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 infrastructure consulting
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, 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 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; 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 Quarterly Report on Form
10-Q and any subsequent reports we file with the SEC. 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 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, and AECOM 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
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characteristics, including similar long-term financial performance, the nature
of services provided, internal processes for delivering those services, and
types of customers.
Americas: Planning, consulting, architectural and engineering design,
construction management and program management services to commercial and
? government clients in the United States, Canada, and Latin America in major end
markets such as transportation, water, government, facilities, environmental,
and energy.
International: Planning, consulting, architectural and engineering design
services and program management to commercial and government clients in Europe,
? the Middle East, India, Africa and the Asia-Australia-Pacific regions in major
end markets such as transportation, water, government, facilities,
environmental, and energy.
? AECOM Capital (ACAP): Invests primarily in and develops real estate projects.
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.
In September 2021, the Board approved an increase in our stock repurchase
authorization to $1.0 billion. At December 31, 2022, we have approximately $527
million remaining of the Board's repurchase authorization. We intend to deploy
future available cash towards dividends and stock repurchases consistent with
our return driven capital allocation policy.
We have exited substantially all of our self-perform at-risk construction
businesses and divested our remaining non-core oil and gas businesses in January
2022. As part of our ongoing plan to improve profitability and maintain a
reduced risk profile, we continuously evaluate our geographic exposure. In March
2022, we substantially completed our exit of all business operations in Russia
consistent with our announcement on March 7, 2022.
We expect to incur restructuring costs of approximately $30 million to $40
million in fiscal 2023, primarily related to ongoing actions that are expected
to deliver continued margin improvement and efficiencies. Our estimated
restructuring costs include the ongoing exit of certain countries in Southeast
Asia, subject to applicable laws, as part of our ongoing plan to evaluate our
geographic exposure and reduce our risk profile.
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Results of Operations
Three months ended December 31, 2022 compared to the three months ended December
31, 2021
Consolidated Results
Three Months Ended
December 31, December 31, Change
2022 2021 $ %
(in millions)
Revenue $ 3,382.4 $ 3,266.7 $ 115.7 3.5 %
Cost of revenue 3,167.4 3,066.5 100.9 3.3
Gross profit 215.0 200.2 14.8 7.4
Equity in earnings of joint ventures 9.8 7.9 1.9 24.1
General and administrative expenses (35.6) (36.4) 0.8 (2.2)
Restructuring costs (37.5) (3.4) (34.1) 1,002.9
Income from operations
151.7 168.3 (16.6) (9.9)
Other income 7.9 2.9 5.0 172.4
Interest expense (36.7) (25.4) (11.3) 44.5
Income from continuing operations before taxes 122.9 145.8 (22.9) (15.7)
Income tax expense for continuing operations 25.8 22.6 3.2 14.2
Net income from continuing operations 97.1 123.2 (26.1) (21.2)
Net loss from discontinued operations (0.4) (62.0) 61.6 (99.4)
Net income 96.7 61.2 35.5 58.0
Net income attributable to noncontrolling interests from continuing
operations
(9.6) (5.4) (4.2) 77.8
Net loss attributable to noncontrolling interests from discontinued
operations
0.8 5.7 (4.9) (86.0)
Net (income) loss attributable to noncontrolling interests (8.8) 0.3 (9.1) (3,033.3)
Net income attributable to AECOM from continuing operations 87.5 117.8 (30.3) (25.7)
Net income (loss) attributable to AECOM from discontinued operations 0.4 (56.3) 56.7 (100.7)
Net income attributable to AECOM $
87.9 $ 61.5 $ 26.4 42.9 %
The following table presents the percentage relationship of statement of
operations items to revenue:
Three Months Ended
December 31, December 31,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue 93.6 93.9
Gross profit 6.4 6.1
Equity in earnings of joint ventures 0.3 0.2
General and administrative expenses
(1.1) (1.0)
Restructuring costs (1.1) (0.1)
Income from operations 4.5 5.2
Other income 0.2 0.1
Interest expense (1.1) (0.8)
Income from continuing operations before taxes 3.6 4.5
Income tax expense for continuing operations 0.7 0.7
Net income from continuing operations 2.9 3.8
Net loss from discontinued operations (0.0) (1.9)
Net income 2.9 1.9
Net income attributable to noncontrolling interests from continuing operations
(0.3) (0.2)
Net loss attributable to noncontrolling interests from discontinued operations
0.0 0.2
Net (income) loss attributable to noncontrolling interests (0.3) 0.0
Net income attributable to AECOM from continuing operations 2.6 3.6
Net income (loss) attributable to AECOM from discontinued operations 0.0 (1.7)
Net income attributable to AECOM
2.6 % 1.9 %
Revenue
Our revenue for the three months ended December 31, 2022 increased $115.7
million, or 3.5%, to $3,382.4 million as compared to $3,266.7 million for the
corresponding period last year.
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The increase in revenue for the three months ended December 31, 2022 was
primarily attributable to an increase in our Americas segment of $115.8 million,
as discussed further below.
In the course of providing our services, we routinely subcontract for services
and incur other direct costs on behalf of our clients. 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 quarters ended December 31, 2022 and 2021 were $1.8 billion and $1.7
billion, respectively. Pass-through revenue as a percentage of revenue was 53%
and 53% during the three months ended December 31, 2022 and 2021, respectively.
Gross Profit
Our gross profit for the three months ended December 31, 2022 increased $14.8
million, or 7.4%, to $215.0 million as compared to $200.2 million for the
corresponding period last year. For the three months ended December 31, 2022,
gross profit, as a percentage of revenue, increased to 6.4% from 6.1% in the
three months ended December 31, 2021.
Gross profit changes were due to the reasons noted in Americas and International
reportable segments below.
Equity in Earnings of Joint Ventures
Our equity in earnings of joint ventures for the three months ended December 31,
2022 was $9.8 million as compared to $7.9 million in the corresponding period
last year.
The increase in earnings of joint ventures for the three months ended December
31, 2022 compared to the same period in the prior year was primarily due to
increased earnings in our AECOM Capital segment compared to the prior year.
General and Administrative Expenses
Our general and administrative expenses for the three months ended December 31,
2022 decreased $0.8 million, or 2.2%, to $35.6 million as compared to $36.4
million for the corresponding period last year. For the three months ended
December 31, 2022, general and administrative expenses, as a percentage of
revenue, was 1.1% as compared to 1.0% for the corresponding period last year.
Restructuring Costs
Restructuring expenses are comprised of personnel costs, real estate costs, and
costs associated with business exits. During the three months ended December 31,
2022, we incurred total restructuring expenses of $37.5 million, primarily
related to costs incurred in preparation for the exit of specific countries in
Southeast Asia. During the three months ended December 31, 2021, we incurred
restructuring expenses of $3.4 million, primarily related to costs associated
with management actions to deliver margin improvement and efficiencies that
result in a more agile organization.
Other Income
Our other income for the three months ended December 31, 2022 increased to $7.9
million from $2.9 million for the corresponding period last year.
The increase in other income is primarily due to an increase in interest income
compared to the period in the prior year.
Interest Expense
Our interest expense for the three months ended December 31, 2022 was $36.7
million as compared to $25.4 million for the corresponding period last year.
The increase in interest expense for the three months ended December 31, 2022
was primarily due to an increase in interest rates on the variable component of
our debt.
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Income Tax Expense
Our income tax expense for the three months ended December 31, 2022 was $25.8
million as compared to $22.6 million in the corresponding period last year. The
increase in tax expense for the current period compared to the corresponding
period last year was due primarily to changes in valuation allowances providing
a tax benefit of $21.9 million and foreign uncertain tax provisions generating a
tax expense of $16.1 million in the first quarter of fiscal 2022, offset by the
tax impact of lower pre-tax income of $22.9 million.
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. The positive
evidence included a realignment of our global transfer pricing methodology which
resulted in forecasting the utilization of the net operating losses within the
foreseeable future.
We regularly integrate and consolidate our business operations and legal entity
structure, and such internal initiatives could impact the assessment of
uncertain tax positions, indefinite reinvestment assertions and the
realizability of deferred tax assets.
Net Loss From Discontinued Operations
During the first quarter of fiscal 2020, management approved a plan to dispose
of via sale our self-perform at-risk construction businesses. As a result of
these strategic actions, the self-perform at-risk construction businesses were
classified as discontinued operations. That classification was applied for all
periods presented.
Net loss from discontinued operations was $0.4 million for the three months
ended December 31, 2022 and was $62.0 million for the three months ended
December 31, 2021, a decrease of $61.6 million. The decrease in net loss from
discontinued operations for the three months ended December 31, 2022 was
primarily due to losses related to revisions of estimates for our working
capital obligations to be paid and contingent consideration receivable related
to the civil infrastructure business recorded in the first quarter of fiscal
2022 that did not recur in fiscal 2023.
Net Income Attributable to AECOM
The factors described above resulted in net income attributable to AECOM of
$87.9 million for the three months ended December 31, 2022 as compared to net
income attributable to AECOM of $61.5 million for the three months ended
December 31, 2021.
Results of Operations by Reportable Segment:
Americas
Three Months Ended
December 31, December 31, Change
2022 2021 $ %
(in millions)
Revenue $ 2,579.3 $ 2,463.5 $ 115.8 4.7 %
Cost of revenue 2,416.4 2,313.5 102.9 4.4
Gross profit $ 162.9 $ 150.0 $ 12.9 8.6 %
The following table presents the percentage relationship of statement of
operations items to revenue:
Three Months Ended
December 31, December 31,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue 93.7 93.9
Gross profit 6.3 % 6.1 %
Revenue
Revenue for our Americas segment for the three months ended December 31, 2022
increased $115.8 million, or 4.7%, to $2,579.3 million as compared to $2,463.5
million for the corresponding period last year.
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The increase in revenue for the three months ended December 31, 2022 was
primarily driven by growth in our Americas design business and our construction
management business.
Gross Profit
Gross profit for our Americas segment for the three months ended December 31,
2022 increased $12.9 million, or 8.6%, to $162.9 million as compared to $150.0
million for the corresponding period last year. As a percentage of revenue,
gross profit increased to 6.3% of revenue for the three months ended December
31, 2022 from 6.1% in the corresponding period last year.
The increase in gross profit for the three months ended December 31, 2022 was
primarily due to revenue growth, efficient execution, and reduced real estate
costs. In addition, underlying revenue excluding pass-through revenues
increased.
International
Three Months Ended
December 31, December 31, Change
2022 2021 $ %
(in millions)
Revenue $ 802.8 $ 802.4 $ 0.4 0.0 %
Cost of revenue 751.0 753.0 (2.0) (0.3)
Gross profit $ 51.8 $ 49.4 $ 2.4 4.9 %
The following table presents the percentage relationship of statement of
operations items to revenue:
Three Months Ended
December 31, December 31,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue 93.5 93.8
Gross profit 6.5 % 6.2 %
Revenue
Revenue for our International segment for the three months ended December 31,
2022 increased $0.4 million, or 0.0%, to $802.8 million as compared to $802.4
million for the corresponding period last year.
The increase in revenue for the three months ended December 31, 2022 was
primarily due to increased growth in Middle East and Australia compared to the
prior year partially offset by the strengthening of the U.S. dollar as compared
to the functional currencies of our foreign operations.
Gross Profit
Gross profit for our International segment for the three months ended December
31, 2022 increased $2.4 million, or 4.9%, to $51.8 million as compared to $49.4
million for the corresponding period last year. As a percentage of revenue,
gross profit increased to 6.5% of revenue for the three months ended December
31, 2022 from 6.2% in the corresponding period last year.
The increase in gross profit and gross profit as a percentage of revenue for the
three months ended December 31, 2022 was primarily due to an increase in revenue
and reduced costs resulting from country exits, ongoing investments in
enterprise capability centers, shared service centers, and digital solutions.
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AECOM Capital
Three Months Ended
December 31, December 31, Change
2022 2021 $ %
(in millions)
Revenue $ 0.3 $ 0.8 $ (0.5) (62.5) %
Equity in earnings of joint ventures $ 5.6 $ 1.1 $ 4.5 409.1
General and administrative expenses $ (2.7) $
(3.0) $ 0.3 (10.0) %
Equity in earnings of joint ventures for the three months ended December 31,
2022 increased $4.5 million, or 409.1%, to $5.6 million compared to $1.1 million
for the corresponding period last year. The increase was primarily due to
monetization of its real estate investments.
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 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. Many U.S. state
governments with fiscal years ending on June 30 tend to accelerate spending
during their first quarter, when new funding becomes available. In addition, we
find that the U.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. Within the 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, 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 for U.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. At December
31, 2022, we have determined that we will continue to indefinitely reinvest the
earnings of some foreign subsidiaries and, therefore, we will continue to
account for these undistributed earnings based on our existing accounting under
ASC 740 and not accrue additional tax. Determination of the amount of any
unrecognized deferred income tax liability on this temporary difference is not
practicable because of the complexities of the hypothetical calculation. Based
on the available sources of cash flows discussed above, we anticipate we will
continue to have the ability to permanently reinvest these remaining amounts.
At December 31, 2022, cash and cash equivalents, including cash and cash
equivalents included in current assets held for sale, were $1,162.7 million, a
decrease of $14.1 million, or 1.2%, from $1,176.8 million at September 30, 2022.
The decrease in cash and cash equivalents was primarily attributable to $70.0
million of cash used to repurchase common stock of which $50.0 million was under
the existing Board repurchase authorization.
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Net cash provided by operating activities was $120.0 million for the three
months ended December 31, 2022 as compared to $194.9 million for the three
months ended December 31, 2021. The change was primarily attributable to a
decrease in cash provided by working capital of approximately $88.8 million and
a decrease in adjustments for non-cash items of approximately $21.6 million,
partially offset by an increase in net income of approximately $35.5 million.
The sale of trade receivables to financial institutions included in operating
cash flows increased $18.4 million during the three months ended December 31,
2022 compared to the three months ended December 31, 2021. We expect to continue
to sell trade receivables in the future as long as the terms continue to remain
favorable to us.
Net cash used in investing activities was $45.2 million for the three months
ended December 31, 2022, as compared to $48.6 million for the three months ended
December 31, 2021.
Net cash used in financing activities was $91.4 million for the three months
ended December 31, 2022 as compared to $288.9 million for the three months ended
December 31, 2021. The decrease was primarily attributable to decreased stock
repurchases under the Stock Repurchase Program. 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, increased $51.1
million, or 12.2%, to $469.7 million at December 31, 2022 from $418.6 million at
September 30, 2022. Net accounts receivable and contract assets, net of contract
liabilities, increased to $2,699.9 million at December 31, 2022 from $2,671.9
million at September 30, 2022.
Days Sales Outstanding (DSO), which includes net accounts receivable and
contract assets, net of contract liabilities, was 69 days at December 31, 2022
compared to 68 days at September 30, 2022.
In Note 4, Revenue Recognition, in the notes to our consolidated financial
statements, a comparative analysis of the various components of accounts
receivable is provided. 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,
2022 2022
(in millions)
Credit Agreement $ 1,138.9 $ 1,143.3
2027 Senior Notes 997.3 997.3
Other debt 89.6 84.0
Total debt 2,225.8 2,224.6
Less: Current portion of debt and short-term borrowings (53.0) (48.6)
Less: Unamortized debt issuance costs (18.1) (19.3)
Long-term debt $ 2,154.7 $ 2,156.7
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The following table presents, in millions, scheduled maturities of the our debt
as of December 31, 2022:
Fiscal Year
2023 (nine months remaining) $ 41.5
2024 74.4
2025 43.2
2026 406.0
2027 1,004.8
Thereafter 655.9
Total $ 2,225.8
Credit Agreement
On February 8, 2021, we entered into the 2021 Refinancing Amendment to the
Credit Agreement (the "Credit Agreement"), pursuant to which we amended and
restated our Syndicated Credit Facility Agreement, dated as of October 17, 2014
(as amended prior to February 8, 2021, the "Original Credit Agreement"), between
the Company, as borrower, Bank of America, N.A., as administrative agent, and
other parties thereto. At the time of amendment, the Credit Agreement consisted
of a $1,150,000,000 revolving credit facility (the "Revolving Credit Facility")
and a $246,968,737.50 term loan A facility (the "Term A Facility," together with
the Revolving Credit Facility, the "Credit Facilities"), each of which mature on
February 8, 2026. The outstanding loans under the Term A Facility were borrowed
in U.S. dollars. Loans under the Revolving Credit Facility may be borrowed, and
letters of credit thereunder may be issued, in U.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 on February 8, 2021 were used to refinance the existing
revolving credit facility and the existing term loan facility under the Original
Credit Agreement and to pay related fees and expenses. The Credit Agreement
permits us to designate certain of its subsidiaries as additional co-borrowers
from time to time. 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 2.20 to 1.00 at December 31, 2022. As of December 31, 2022,
we were in compliance with the covenants of the Credit Agreement.
The Credit Agreement contains customary affirmative covenants, including, among
other things, compliance with applicable law, preservation of existence,
maintenance of properties and of insurance, and keeping proper books and
records. 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 December 31, 2022 and September 30, 2022, letters of credit totaled $4.4
million and $4.4 million, respectively, under our Revolving Credit Facility. As
of December 31, 2022 and September 30, 2022, we had $1,145.6 million and
$1,145.6 million, respectively, available under our revolving credit facility.
2027 Senior Notes
On February 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"). On June 30, 2017, we completed an exchange
offer to exchange the unregistered 2027 Senior Notes for registered notes, as
well as related guarantees.
As of December 31, 2022, the estimated fair value of the 2027 Senior Notes was
approximately $959.9 million. The fair value of the 2027 Senior Notes as of
December 31, 2022 was derived by taking the mid-point of the trading prices from
an observable market input (Level 2) in the secondary bond market and
multiplying it by the outstanding balance of the 2027 Senior Notes. 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 on March 15 and September 15 of each
year, commencing on September 15, 2017. The 2027 Senior Notes will mature on
March 15, 2027.
At any time and from time to time prior to December 15, 2026, we may redeem all
or part of the 2027 Senior Notes, at a redemption price equal to 100% of their
principal amount, plus a "make whole" premium as of the redemption date, and
accrued and unpaid interest to the redemption date. On or after December 15,
2026, we may redeem all or part of the 2027 Senior Notes at a redemption price
equal to 100% of their principal amount, plus accrued and unpaid interest on the
redemption date.
The indenture pursuant to which the 2027 Senior Notes were issued contains
customary events of default, including, among other things, payment default,
exchange default, failure to provide notices thereunder and provisions related
to bankruptcy events. The indenture also contains customary negative covenants.
We were in compliance with the covenants relating to the 2027 Senior Notes as of
December 31, 2022.
Other Debt and Other Items
Other debt consists primarily of obligations under capital leases and loans, and
unsecured credit facilities. The unsecured credit facilities are primarily used
for standby letters of credit issued in connection with general and professional
liability insurance programs and for contract performance guarantees. At
December 31, 2022 and September 30, 2022, these outstanding standby letters of
credit totaled $871.1 million and $640.3 million, respectively. As of December
31, 2022, we had $425.0 million available under these unsecured credit
facilities.
Effective Interest Rate
Our average effective interest rate on our total debt, including the effects of
the interest rate swap and interest rate cap agreements, during the three months
ended December 31, 2022 and 2021 was 5.1% and 3.4%, respectively.
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Interest expense in the consolidated statements of operations included
amortization of deferred debt issuance costs for the three months ended December
31, 2022 and 2021 of $1.2 million and $1.2 million, respectively.
Other Commitments
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 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 of December 31, 2022, there was
approximately $875.5 million, including both continuing and discontinued
operations, outstanding under standby letters of credit primarily issued in
connection with general and professional liability insurance programs and for
contract performance guarantees. For those projects for which we have issued a
performance guarantee, if the project subsequently fails to meet guaranteed
performance standards, we may either incur significant additional costs or be
held responsible for the costs incurred by the client to achieve the required
performance standards.
We recognized on our balance sheet the funded status of our pension benefit
plans, measured as the difference between the fair value of plan assets and the
projected benefit obligation. At December 31, 2022, our defined benefit pension
plans had an aggregate deficit (the excess of projected benefit obligations over
the fair value of plan assets) of approximately $203.7 million. The total
amounts of employer contributions paid for the three months ended December 31,
2022 were $2.5 million for U.S. plans and $4.8 million for non-U.S. 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 plans that we do not control or manage. For the year
ended September 30, 2022, we contributed $2.9 million to multiemployer pension
plans.
Contractual Obligations
Refer to our Annual Report on Form 10-K for the year ended September 30, 2022
for a discussion of our contractual obligations. There have been no changes,
outside of the ordinary course of business, to these contractual obligations
during the three months ended December 31, 2022.
Condensed Combined Financial Information
The 2027 Senior Notes are fully and unconditionally guaranteed on a joint and
several basis by some of AECOM'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 to AECOM in the
form of cash dividends, loans or advances.
The following tables present condensed combined summarized financial information
for AECOM 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
of December 31, 2022 and September 30, 2022, and for the three months ended
December 31, 2022.
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