AECOM 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; 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, and the impact of future tax laws; 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 Annual 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; potential high leverage and inability to service our debt and guarantees; ability to continue payment of dividends; exposure to political and economic risks in different countries, including tariffs; currency exchange rate and interest fluctuations; retaining and recruiting key technical and management personnel; 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 sale of our Management Services and self-perform at-risk civil infrastructure, power construction, and oil and gas construction businesses, including the risk that any purchase adjustments from those transactions could be unfavorable and any future proceeds owed to us as part of the transactions could be lower than we expect; as well as other additional risks and factors discussed in this Annual Report on Form 10-K and any subsequent reports we file with 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 I, Item 1A-Risk Factors" in this Annual Report for a discussion of the factors, risks and uncertainties that could affect our future results. Our fiscal year consists of 52 or 53 weeks, ending on the Friday closest toSeptember 30 . For clarity of presentation, we present all periods as if the year ended onSeptember 30 . We refer to the fiscal year endedSeptember 30, 2021 as "fiscal 2021" and the fiscal year endedSeptember 30, 2022 as "fiscal 2022." Fiscal years 2022, 2021, and 2020 each contained 52, 52, and 53 weeks, respectively, and ended onSeptember 30 ,October 1 , andOctober 2 , respectively. In this section, we discuss the results of our operations for the year endedSeptember 30, 2022 compared to the year endedSeptember 30, 2021 . For a discussion on the year endedSeptember 30, 2021 compared to the year endedSeptember 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 endedSeptember 30, 2021 . 34 Table of Contents Overview
We are a leading global provider of professional infrastructure consulting services for governments, businesses and organizations throughout the world. We provide advisory, planning, consulting, architectural and engineering design, construction and program management services, and investment and development services to commercial and government clients worldwide in major end markets such as transportation, facilities, water, environmental, and energy. Our business focuses primarily on providing fee-based knowledge-based services. We primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees' time spent on client projects and our ability to manage our costs.AECOM Capital primarily derives its income from real estate development sales and management fees. We report our continuing business through three segments, each of which is described in further detail below: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.
construction management and program management services to commercial and
? government clients in
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
? the
end markets such as transportation, water, government, facilities,
environmental, and energy.
?
Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources and capital to profitable and high growth markets, secure new contracts, and renew existing client agreements. Demand for our services may be vulnerable to sudden economic downturns and reductions in government and private industry spending, which may result in clients delaying, curtailing or canceling proposed and existing projects. Moreover, as a professional services company, maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability. Given the global nature of our business, our revenue is exposed to currency rate fluctuations that could change from period to period and year to year.
Our costs consist primarily of the compensation we pay to our employees, including salaries, fringe benefits, the costs of hiring subcontractors, other project-related expenses and sales, general and administrative costs.
Regarding our capital allocation policy, onSeptember 22, 2021 , the Board approved an increase in our stock repurchase authorization to$1.0 billion . AtSeptember 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. We have exited substantially all of our self-perform at-risk construction businesses and divested our remaining non-core oil and gas businesses inJanuary 2022 . As part of our ongoing plan to improve profitability and maintain a reduced risk profile, we continuously evaluate our geographic exposure. InMarch 2022 , we substantially completed our exit of all business operations inRussia consistent with our announcement onMarch 7, 2022 . We expect to incur restructuring costs of approximately$30 million to$40 million in fiscal 2023 primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies. Our estimated restructuring costs include the exit of specific countries inSoutheast Asia , subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile. 35
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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
performance and results. Acquisitions
There were no acquisitions consummated during the years ended
All of our acquisitions have been accounted for as business combinations and the results of operations of the acquired companies have been included in our consolidated results since the dates of the acquisitions.
Components of Income and Expense
Year Ended September 30,
2022 2021 2020 2019 2018
(in millions)
Other Financial Data:
Revenue $ 13,148 $ 13,341 $ 13,240 $ 13,642 $ 13,878
Cost of revenue 12,300 12,543 12,530 13,030 13,399
Gross profit 848 798 710 612 479
Equity in earnings of joint ventures 54 35 49 49 49
General and administrative expenses (147) (155) (190) (148) (135)
Restructuring cost (108) (48) (188) (95) -
Gain on disposal activities - - - 3 -Impairment of long-lived assets - -
- (25) - Income from operations$ 647 $ 630 $ 381 $ 396 $ 393 Revenue We generate revenue primarily by providing planning, consulting, architectural and engineering design, construction and program management services to commercial and government clients around the world. Our revenue consists of both services provided by our employees and pass-through revenues from subcontractors and other direct costs. We generally recognize revenue over time as performance obligations are satisfied and control over promised goods or services are transferred to our customers. We generally measure progress to completion using an input measure of total costs incurred divided by total costs expected to
be incurred. Cost of Revenue
Cost of revenue reflects the cost of our own personnel (including fringe benefits and overhead expense) and fees from subcontractors and other direct costs associated with revenue.
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Amortization Expense of Acquired Intangible Assets
Included in our cost of revenue is amortization of acquired intangible assets. We have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired. These assets include, but are not limited to, backlog and customer relationships. To the extent we ascribe value to identifiable intangible assets that have finite lives, we amortize those values over the estimated useful lives of the assets. Such amortization expense, although non-cash in the period expensed, directly impacts our results of operations.
Equity in Earnings of Joint Ventures
Equity in earnings of joint ventures includes our portion of fees charged by our unconsolidated joint ventures to clients for services performed by us and other joint venture partners along with earnings we receive from our return on investments in unconsolidated joint ventures.
General and Administrative Expenses
General and administrative expenses include corporate expenses, including personnel, occupancy, and administrative expenses.
Restructuring Expenses
Restructuring expenses are comprised of personnel and other costs, real estate
costs, and costs associated with the exit of our
Geographic Information
For geographic financial information, please refer to Note 4 and Note 19 in the notes to our consolidated financial statements found elsewhere in the Form 10-K.
Critical Accounting Estimates
Our accounting policies, including those described below, often require management to make significant estimates and assumptions using information available at the time the estimates are made. Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenue and expenses. If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected. Our most critical accounting policies and estimates are described below. We have not materially changed our estimation methodology during the period presented.
Revenue Recognition
Our accounting policies establish principles for recognizing revenue upon the
transfer of control of promised goods or services to customers. We generally
recognize revenues over time as performance obligations are satisfied. We
generally measure our progress to completion using an input measure of total
costs incurred divided by total costs expected to be incurred. In the course of
providing these services, we routinely subcontract for services and incur other
direct cost on behalf of our clients. These costs are passed through to clients
and, in accordance with accounting rules, are included in our revenue and cost
of revenue.
Revenue recognition and profit is dependent upon a number of factors, including
the accuracy of a variety of estimates made at the balance sheet date, such as
engineering progress, material quantities, the achievement of milestones,
penalty provisions, labor productivity and cost estimates. Additionally, we are
required to make estimates for the amount of consideration to be received,
including bonuses, awards, incentive fees, claims, unpriced change orders,
penalties and liquidated damages. Variable consideration is included in the
estimate of transaction price only to the extent that a significant reversal
would not be probable. We continuously monitor factors that may affect the
quality of our estimates, and material changes in estimates are disclosed
accordingly.
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Claims Recognition
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. 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. The amounts recorded, if material, are disclosed in the
notes to the financial statements. Costs attributable to claims are treated as
costs of contract performance as incurred.
Government Contract Matters
Our federal government and certain state and local agency contracts are subject to, among other regulations, regulations issued under the Federal Acquisition Regulations (FAR). These regulations can limit the recovery of certain specified indirect costs on contracts and subject us to ongoing multiple audits by government agencies such as theDefense Contract Audit Agency (DCAA). In addition, most of our federal and state and local contracts are subject to termination at the discretion of the client. Audits by the DCAA and other agencies consist of reviews of our overhead rates, operating systems and cost proposals to ensure that we account for such costs in accordance with the Cost Accounting Standards of the FAR (CAS). If the DCAA determines we have not accounted for such costs consistent with CAS, the DCAA may disallow these costs. There can be no assurance that audits by the DCAA or other governmental agencies will not result in material cost disallowances in the future.
Allowance for Doubtful Accounts and Expected Credit Losses
We record accounts receivable net of an allowance for doubtful accounts. This allowance for doubtful accounts is estimated based on management's evaluation of the contracts involved and the financial condition of our clients. The factors we consider in our contract evaluations include, but are not limited to: ? Client type-federal or state and local government or commercial client;
? Historical contract performance;
? Historical collection and delinquency trends;
? Client credit worthiness; and
? General economic conditions.
InOctober 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
Contract assets represent the contract revenue recognized but not yet billed pursuant to contract terms.
Contract liabilities represent the billings to date, as allowed under the terms of a contract, but not yet recognized as contract revenue using our revenue recognition policy.
Investments in
We have noncontrolling interests in joint ventures accounted for under the equity method. Fees received for and the associated costs of services performed by us and billed to joint ventures with respect to work done by us for third-party customers are recorded as our revenues and costs in the period in which such services are rendered. In certain joint ventures, a fee is added to the respective billings from both us and the other joint venture partners on the amounts billed to the third-party customers. These fees result in earnings to the joint venture and are split with each of the joint venture partners and paid to the joint venture partners upon collection from the third-party customer. We record our allocated share of these fees as equity in earnings of joint ventures.
Additionally, our ACAP segment primarily invests in real estate projects.
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Income Taxes
We provide for income taxes in accordance with principles contained in ASC Topic 740, Income Taxes. Under these principles, we recognize the amount of income tax payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance if it is more likely than not that a portion will not be realized. We measure and recognize the amount of tax benefit that should be recorded for financial statement purposes for uncertain tax positions taken or expected to be taken in a tax return. With respect to uncertain tax positions, we evaluate the recognized tax benefits for recognition, measurement, derecognition, classification, interest and penalties, interim period accounting and disclosure requirements. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Valuation Allowance. Deferred income taxes are provided on the liability method whereby deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities, as well as for tax attributes such as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and tax rates on the date of enactment of such changes to laws and tax rates. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets may not be realized. The evaluation of the recoverability of the deferred tax asset requires the Company to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. Whether a deferred tax asset may be realized requires considerable judgment by us. In considering the need for a valuation allowance, we consider a number of factors including the nature, frequency, and severity of cumulative financial reporting losses in recent years, the future reversal of existing temporary differences, predictability of future taxable income exclusive of reversing temporary differences of the character necessary to realize the asset, relevant carryforward periods, taxable income in carry-back years if carry-back is permitted under tax law, and prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset that would otherwise expire. Whether a deferred tax asset will ultimately be realized is also dependent on varying factors, including, but not limited to, changes in tax laws and audits by tax jurisdictions in which we operate. If future changes in judgment regarding the realizability of our deferred tax assets lead us to determine that it is more likely than not that we will not realize all or part of our deferred tax asset in the future, we will record an additional valuation allowance. Conversely, if a valuation allowance exists and we determine that the ultimate realizability of all or part of the net deferred tax asset is more likely than not to be realized, then the amount of the valuation allowance will be reduced. This adjustment will increase or decrease income tax expense in the period of such determination. Undistributed Non-U.S. Earnings. The results of our operations outside ofthe United States are consolidated for financial reporting; however, earnings from investments in non-U.S. operations are included in domesticU.S. taxable income only when actually or constructively received. No deferred taxes have been provided on the undistributed gross book-tax basis differences of our non-U.S. operations of approximately$1.3 billion because we have the ability to and intend to permanently reinvest these basis differences overseas. If we were to repatriate these basis differences, additional taxes could be due at that time. We continually explore initiatives to better align our tax and legal entity structure with the footprint of our non-U.S. operations and we recognize the tax impact of these initiatives, including changes in assessment of its uncertain tax positions, indefinite reinvestment exception assertions and realizability of deferred tax assets, earliest in the period when management believes all necessary internal and external approvals associated with such initiatives have been obtained, or when the initiatives are materially complete.
Goodwill represents the excess of amounts paid over the fair value of net assets acquired from an acquisition. In order to determine the amount of goodwill resulting from an acquisition, we perform an assessment to determine the value of the acquired company's tangible and identifiable intangible assets and liabilities. In our assessment, we determine whether identifiable intangible assets exist, which typically include backlog and customer relationships. 39
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We test goodwill for impairment annually for each reporting unit in the beginning of the fourth quarter of the fiscal year and between annual tests, if events occur or circumstances change which suggest that goodwill should be evaluated. Such events or circumstances include significant changes in legal factors and business climate, recent losses at a reporting unit, and industry trends, among other factors. A reporting unit is defined as an operating segment or one level below an operating segment. 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. 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.
The impairment evaluation process includes, among other things, making assumptions about variables such as revenue growth rates, profitability, discount rates, and industry market multiples, which are subject to a high degree of judgment.
There are inherent uncertainties related to each of the above listed assumptions, and our judgment in applying them. Changes in the assumptions used in our goodwill and intangible assets could result in impairment charges that could be material to our consolidated financial statements in any given period. We have not materially changed our estimation methodology during the periods presented. Pension Benefit Obligations
A number of assumptions are necessary to determine our pension liabilities and net periodic costs. These liabilities and net periodic costs are sensitive to changes in those assumptions. The assumptions include discount rates, long-term rates of return on plan assets and inflation levels limited to theUnited Kingdom and are generally determined based on the current economic environment in each host country at the end of each respective annual reporting period. We evaluate the funded status of each of our retirement plans using these current assumptions and determine the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations and other factors. Based upon current assumptions, we expect to contribute$21.4 million to our international plans in fiscal 2023. Our required minimum contributions for ourU.S. qualified plans are not significant. In addition, we may make additional discretionary contributions. We currently expect to contribute$8.8 million to ourU.S. plans (including benefit payments to nonqualified plans and postretirement medical plans) in fiscal 2023. If the discount rate was reduced by 25 basis points, plan liabilities would increase by approximately$28.1 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 inflation increased by 25 basis points, plan liabilities in theUnited Kingdom would increase by approximately$17.7 million and plan expense would increase by approximately$1.3 million . At each measurement date, all assumptions are reviewed and adjusted as appropriate. With respect to establishing the return on assets assumption, we consider the long-term capital market expectations for each asset class held as an investment by the various pension plans. In addition to expected returns for each asset class, we take into account standard deviation of returns and correlation between asset classes. This is necessary in order to generate a distribution of possible returns which reflects diversification of assets. Based on this information, a distribution of possible returns is generated based on the plan's target asset allocation. 40
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Capital market expectations for determining the long-term rate of return on assets are based on forward-looking assumptions which reflect a 20-year view of the capital markets. In establishing those capital market assumptions and expectations, we rely on the assistance of our actuaries and our investment consultants. We and the plan trustees review whether changes to the various plans' target asset allocations are appropriate. A change in the plans' target asset allocations would likely result in a change in the expected return on asset assumptions. In assessing a plan's asset allocation strategy, we and the plan trustees consider factors such as the structure of the plan's liabilities, the plan's funded status, and the impact of the asset allocation to the volatility of the plan's funded status, so that the overall risk level resulting from our defined benefit plans is appropriate within our risk management strategy. BetweenSeptember 30, 2021 andSeptember 30, 2022 , the aggregate worldwide pension deficit decreased from$345.5 million to$204.4 million due to increased discount rates. If the various plans do not experience future investment gains to reduce this shortfall, the deficit will be reduced by additional contributions.
Accrued Professional Liability Costs
We carry professional liability insurance policies or self-insure for our initial layer of professional liability claims under our professional liability insurance policies and for a deductible for each claim even after exceeding the self-insured retention. We accrue for our portion of the estimated ultimate liability for the estimated potential incurred losses. We establish our estimate of loss for each potential claim in consultation with legal counsel handling the specific matters and based on historic trends taking into account recent events. We also use an outside actuarial firm to assist us in estimating our future claims exposure. It is possible that our estimate of loss may be revised based on the actual or revised estimate of liability of the claims.
Fiscal year ended
September 30, 2021
Consolidated Results
Fiscal Year Ended Change
September 30, September 30,
2022 2021 $ %
($ in millions)
Revenue $ 13,148.2 $ 13,340.9 $ (192.7) (1.4) %
Cost of revenue 12,300.2 12,542.5 (242.3) (1.9)
Gross profit 848.0 798.4 49.6 6.2Equity in earnings of joint ventures 53.6 35.0 18.6 53.1 General and administrative expenses (147.3)
(155.0) 7.7 (5.0) Restructuring cost (107.5) (48.8) (58.7) 120.3 Income from operations 646.8 629.6 17.2 2.7 Other income 14.1 17.6 (3.5) (19.9) Interest expense (110.2) (238.4) 128.2 (53.8)
Income from continuing operations before taxes 550.7 408.8 141.9 34.7 Income tax expense from continuing operations 136.1 89.0 47.1 52.9 Net income from continuing operations 414.6 319.8 94.8 29.6 Net loss from discontinued operations (79.9) (116.8) 36.9 (31.6) Net income 334.7 203.0 131.7 64.9 Net income attributable to noncontrolling interests from continuing operations (25.5) (25.1) (0.4) 1.6 Net income attributable to noncontrolling interests from discontinued operations 1.4 (4.7) 6.1 (129.8) Net income attributable to noncontrolling interests (24.1) (29.8) 5.7 (19.1) Net income attributable toAECOM from continuing operations 389.1 294.7 94.4 32.0 Net loss attributable toAECOM from discontinued operations (78.5) (121.5) 43.0 (35.4) Net income attributable to AECOM $ 310.6 $
173.2 $ 137.4 79.3 %
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The following table presents the percentage relationship of statement of
operations items to revenue:
Fiscal Year Ended
September 30, September 30,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue 93.6 94.0
Gross profit 6.4 6.0
Equity in earnings of joint ventures 0.4 0.3
General and administrative expenses (1.1) (1.2)
Restructuring costs (0.8) (0.4)
Income from operations 4.9 4.7
Other income 0.1 0.1
Interest expense (0.8) (1.7)
Income from continuing operations before taxes 4.2 3.1
Income tax expense from continuing operations 1.0 0.7
Net income from continuing operations 3.2 2.4
Net loss from discontinued operations (0.7) (0.9)
Net income 2.5 1.5
Net income attributable to noncontrolling interests from continuing operations
(0.2) (0.2)
Net income attributable to noncontrolling interests from discontinued operations
0.0 0.0
Net income attributable to noncontrolling interests (0.2) (0.2)
Net income attributable to AECOM from continuing operations 3.0 2.2
Net loss attributable to AECOM from discontinued operations (0.7) (0.9)
Net income attributable to AECOM 2.3 % 1.3 %
Revenue
Our revenue for the year 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 these pass-through revenues can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends. Pass-through revenues for the years endedSeptember 30, 2022 and 2021 were$6.8 billion and$7.2 billion , respectively. Pass-through revenue as a percentage of total revenue was 52% and 54% during the year endedSeptember 30, 2022 and 2021, respectively.
Gross Profit
Our gross profit for the year endedSeptember 30, 2022 increased$49.6 million , or 6.2%, to$848.0 million as compared to$798.4 million for the corresponding period last year. For the year endedSeptember 30, 2022 , gross profit, as a percentage of revenue, increased to 6.4% from 6.0% in the year endedSeptember 30, 2021 .
Gross profit changes were due to the reasons noted in
Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the year endedSeptember 30, 2022 was$53.6 million as compared to$35.0 million in the corresponding period
last
year.
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The increase in earnings of joint ventures for the year endedSeptember 30, 2022 compared to the same period in the prior year was primarily due to increased earnings in ourAECOM Capital segment compared to the prior year.
General and Administrative Expenses
Our general and administrative expenses for the year endedSeptember 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 endedSeptember 30, 2022 , general and administrative expenses as a percentage of revenue decreased to 1.1% from 1.2% in the year endedSeptember 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.
Restructuring Costs
Restructuring expenses are comprised of personnel costs, real estate costs, and costs associated with business exits including our exit fromRussia . During fiscal year endedSeptember 30, 2022 , we incurred total restructuring expenses of 107.5 million, of which$69.1 million was related to the exit of ourRussia -related businesses. The restructuring costs to exit ourRussia -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 ourRussia -related businesses, for the fiscal year endedSeptember 30, 2022 was primarily related to actions that are expected to deliver continued margin improvements and deliver efficiencies. During the fiscal year endedSeptember 30, 2021 , we incurred restructuring expenses of$48.8 million , primarily related to costs optimizing our cost structure and reducing overhead costs.
Other Income
Our other income for the year endedSeptember 30, 2022 decreased$3.5 million to$14.1 million as compared to$17.6 million for the corresponding period last year.
The decrease in other income is primarily due to a decrease in net periodic pension adjustments partially offset by an increase in interest income.
Interest Expense
Our interest expense for the year ended
The decrease in interest expense for the year ended
Income Tax Expense
Our income tax expense for the year endedSeptember 30, 2022 was$136.1 million compared to$89.0 million for the year endedSeptember 30, 2021 . The increase in tax expense for the current period compared to the corresponding period last year was due primarily to the tax impacts of an increase in overall pre-tax income of$141.8 million , a tax benefit of$25.9 million recorded in fiscal 2021 related to a corporate tax rate change in theUnited 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 theU.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. 43 Table of Contents During the third quarter of fiscal 2021, theUnited Kingdom enacted a corporate tax rate increase from 19% to 25% beginningApril 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 ourU.S. federal audit for fiscal 2015 and 2016 and recorded tax expense of$13.2 million due primarily to changes in tax attributes.
We are currently under tax audit in several jurisdictions including the
We regularly integrate and consolidate our business operations and legal entity structure, and such internal initiatives could impact the assessment of uncertain tax positions, indefinite reinvestment assertions and the realizability of deferred tax assets.
Net Loss From Discontinued Operations
During the first quarter of fiscal 2020, management approved a plan to dispose via sale our self-perform at-risk construction businesses. As a result of these strategic actions, the self-perform at-risk construction businesses were classified as discontinued operations. That classification was applied retrospectively for all periods presented. Net loss from discontinued operations was$79.9 million for the year endedSeptember 30, 2022 and net loss was$116.8 million for the year endedSeptember 30, 2021 , a decrease of$36.9 million . The decrease in net loss from discontinued operations for the year endedSeptember 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 endedSeptember 30, 2021 was primarily due to fewer losses recorded on sales of the power and civil infrastructure businesses in fiscal 2021.
Net Income Attributable to
The factors described above resulted in the net income attributable toAECOM of$310.6 million for the year endedSeptember 30, 2022 , as compared to the net income attributable toAECOM of$173.2 million for the year endedSeptember 30, 2021 .
Results of Operations by Reportable Segment
Americas Fiscal Year Ended September 30, September 30, Change 2022 2021 $ % ( in millions) Revenue$ 9,939.3 $ 10,226.3 $ (287.0) (2.8) % Cost of revenue 9,299.4 9,594.7 (295.3) (3.1) Gross profit $ 639.9 $ 631.6$ 8.3 1.3 %
The following table presents the percentage relationship of statement of operations items to revenue:
Fiscal Year Ended
September 30, September 30,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue 93.6 93.8
Gross profit 6.4 % 6.2 %
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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
Gross Profit
Gross profit for ourAmericas segment for the year endedSeptember 30, 2022 increased$8.3 million , or 1.3%, to$639.9 million as compared to$631.6 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 6.4% of revenue for the year endedSeptember 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 endedSeptember 30, 2022 was primarily due a more efficient execution, reduction in real estate costs, and investments in shared service centers and digital solutions. In addition, underlying revenue excluding pass-through revenues increased. International Fiscal Year Ended September 30, September 30, Change 2022 2021 $ % (in millions) Revenue$ 3,206.7 $ 3,112.6 $ 94.1 3.0 % Cost of revenue 3,000.8 2,947.8 53.0 1.8 Gross profit $ 205.9 $ 164.8$ 41.1 24.9 %
The following table presents the percentage relationship of statement of operations items to revenue:
Fiscal Year Ended
September 30, September 30,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue 93.6 94.7
Gross profit 6.4 % 5.3 %
Revenue
Revenue for our International segment for the year ended
The increase in revenue for the year endedSeptember 30, 2022 was primarily attributable to increased growth inMiddle East ,India , andAsia compared to the prior year. The increase in revenue from the prior year was partially offset by the strengthening of theU.S. dollar as compared to the functional currencies of our foreign operations, particularly the British pound, Canadian dollar, and Australian dollar. Revenue growth in the next fiscal year may be affected by future currency fluctuations. Gross Profit
Gross profit for our International segment for the year endedSeptember 30, 2022 increased$41.1 million , or 24.9%, to$205.9 million as compared to$164.8 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 6.4% of revenue for the year endedSeptember 30, 2022 from 5.3% in the corresponding period last year. The increase in gross profit and gross profit as a percentage of revenue for the year endedSeptember 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. 45 Table of Contents AECOM Capital Fiscal Year Ended September 30, September 30, Change 2022 2021 $ % (in millions) Revenue $ 2.2 $ 2.0$ 0.2 10.0 %
Equity in earnings of joint ventures $ 24.4 $ 11.4$ 13.0 114.0 General and administrative expenses$ (12.6) $ (11.1) $ (1.5) 13.5 % Equity in earnings of joint ventures for the year endedSeptember 30, 2022 increased$13.0 million , or 114%, to$24.4 million compared to$11.4 million for the corresponding period in the prior year. The increase was primarily due to monetization of two of its real estate investments.
Liquidity and Capital Resources
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, dividend payments, and refinancing or repayment of debt. We believe our anticipated sources of liquidity including operating cash flows, existing cash and cash equivalents, borrowing capacity under our revolving credit facility and our ability to issue debt or equity, if required, will be sufficient to meet our projected cash requirements for at least the next twelve months. We expect to spend approximately$30 million to$40 million in restructuring costs in fiscal 2023 associated with ongoing restructuring actions that are expected to deliver continued margin improvement and efficiencies. 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. AtSeptember 30, 2022 , we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation. 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. AtSeptember 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 atSeptember 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. Net cash provided by operating activities was$713.6 million for the year endedSeptember 30, 2022 as compared to$704.7 million for the year endedSeptember 30, 2021 . 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 endedSeptember 30, 2022 compared to the year endedSeptember 30, 2021 . We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to us. 46
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Net cash used in investing activities was$175.0 million for the year endedSeptember 30, 2022 , as compared to$421.1 million for the year endedSeptember 30, 2021 . Cash used in investing activities decreased primarily due to a$223.6 million decrease in cash disposed as a result of the sales of discontinued operations. Capital expenditures, net of proceeds from disposals, were$128.1 million in the year endedSeptember 30, 2022 compared to$121.4 million in the year endedSeptember 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. Net cash used in financing activities was$588.3 million for the year endedSeptember 30, 2022 , as compared to$872.5 million for the year endedSeptember 30, 2021 . The decrease from the prior year was primarily attributable to decreased stock repurchases under the Stock Repurchase Program. Total borrowings under our credit agreement may vary during the period as we regularly draw and repay amounts to fund working capital.
Working Capital
Working capital, or current assets less current liabilities, decreased$233.2 million , or 35.8%, to$418.6 million atSeptember 30, 2022 from$651.8 million atSeptember 30, 2021 . Net accounts receivable and contract assets, net of contract liabilities, decreased to$2,671.9 million atSeptember 30, 2022 from$2,929.9 million atSeptember 30, 2021 .
Days Sales Outstanding (DSO), which includes net accounts receivable and
contract assets, net of contract liabilities, was 68 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:
September 30, September 30,
2022 2021
(in millions)
Credit Agreement $ 1,143.3 $ 1,155.3
2027 Senior Notes 997.3 997.3
Other debt 84.0 83.0
Total debt 2,224.6 2,235.6
Less: Current portion of debt and short-term borrowings (48.6) (53.8)
Less: Unamortized debt issuance costs (19.3) (24.1)
Long-term debt $ 2,156.7 $ 2,157.7
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The following table presents, in millions, scheduled maturities of our debt as
of September 30, 2022 :
Fiscal Year
2023 $ 48.6
2024 72.4
2025 40.3
2026 403.2
2027 1,004.2
Thereafter 655.9
Total $ 2,224.6
Credit Agreement
OnFebruary 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 ofOctober 17, 2014 (as amended prior toFebruary 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 onFebruary 8, 2026 . The outstanding loans under the Term A Facility were borrowed inU.S. dollars. Loans under the Revolving Credit Facility may be borrowed, and letters of credit thereunder may be issued, inU.S. dollars or in certain foreign currencies. The proceeds of the Revolving Credit Facility may be used from time to time for ongoing working capital and for other general corporate purposes. The proceeds of the Revolving Credit Facility and the Term A Loan facility borrowed onFebruary 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. 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 CO2 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 atSeptember 30, 2022 . As ofSeptember 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.
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On April 13, 2021 , we entered into Amendment No. 10 to the Credit Agreement,
pursuant to which the lenders thereunder provided a secured term "B" credit
facility (the "Term B Facility") to the Company in an aggregate principal amount
of $700,000,000 . The Term B Facility matures on April 13, 2028 . 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. 11 to the Credit Agreement,
pursuant to which lenders thereunder have provided us with an additional
$215,000,000 in aggregate principal amount under the Term A Facility. We used
the net proceeds from the increase in the Term A Facility (together with cash on
hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii)
pay fees and expenses related to such redemption.
At September 30, 2022 and 2021, letters of credit totaled $4.4 million and $5.2
million , respectively, under our Revolving Credit Facility. As of September 30,
2022 and 2021, we had $1,145.6 million and $1,144.8 million , respectively,
available under our Revolving Credit Facility.
2027 Senior Notes
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 "2027 Senior Notes"). OnJune 30, 2017 , we completed an exchange offer to exchange the unregistered 2027 Senior Notes for registered notes, as well as related guarantees. As ofSeptember 30, 2022 , the estimated fair value of the 2027 Senior Notes was approximately$930.0 million . The fair value of the 2027 Senior Notes as ofSeptember 30, 2022 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes. Interest is payable on the 2027 Senior Notes at a rate of 5.125% per annum. Interest on the 2027 Senior Notes is payable semi-annually onMarch 15 andSeptember 15 of each year, commencing onSeptember 15, 2017 . The 2027 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 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 afterDecember 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. The indenture pursuant to which the 2027 Senior Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events. The indenture also contains customary negative covenants.
We were in compliance with the covenants relating to the 2027 Senior Notes as of
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. AtSeptember 30, 2022 and 2021, these outstanding standby letters of credit totaled$640.3 million and$478.5 million , respectively. As ofSeptember 30, 2022 , we had$427.4 million available under these unsecured credit facilities. 49 Table of Contents 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
Interest expense in the consolidated statements of operations included
amortization of deferred debt issuance costs for the years 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 6, 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 ofSeptember 30, 2022 , there was approximately$644.7 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. AtSeptember 30, 2022 , our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately$204.4 million . The total amounts of employer contributions paid for the year endedSeptember 30, 2022 were$9.8 million forU.S. plans and$23.6 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. For the year endedSeptember 30, 2022 , we contributed$2.9 million to multiemployer pension plans.
Condensed Combined Financial Information
The 2027 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by some ofAECOM's directly and indirectly 100% owned subsidiaries (the Subsidiary Guarantors). Accordingly,AECOM became subject to the requirements of Rule 3-10 of Regulation S-X, as amended, regarding financial statements of guarantors and issuers of guaranteed securities. Other than customary restrictions imposed by applicable statutes, there are no restrictions on the ability of the Subsidiary Guarantors to transfer funds toAECOM in the form of cash dividends, loans or advances. The following tables present condensed combined summarized financial information forAECOM and the Subsidiary Guarantors. All intercompany balances and transactions are eliminated in the presentation of the combined financial statements. Amounts provided do not represent our total consolidated amounts as ofSeptember 30, 2022 and for the twelve months then ended. 50 Table of Contents Condensed Combined Balance Sheets Parent and Subsidiary Guarantors (unaudited - in millions) September 30, 2022 Current assets $ 2,645.0 Non-current assets 3,140.3 Total assets $ 5,785.3 Current liabilities $ 2,365.9 Non-current liabilities 2,712.1 Total liabilities 5,078.0 Total stockholders' equity 707.3 Total liabilities and stockholders' equity $ 5,785.3 Condensed Combined Statement of Operations Parent and Subsidiary Guarantors (unaudited - in millions) For the twelve months ended September 30, 2022 Revenue $ 6,730.1 Cost of revenue 6,214.6 Gross profit 515.5 Net income from continuing operations 95.1 Net loss from discontinued operations - Net income $ 95.1 Net income attributable to AECOM $ 95.1
Commitments and Contingencies
We record amounts representing our probable estimated liabilities relating to
claims, guarantees, litigation, audits and investigations. We rely in part on
qualified actuaries to assist us in determining the level of reserves to
establish for insurance-related claims that are known and have been asserted
against us, and for insurance-related claims that are believed to have been
incurred based on actuarial analysis, but have not yet been reported to our
claims administrators as of the respective balance sheet dates. We include any
adjustments to such insurance reserves in our consolidated results of
operations. Our reasonably possible loss disclosures are presented on a gross
basis prior to the consideration of insurance recoveries. We do not record gain
contingencies until they are realized. In the ordinary course of business, we
may not be aware that we or our affiliates are under investigation and may not
be aware of whether or not a known investigation has been concluded.
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In the ordinary course of business, we may enter into various arrangements providing financial or performance assurance to clients, lenders, or partners. Such arrangements include standby letters of credit, surety bonds, and corporate guarantees to support the creditworthiness or the project execution commitments of our affiliates, partnerships and joint ventures. Performance arrangements typically have various expiration dates ranging from the completion of the project contract and extending beyond contract completion in some circumstances such as for warranties. We may also guarantee that a project, when complete, will achieve specified performance standards. If the project subsequently fails to meet guaranteed performance standards, we may incur additional costs, pay liquidated damages or be held responsible for the costs incurred by the client to achieve the required performance standards. The potential payment amount of an outstanding performance arrangement is typically the remaining cost of work to be performed by or on behalf of third parties. Generally, under joint venture arrangements, if a partner is financially unable to complete its share of the contract, the other partner(s) may be required to complete those activities.
At
In the ordinary course of business, we enter into various agreements providing financial or performance assurances to clients on behalf of certain unconsolidated partnerships, joint ventures and other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. Our investment adviser jointly manages and sponsors theAECOM-Canyon Equity Fund, L.P. (the "Fund"), in which we indirectly hold an equity interest and have an ongoing capital commitment to fund investments. AtSeptember 30, 2022 , we have capital commitments of$13.2 million to the Fund over the next 6 years. In addition, in connection with the investment activities ofAECOM Capital , we provide guarantees of certain contractual obligations, including guarantees for completion of projects, repayment of debt, environmental indemnity obligations and other lender required guarantees.
A former affiliate of theCompany, Amentum Environment & Energy, Inc. , f/k/aAECOM Energy and Construction, Inc. ("Former Affiliate"), executed a cost-reimbursable task order with theDepartment of Energy (DOE) in 2007 to provide deactivation, demolition and removal services at aNew York State project site that, during 2010, experienced contamination and performance issues. InFebruary 2011 , the Former Affiliate and theDOE executed a Task Order Modification that changed some cost-reimbursable contract provisions to at-risk. The Task Order Modification, including subsequent amendments, required theDOE to pay all project costs up to$106 million , required the Former Affiliate and theDOE to equally share in all project costs incurred from$106 million to$146 million , and required the Former Affiliate to pay all project costs exceeding$146 million . Due to unanticipated requirements and permitting delays by federal and state agencies, as well as delays and related ground stabilization activities caused by Hurricane Irene in 2011, the Former Affiliate was required to perform work outside the scope of the Task Order Modification. InDecember 2014 , the Former Affiliate submitted an initial set of claims against theDOE pursuant to the Contracts Disputes Acts seeking recovery of$103 million , including additional fees on changed work scope (the "2014 Claims"). OnDecember 6, 2019 , the Former Affiliate submitted a second set of claims against theDOE seeking recovery of an additional$60.4 million , including additional project costs and delays outside the scope of the contract as a result of differing site and ground conditions (the "2019 Claims"). The Former Affiliate also submitted three alternative breach of contract claims to the 2014 and 2019 Claims that may entitle the Former Affiliate to recovery of$148.5 million to$329.4 million . OnDecember 30, 2019 , theDOE denied the Former Affiliate's 2014 Claims. OnSeptember 25, 2020 , theDOE denied the Former Affiliate's 2019 Claims. The Company filed an appeal of these decisions onDecember 20, 2020 in theCourt of Federal Claims . Deconstruction, decommissioning and site restoration activities are complete. 52 Table of Contents OnJanuary 31, 2020 , the Company completed the sale of its Management Services business, including the Former Affiliate who worked on theDOE project, toMaverick Purchaser Sub LLC (MS Purchaser), an affiliate ofAmerican Securities LLC andLindsay Goldberg LLC . The Company and the MS Purchaser agreed that all futureDOE project claim recoveries and costs will be split 10% to the MS Purchaser and 90% to the Company with the Company retaining control of all future strategic legal decisions. The Company intends to vigorously pursue all claimed amounts but can provide no certainty that the Company will recover 2014 Claims and 2019 Claims submitted against theDOE , or any additional incurred claims or costs, which could have a material adverse effect on the Company's results of operations.
InSeptember 2017 ,AECOM USA, Inc. was advised by theNew 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 withAECOM USA, Inc.'s oversight of a stream restoration project forSchoharie 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.
A Former Affiliate of the Company entered into an agreement to perform turnaround maintenance services during a planned shutdown at a refinery inMontana inDecember 2017 . The turnaround project was completed inFebruary 2019 . Due to circumstances outside of the Company's Former Affiliate's control, including client directed changes and delays and the refinery's condition, the Company's Former Affiliate performed additional work outside of the original contract over$90 million and is entitled to payment from the refinery owner of approximately$144 million . InMarch 2019 , the refinery owner sent a letter to the Company's Former Affiliate alleging it incurred approximately$79 million in damages due to the Company's Former Affiliate's project performance. InApril 2019 , the Company's Former Affiliate filed and perfected a$132 million construction lien against the refinery for unpaid labor and materials costs. InAugust 2019 , following a subcontractor complaint filed in theThirteen Judicial District Court of Montana asserting claims against the refinery owner and the Company's Former Affiliate, the refinery owner crossclaimed against the Company's Former Affiliate and the subcontractor. InOctober 2019 , following the subcontractor's dismissal of its claims, the Company's Former Affiliate removed the matter to federal court and cross claimed against the refinery owner. InDecember 2019 , the refinery owner claimed$93.0 million in damages and offsets against the Company's Former Affiliate. OnJanuary 31, 2020 , the Company completed the sale of its Management Services business, including the Former Affiliate, to the MS Purchaser; however, theRefinery Turnaround Project , including related claims and liabilities, has been retained by the Company. The Company intends to vigorously prosecute and defend this matter; however, the Company cannot provide assurance that the Company will be successful in these efforts. The resolution of this matter and any potential range of loss cannot be reasonably determined or estimated at this time, primarily because the matter raises complex legal issues that Company is continuing to assess.
Contractual Obligations and Commitments
The following summarizes our contractual obligations and commercial commitments as ofSeptember 30, 2022 : Contractual Obligations and Commitments Less than One to Three to More than Total One Year Three Years Five Years Five Years (in millions) Debt$ 2,224.6 $ 48.6 $ 112.7 $ 1,407.4 $ 655.9 Interest on debt 495.5 112.7 220.0 144.3 18.5 Operating leases 846.2 173.0 270.9 170.3 232.0
Pension funding obligations(1) 30.2 30.2 - - - Total contractual obligations and commitments$ 3,596.5 $ 364.5 $
603.6
Represents expected fiscal 2023 contributions to fund our defined benefit (1) pension and other postretirement plans. Contributions beyond one year have
not been included as amounts are not determinable.
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New Accounting Pronouncements and Changes in Accounting
InJune 2016 , theFinancial 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 effectiveOctober 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. InAugust 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 onOctober 1, 2021 . Adoption of the new guidance did not have a significant impact on our financial statements. InDecember 2019 , the FASB issued new accounting guidance which simplifies the accounting for income taxes. The guidance amends certain exceptions to the general principles of Accounting Standards Codification (ASC) 740, Income Taxes, and simplifies several areas such as accounting for a franchise tax or similar tax that is partially based on income. We adopted the new guidance starting onOctober 1, 2021 . The adoption of the new guidance did not have a significant impact on our consolidated financial statements. InOctober 2021 , the FASB issued final guidance to companies that apply ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance creates an exception to the general requirement to measure acquired assets and liabilities at fair value on the acquisition date. Under this exception, an acquirer applies ASC 606 to recognize and measure contract assets and contract liabilities on the acquisition date. We expect to adopt the new guidance starting onOctober 1, 2022 on a prospective basis for any business combinations we undertake.
Off-Balance Sheet Arrangements
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 entities. We have consolidated all joint ventures for which we have control. For all others, our portion of the earnings are recorded in equity in earnings of joint ventures. See Note 6 in the notes to our consolidated financial statements. We do not believe that we have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to investors.
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