5) (2.9)
Gross profit $ 25.9 $ 12.3 $ 13.6 110.6 %
The following table presents the percentage relationship of statement of operations items to revenue:
Three Months Ended
December 31, December 31,
2019 2018
Revenue 100.0 % 100.0 %
Cost of revenue 96.7 98.4
Gross profit 3.3 % 1.6 %
Revenue
Revenue for our International segment for the three months ended December 31,
2019 decreased $8.9 million , or 1.1%, to $783.1 million as compared to $792.0
million for the corresponding period last year.
Gross Profit
Gross profit for our International segment for the three months ended December
31, 2019 increased $13.6 million , or 110.6%, to $25.9 million as compared to
$12.3 million for the corresponding period last year. As a percentage of
revenue, gross profit increased to 3.3% of revenue for the three months ended
December 31, 2019 from 1.6% 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, 2019 was primarily due to increased performance
on projects in the United Kingdom and Australia offset by a decline in HongKong.AECOM Capital Three Months Ended December 31, December 31, Change 2019 2018 $ % (in millions) Revenue $ 0.5 $ 3.9$ (3.4) (87.2) % Equity in earnings (loss) of joint ventures 0.7 (2.5) 3.2 NM* General and administrative expenses $ (2.4) $ (1.7)$ (0.7) 41.2 % *NM - Not meaningful Seasonality We experience seasonal trends in our business. The first quarter of our fiscal year (October 1 to December 31 ) is typically our weakest quarter. The harsher weather conditions impact our ability to complete work in parts of North 41
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America and the holiday season schedule affects our productivity during this period. Our revenue is typically higher in the last half of the fiscal year. ManyU.S. state governments with fiscal years ending onJune 30 tend to accelerate spending during their first quarter, when new funding becomes available. In addition, we find that theU.S. federal government tends to authorize more work during the period preceding the end of our fiscal year,September 30 . Further, our construction management revenue typically increases during the high construction season of the summer months. Withinthe United States , as well as other parts of the world, our business generally benefits from milder weather conditions in our fiscal fourth quarter, which allows for more productivity from our on-site civil services. For these reasons, coupled with the number and significance of client contracts commenced and completed during a period, as well as the time of expenses incurred for corporate initiatives, it is not unusual for us to experience seasonal changes or fluctuations in our quarterly operating results.
Liquidity and Capital Resources
Cash Flows Our principal sources of liquidity are cash flows from operations, borrowings under our credit facilities, and access to financial markets. Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of common stock, and repayment of debt. We believe our anticipated sources of liquidity including operating cash flows, existing cash and cash equivalents, borrowing capacity under our revolving credit facility and our ability to issue debt or equity, if required, will be sufficient to meet our projected cash requirements for at least the next twelve months. We sold our Management Services business onJanuary 31, 2020 for a purchase price of approximately$2.405 billion , subject to customary cash, debt, and working capital adjustments. The purchase price includes contingent consideration of approximately$150 million attributable to certain claims related to prior work and engagements. We expect to spend approximately$185 to$205 million in restructuring costs in fiscal 2020 associated with the sale of the Management Services business and the exit of our self-perform at-risk construction businesses. Generally, we do not provide forU.S. taxes or foreign withholding taxes on gross book-tax basis differences in our non-U.S. subsidiaries because such basis differences are able to and intended to be reinvested indefinitely. AtDecember 31, 2019 , we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and therefore we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax outside of the one-time transition tax required under the Tax Cuts and Jobs Act that was enacted onDecember 22, 2017 . 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. AtDecember 31, 2019 , cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were$887.4 million , a decrease of$193.0 million , or 17.9%, from$1,080.4 million atSeptember 30, 2019 . The decrease in cash and cash equivalents was primarily attributable to cash used in operating activities, partially offset by net borrowings under
our credit agreement. Net cash used in operating activities was$206.9 million for the three months endedDecember 31, 2019 , compared to$200.4 million for the three months endedDecember 31, 2018 . The change was primarily attributable to the timing of receipts and payments of working capital, which includes accounts receivable, contract assets, accounts payable, accrued expenses, and contract liabilities. Delays on collections in the Management Services business also had a negative impact in the current period. The sale of trade receivables to financial institutions during the three months endedDecember 31, 2019 provided a net benefit of$0.2 million as compared to$13.9 million during the three months endedDecember 31, 2018 . 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$68.1 million for the three months endedDecember 31, 2019 , as compared to$59.7 million for the three months
endedDecember 31, 2018 . 42 Table of Contents Net cash provided by financing activities was$79.3 million for the three months endedDecember 31, 2019 as compared to$213.2 million for the three months endedDecember 31, 2018 . This change was primarily attributable to lower net borrowings under our credit agreements. Total borrowings may vary during the period.AECOM Caribe , a subsidiary of the Company, has incurred payment delays supporting the storm recovery work in theU.S. Virgin Islands .AECOM Caribe signed several contracts withVirgin Islands authorities to provide emergency design, construction and technical services after two Category Five hurricanes devastated theVirgin Islands in 2017, that were dependent on federal funding.AECOM Caribe and its subcontractors have performed over$750 million of work under theVirgin Islands contracts and payment delays have increased working capital by over$150 million fromSeptember 30, 2018 toDecember 31, 2019 . We are currently negotiating with theVirgin Island authorities andU.S. Federal Emergency Management Agency to modify the contract and accelerate funding for current and future contractual payments; however, we can provide no certainty as to the timing or amount of future payments. Working Capital Working capital, or current assets less current liabilities, decreased$67.4 million , or 6.3%, to$1,005.5 million atDecember 31, 2019 from$1,072.9 million atSeptember 30, 2019 . Net accounts receivable and contract assets, net of contract liabilities, decreased to$3,558.3 million atDecember 31, 2019 from$3,600.0 million atSeptember 30, 2019 .
Days Sales Outstanding (DSO), which includes net accounts receivable and
contract assets, net of contract liabilities, was 100 days at
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. 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. In such cases, revenue is recorded only to the extent that contract costs relating to the claim have been incurred. Award fees in contract assets are accrued only when there is sufficient information to assess contract performance. On contracts that represent higher than normal risk or technical difficulty, award fees are generally deferred until an award fee letter is received. Because our revenue depends to a great extent on billable labor hours, most of our charges are invoiced following the end of the month in which the hours were worked, the majority usually within 15 days. Other direct costs are normally billed along with labor hours. However, as opposed to salary costs, which are generally paid on either a bi-weekly or monthly basis, other direct costs are generally not paid until payment is received (in some cases in the form of
advances) from the customers. Debt
Debt consisted of the following:
December 31, September 30,
2019 2019
(in millions)
2014 Credit Agreement $ 1,323.2 $ 1,182.2
2014 Senior Notes 800.0 800.0
2017 Senior Notes 1,000.0 1,000.0
URS Senior Notes 248.1 248.1
Other debt 132.6 122.2
Total debt 3,503.9 3,352.5Less: Current portion of debt and short-term borrowings (111.6) (98.3) Less: Unamortized debt issuance costs (34.1)
(36.2)
Long-term debt $ 3,358.2 $ 3,218.0
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The following table presents, in millions, scheduled maturities of the Company's
debt as of
Fiscal Year 2020 (nine months remaining)$ 104.2 2021 199.1 2022 301.8 2023 578.0 2024 9.7 Thereafter 2,311.1 Total$ 3,503.9 2014 Credit Agreement
We entered into a credit agreement (Credit Agreement) onOctober 17, 2014 , which, as amended to date, consists of (i) a term loan A facility that includes a$510 million (US) term loan A facility with a term expiring onMarch 13, 2021 and a$500 million Canadian dollar (CAD) term loan A facility and a$250 million Australian dollar (AUD) term loan A facility, each with terms expiring onMarch 13, 2023 ; (ii) a$600 million term loan B facility with a term expiring onMarch 13, 2025 ; and (iii) a revolving credit facility in an aggregate principal amount of$1.35 billion with a term expiring onMarch 13, 2023 . Some of our subsidiaries (Guarantors) have guaranteed the obligations of the borrowers under the Credit Agreement. The borrowers' obligations under the Credit Agreement are secured by a lien on substantially all of our assets and the Guarantors' pursuant to a security and pledge agreement (Security Agreement). The collateral under the Security Agreement is subject to release upon fulfillment of conditions specified in the Credit Agreement and Security Agreement. The Credit Agreement contains covenants that limit our ability and the ability of some of our subsidiaries to, among other things: (i) create, incur, assume, or suffer to exist liens; (ii) incur or guarantee indebtedness; (iii) pay dividends or repurchase stock; (iv) enter into transactions with affiliates; (v) consummate asset sales, acquisitions or mergers; (vi) enter into various types of burdensome agreements; or (vii) make investments. OnJuly 1, 2015 , the Credit Agreement was amended to revise the definition of "Consolidated EBITDA" to increase the allowance for acquisition and integration expenses related our acquisition of URS. OnDecember 22, 2015 , the Credit Agreement was amended to further revise the definition of "Consolidated EBITDA" by further increasing the allowance for acquisition and integration expenses related to the acquisition of URS and to allow for an internal corporate restructuring primarily involving our international subsidiaries. OnSeptember 29, 2016 , the Credit Agreement and the Security Agreement were amended to (1) lower the applicable interest rate margins for the term loan A and the revolving credit facilities, and lower the applicable letter of credit fees and commitment fees to the revised consolidated leverage levels; (2) extend the term of the term loan A and the revolving credit facility toSeptember 29, 2021 ; (3) add a new delayed draw term loan A facility tranche in the amount of$185.0 million ; (4) replace the then existing$500 million performance letter of credit facility with a$500 million basket to enter into secured letters of credit outside the Credit Agreement; and (5) revise covenants, including the Maximum Consolidated Leverage Ratio so that the step down from a 5.00 to a 4.75 leverage ratio is effective as ofMarch 31, 2017 as well as the investment basket for our ACAP business. OnMarch 31, 2017 , the Credit Agreement was amended to (1) expand the ability of restricted subsidiaries to borrow under "Incremental Term Loans;" (2) revise the definition of "Working Capital" as used in "Excess Cash Flow;" (3) revise the definitions for "Consolidated EBITDA" and "Consolidated Funded Indebtedness" to reflect the expected gain and debt repayment of anAECOM Capital disposition, which disposition was completed onApril 28, 2017 ; and (4) amend provisions relating to our ability to undertake internal restructuring steps to accommodate changes in tax laws. OnMarch 13, 2018 , the Credit Agreement was amended to (1) refinance the existing term loan A facility to include a$510 million (US) term loan A facility with a term expiring onMarch 13, 2021 and a$500 million CAD term loan A facility and a$250 million AUD term loan A facility each with terms expiring onMarch 13, 2023 ; (2) issue a 44
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new$600 million term loan B facility to institutional investors with a term expiring onMarch 13, 2025 ; (3) increase the capacity of our revolving credit facility from$1.05 billion to$1.35 billion and extend its term untilMarch 13, 2023 ; (4) reduce our interest rate borrowing costs as follows: (a) the term loan B facility, at our election, Base Rate (as defined in the Credit Agreement) plus 0.75% or Eurocurrency Rate (as defined in the Credit Agreement) plus 1.75%, (b) the (US) term loan A facility, at our election, Base Rate plus 0.50% or Eurocurrency Rate plus 1.50%, and (c) the Canadian (CAD) term loan A facility, the Australian (AUD) term loan A facility, and the revolving credit facility, an initial rate of, at our election, Base Rate plus 0.75% or Eurocurrency Rate plus 1.75%, and after the end of our fiscal quarter endedJune 30, 2018 , Base Rate loans plus a margin ranging from 0.25% to 1.00% or Eurocurrency Rate plus a margin from 1.25% to 2.00%, based on the Consolidated Leverage Ratio (as defined in the Credit Agreement); (5) revise covenants including increasing the amounts available under the restricted payment negative covenant and revising the Maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) to include a 4.5 leverage ratio throughSeptember 30, 2019 after which the leverage ratio steps down to 4.0.
On
OnJanuary 28, 2020 ,AECOM entered into Amendment No. 7 to the Credit Agreement which modifies the asset disposition covenant to permit the sale of our Management Services business and the mandatory prepayment provision so that only outstanding term loans are prepaid using the net proceeds from the sale. Under the Credit Agreement, we are subject to a maximum consolidated leverage ratio and minimum consolidated interest coverage ratio at the end of each fiscal quarter. Our Consolidated Leverage Ratio was 3.6 atDecember 31, 2019 . Our Consolidated Interest Coverage Ratio was 4.9 atDecember 31, 2019 . As ofDecember 31, 2019 , we were in compliance with the covenants of the Credit Agreement. AtDecember 31, 2019 andSeptember 30, 2019 , outstanding standby letters of credit totaled$22.8 million and$22.8 million , respectively, under our revolving credit facilities. As ofDecember 31, 2019 andSeptember 30, 2019 , we had$1,193.5 million and$1,327.2 million , respectively, available under our revolving credit facility. 2014 Senior Notes OnOctober 6, 2014 , we completed a private placement offering of$800,000,000 aggregate principal amount of the unsecured 5.750% Senior Notes due 2022 (2022 Notes) and$800,000,000 aggregate principal amount of the unsecured 5.875% Senior Notes due 2024 (the 2024 Notes and, together with the 2022 Notes, the 2014 Senior Notes). OnNovember 2, 2015 , we completed an exchange offer to exchange the unregistered 2014 Senior Notes for registered notes, as well as all related guarantees. OnMarch 16, 2018 , we redeemed all of the 2022 Notes at a redemption price that was 104.313% of the principal amount outstanding plus accrued and unpaid interest. TheMarch 16, 2018 redemption resulted in a$34.5 million prepayment premium, which was included in interest expense. As ofDecember 31, 2019 , the estimated fair value of the 2024 Notes was approximately$886.0 million . The fair value of the 2024 Notes as ofDecember 31, 2019 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 2024 Notes. At any time prior toJuly 15, 2024 , we may redeem on one or more occasions all or part of the 2024 Notes at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a "make-whole" premium as of the date of the redemption, plus any accrued and unpaid interest to the date of redemption. In addition, on or afterJuly 15, 2024 , the 2024 Notes may be redeemed at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption.
The indenture pursuant to which the 2024 Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events. The indenture also contains customary negative covenants.
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We were in compliance with the covenants relating to the 2024 Notes as of
2017 Senior Notes OnFebruary 21, 2017 , we completed a private placement offering of$1,000,000,000 aggregate principal amount of our unsecured 5.125% Senior Notes due 2027 (the 2017 Senior Notes) and used the proceeds to immediately retire the remaining$127.6 million outstanding on the then existing term loan B facility as well as repay$600 million of the term loan A facility and$250 million of the revolving credit facility under our Credit Agreement. OnJune 30, 2017 , we completed an exchange offer to exchange the unregistered 2017 Senior Notes for registered notes, as well as related guarantees. As ofDecember 31, 2019 , the estimated fair value of the 2017 Senior Notes was approximately$1,075.0 million . The fair value of the 2017 Senior Notes as ofDecember 31, 2019 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 2017 Senior Notes. Interest will be payable on the 2017 Senior Notes at a rate of 5.125% per annum. Interest on the 2017 Senior Notes is payable semi-annually onMarch 15 andSeptember 15 of each year, commencing onSeptember 15, 2017 . The 2017 Senior Notes will mature onMarch 15, 2027 . At any time and from time to time prior toDecember 15, 2026 , we may redeem all or part of the 2017 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. In addition, at any time and from time to time prior toMarch 15, 2020 , we may redeem up to 35% of the original aggregate principal amount of the 2017 Senior Notes with the proceeds of one or more qualified equity offerings, at a redemption price equal to 105.125%, plus accrued and unpaid interest. Furthermore, at any time on or afterDecember 15, 2026 , we may redeem on one or more occasions all or part of the 2017 Senior Notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest. The indenture pursuant to which the 2017 Senior Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events. The indenture also contains customary negative covenants.
We were in compliance with the covenants relating to the 2017 Senior Notes as of
URS Senior Notes In connection with the URS acquisition, we assumed the URS 3.85% Senior Notes due 2017 (2017 URS Senior Notes) and the URS 5.00% Senior Notes due 2022 (2022 URS Senior Notes), totaling$1.0 billion (URS Senior Notes). The URS acquisition triggered change in control provisions in the URS Senior Notes that allowed the holders of the URS Senior Notes to redeem their URS Senior Notes at a cash price equal to 101% of the principal amount and, accordingly, we redeemed$572.3 million of the URS Senior Notes onOctober 24, 2014 . The remaining 2017 URS Senior Notes matured and were fully redeemed onApril 3, 2017 for$179.2 million using proceeds from a$185 million delayed draw term loan A facility tranche under the Credit Agreement. The 2022 URS Senior Notes are general unsecured senior obligations ofAECOM Global II, LLC as successor in interest to URS) and are fully and unconditionally guaranteed on a joint-and-several basis by some former URS domestic subsidiary guarantors. As ofDecember 31, 2019 , the estimated fair value of the 2022 URS Senior Notes was approximately$256.9 million . The carrying value of the 2022 URS Senior Notes on our Consolidated Balance Sheets as ofDecember 31, 2019 was$248.1 million . The fair value of the 2022 URS Senior Notes as ofDecember 31, 2019 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 2022 URS Senior Notes.
As of
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Other Debt and Other Items
Other debt consists primarily of obligations under capital 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. AtDecember 31, 2019 andSeptember 30, 2019 , these outstanding standby letters of credit totaled$476.5 million and$470.9 million , respectively. As ofDecember 31, 2019 , we had$401.6 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 agreements, during the three months endedDecember 31, 2019 and 2018 was 4.9% and 5.1%, respectively.
Interest expense in the consolidated statements of operations included
amortization of deferred debt issuance costs for the three months ended
Other Commitments
We enter into various joint venture arrangements to provide architectural, engineering, program management, construction management and operations and maintenance services. 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. We have consolidated all joint ventures for which we have control. For all others, our portion of the earnings is recorded in equity in earnings of joint ventures. See Note 5, Joint Ventures and Variable Interest Entities, in the notes to our consolidated financial statements. Other than normal property and equipment additions and replacements, expenditures to further the implementation of our various information technology systems, commitments under our incentive compensation programs, amounts we may expend to repurchase stock under our stock repurchase program and acquisitions from time to time and disposition costs, we currently do not have any significant capital expenditures or outlays planned except as described below. 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 ofDecember 31, 2019 , there was approximately$499.3 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. AtDecember 31, 2019 , our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately$368.4 million . The total amounts of employer contributions paid for the three months endedDecember 31, 2019 were$2.4 million forU.S. plans and$6.9 million for non-U.S. plans. Funding requirements for each plan are determined based on the local laws of the country where such plan resides. In some countries, the funding requirements are mandatory while in other countries, they are discretionary. There is a required minimum contribution for one of our domestic plans; however, we may make additional discretionary contributions. 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 various third party multiemployer plans that we do not control or manage. 47 Table of Contents
New Accounting Pronouncements and Changes in Accounting
For information regarding recent accounting pronouncements, see Notes to Consolidated Financial Statements included in Part I, Item 1.
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