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4
AECOM
Consolidated Statements of Cash Flows
(unaudited - in thousands)
| | | | | | |
| | Three Months Ended December 31, | ||||
|
| 2023 |
| 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income | | $ |
| | $ |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | |
|
| | |
|
Equity in losses (earnings) of unconsolidated joint ventures | |
|
| | | () |
Distribution of earnings from unconsolidated joint ventures | |
|
| | |
|
Non-cash stock compensation | | |
| | |
|
Foreign currency translation | | |
| | |
|
Other | | |
| | |
|
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable and contract assets | |
| () | | | () |
Prepaid expenses and other assets | |
| () | | | () |
Accounts payable | |
| () | | | () |
Accrued expenses and other current liabilities | |
|
| | |
|
Contract liabilities | | |
| | |
|
Other long-term liabilities | |
| () | | |
|
Net cash provided by operating activities | | |
| | |
|
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Payments for business acquisition, net of cash acquired | | | () | | | — |
Investment in unconsolidated joint ventures | | | () | | | () |
Return of investment in unconsolidated joint ventures | | | — | | |
|
Proceeds from sale of investments | | |
| | |
|
Proceeds from disposal of property and equipment | | |
| | |
|
Payments for capital expenditures | | | () | | | () |
Net cash used in investing activities | | | () | | | () |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Proceeds from borrowings under credit agreements | | |
| | |
|
Repayments of borrowings under credit agreements | |
| () | | | () |
Dividends paid | | | () | | | () |
Proceeds from issuance of common stock | | |
| | |
|
Payments to repurchase common stock | | | () | | | () |
Net distributions to noncontrolling interests | | | () | | | () |
Other financing activities | | |
| | |
|
Net cash used in financing activities | | | () | | | () |
| | | | | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | | |
| | |
|
NET DECREASE IN CASH AND CASH EQUIVALENTS | |
| () | | | () |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | |
|
| | |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | |
| | |
|
LESS CASH AND CASH EQUIVALENTS INCLUDED IN CURRENT ASSETS HELD FOR SALE | | | () | | | () |
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF PERIOD | | $ |
| | $ |
|
See accompanying Notes to Consolidated Financial Statements.
5
AECOM
Notes to Consolidated Financial Statements
(unaudited)
or -week periods ending on the Friday nearest September 30. The Company reports its quarterly results of operations based on periods ending on the Friday nearest December 31, March 31, and June 30. For clarity of presentation, all periods are presented as if the periods ended on September 30, December 31, March 31, and June 30.
6
$
Receivables and contract assets
Current assets held for sale
$
$
Property and equipment, net
$
$
Write-down of assets to fair value less cost to sell
()
()
Non-current assets held for sale
$
—
$
—
Accounts payable and accrued expenses
$
Current liabilities held for sale
$
$
Long-term liabilities held for sale
$
$
The following table represents summarized income statement information of discontinued operations (in millions):
| | | | | | |
| | Three months ended | ||||
| | December 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
| | | | | | |
Revenue | | $ |
| | $ |
|
Cost of revenue | |
|
| | |
|
Gross profit | |
|
| | |
|
Equity in earnings of joint ventures | |
| — | | | () |
Loss on disposal activities | | | () | | | — |
Transaction costs | | | — | | | () |
Loss from operations | |
| () | | | () |
Other loss | |
| () | | | — |
Loss before taxes | |
| () | | | () |
Income tax benefit | |
| () | | | () |
Net loss from discontinuing operations | | $ | () | | $ | () |
The significant components included in our Consolidated Statement of Cash Flows for the discontinued operations are as follows (in millions):
| | | | | | |
| | Three months ended | ||||
| | December 31, |
| December 31, | ||
|
| 2023 | | 2022 | ||
| | | | | | |
Payments for capital expenditures | | $ | — | | $ | () |
7
The Company completed one acquisition in the first quarter of fiscal 2024. The changes in the carrying value of goodwill by reportable segment for the three months ended December 31, 2023 were as follows:
$
$
$
International
—
Total
$
$
$
$
The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of December 31, 2023 and September 30, 2023, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:
$
()
$
$
$
()
$
-
Amortization expense of acquired intangible assets included within cost of revenue was $ million and $ million for the three months ended December 31, 2023 and 2022, respectively. The following table presents estimated amortization expense of existing intangible assets for the remainder of fiscal 2023 and for the succeeding years:
2025
2026
2027
2028
Thereafter
Total
$
billion and $ billion, respectively.
Recognition of revenue 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, the Company is 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 the transaction price only to the extent that a significant reversal would not be probable. Management continuously monitors factors that may affect the quality of its estimates, and material changes in estimates are disclosed accordingly. Costs attributable to claims are treated as costs of contract performance as incurred.
8
$
Guaranteed maximum price
Fixed price
Total revenue
$
$
| | | | | | |
| | Three months ended | ||||
| | December 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
|
| (in millions) | ||||
Americas | | $ |
| | $ |
|
Europe, Middle East, India, Africa | |
|
| | |
|
Asia-Australia-Pacific | |
|
| | |
|
Total revenue | | $ |
| | $ |
|
As of December 31, 2023, the Company had allocated $ billion of transaction price to unsatisfied or partially satisfied performance obligations, of which approximately % is expected to be satisfied within the next . The majority of remaining performance obligation after the first 12 months are expected to be recognized over a two-year period.
9
The Company’s timing of revenue recognition may not be consistent with its rights to bill and collect cash from its clients. Those rights are generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of work or when services are performed. The Company’s accounts receivables represent amounts billed to clients that have yet to be collected and represent an unconditional right to cash from its clients. Contract assets represent the amount of contract revenue recognized but not yet billed pursuant to contract terms or accounts billed after the balance sheet date. Contract liabilities represent billings as of the balance sheet date, as allowed under the terms of a contract, but not yet recognized as contract revenue pursuant to the Company’s revenue recognition policy.
Net accounts receivable consisted of the following:
$
Contract retentions
Total accounts receivable—gross
Allowance for doubtful accounts and credit losses
()
()
Total accounts receivable—net
$
$
Substantially all contract assets as of December 31, 2023 and September 30, 2023 are expected to be billed and collected within , except for claims. Significant claims recorded in contract assets and other non-current assets were approximately $ million and $ million as of December 31, 2023 and September 30, 2023, respectively. The asset related to the Deactivation, Demolition, and Removal Project retained from the MS Purchaser as defined in and discussed in Note 15 is presented in prepaid expense and other current assets from continuing operations in the Consolidated Balance Sheet. Contract retentions represent amounts invoiced to clients where payments have been withheld from progress payments until the contracted work has been completed and approved by the client but nonetheless represent an unconditional right to cash.
The Company considers a broad range of information to estimate expected credit losses including the related ages of past due balances, projections of credit losses based on historical trends, and collection history and credit quality of its clients. Negative macroeconomic trends or delays in payment of outstanding receivables could result in an increase in the estimated credit losses.
single client accounted for more than % of the Company’s outstanding receivables at December 31, 2023 and September 30, 2023.
The Company sold trade receivables to financial institutions, of which $ million and $ million were outstanding as of December 31, 2023 and September 30, 2023, respectively. The Company does not retain financial or legal obligations for these receivables that would result in material losses. The Company’s ongoing involvement is limited to the remittance of customer payments to the financial institutions with respect to the sold trade receivables.
10
$
Non-current assets
Total assets
$
$
Current liabilities
$
$
Non-current liabilities
Total liabilities
Total AECOM deficit
()
()
Noncontrolling interests
Total owners’ equity
Total liabilities and owners’ equity
$
$
Total revenue of the consolidated joint ventures was $ million and $ million for the three months ended December 31, 2023 and 2022, respectively. The assets of the Company’s consolidated joint ventures are restricted for use only by the particular joint venture and are not available for the general operations of the Company.
11
$
Non-current assets
Total assets
$
$
Current liabilities
$
$
Non-current liabilities
Total liabilities
Joint ventures’ equity
Total liabilities and joint ventures’ equity
$
$
AECOM’s investment in unconsolidated joint ventures
$
$
| | | | | | |
| | Three Months Ended | ||||
| | December 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
| | (in millions) | ||||
Revenue | | $ |
| | $ |
|
Cost of revenue | |
|
| | |
|
Gross profit | | $ |
| | $ |
|
Net income | | $ |
| | $ |
|
Summary of AECOM’s equity in earnings of unconsolidated joint ventures is as follows:
$
Other joint ventures
()
Total
$
()
$
12
$
—
$
Interest cost on projected benefit obligation
Expected return on plan assets
()
()
()
()
Amortization of net loss/(gain)
()
()
Net periodic benefit cost (credit)
$
$
()
$
$
()
The total amounts of employer contributions paid for the three months ended December 31, 2023 were $ million for U.S. plans and $ million for non-U.S. plans. The expected remaining scheduled annual employer contributions for the fiscal year ending September 30, 2024 are $ million for U.S. plans and $ million for non-U.S. plans.
$
2027 Senior Notes
Other debt
Total debt
Less: Current portion of debt and short-term borrowings
()
()
Less: Unamortized debt issuance costs
()
()
Long-term debt
$
$
The following table presents, in millions, scheduled maturities of the Company’s debt as of December 31, 2023:
| | | |
Fiscal Year |
| | |
2024 (nine months remaining) | | $ |
|
2025 | |
|
|
2026 | |
|
|
2027 | |
|
|
2028 | |
|
|
Total | | $ |
|
Credit Agreement
On February 8, 2021, the Company entered into the 2021 Refinancing Amendment to the Credit Agreement (as amended, modified or otherwise supplemented, the “Credit Agreement”), pursuant to which the Company amended and restated its 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 $ revolving credit facility (the “Revolving Credit Facility”) and a $ 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
13
On June 25, 2021, the Company entered into Amendment No. 11 to the Credit Agreement, pursuant to which lenders thereunder have provided the Company an additional $ in aggregate principal amount under the Term A Facility. The Company used the net proceeds from the increase in the Term A Facility (together with cash on hand), to (i) redeem all of the Company’s remaining % Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.
On May 23, 2023, the Company entered into Amendment No. 12 to the Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by, in the case of US Dollar-denominated loans, a secured overnight financing rate subject to a spread adjustment, and, in the case of loans denominated in other currencies, other customary successor rates, subject in certain cases to a spread adjustment. On May 23, 2023, the Company entered into Amendment No. 13 to the Credit Agreement, pursuant to which the spread adjustments with respect to the Revolving Credit Facility and the Term A Facility were amended.
The applicable interest rate for loans under the Term B Facility is calculated at a per annum rate equal to, at the Company’s option, (a) the Term SOFR (as defined in the Credit Agreement) plus % or (b) the Base Rate (as defined in the Credit Agreement) plus %.
The applicable interest rate for U.S. Dollar-denominated loans under the Revolving Credit Facility and the Term A Facility is calculated at a per annum rate equal to, at the Company’s option, (a) the Term SOFR (as defined in the Credit Agreement) plus an applicable margin (the “SOFR Applicable Margin”), which is currently at % or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin,” and together with the SOFR Applicable Margin, the “Applicable Margins”), which is currently at %. The applicable interest rate for loans under the Revolving Credit Facility denominated in other currencies is calculated at a per annum rate equal to a customary floating reference rate for such currency specified in the Credit Agreement plus the SOFR Applicable Margin. The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to the Company’s CO2 emissions and its percentage of employees who identify as women (each, a “Sustainability Metric”). The Applicable Margins for the Term A Facility and the Revolving Credit Facility and the commitment fees for the Revolving Credit Facility will be adjusted on an annual basis based on the Company’s achievement of preset thresholds for each Sustainability Metric.
Some of the Company’s material subsidiaries (the “Guarantors”) have guaranteed the Company’s 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 the Company’s assets and its Guarantors’ assets, subject to certain exceptions.
The Credit Agreement contains customary negative covenants that include, among other things, limitations on the ability of the Company and certain of its subsidiaries, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of their business, consummate mergers, consolidations and the sale of all or substantially all of their respective assets, taken as a whole, and transact with affiliates. The Company is also required to maintain a consolidated interest coverage ratio of at least to 1.00 and a consolidated leverage ratio of less than or equal to to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the “Financial Covenants”). The Financial Covenants do not apply to the Term B Facility. The Company’s consolidated leverage ratio was to 1.00 at December 31, 2023. As of December 31, 2023, the Company was 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.
14
2027 Senior Notes
On February 21, 2017, the Company completed a private placement offering of $ aggregate principal amount of its unsecured % Senior Notes due 2027 (the “2027 Senior Notes”). On June 30, 2017, the Company completed an exchange offer to exchange the unregistered 2027 Senior Notes for registered notes, as well as related guarantees.
As of December 31, 2023, the estimated fair value of the 2027 Senior Notes was approximately $ million. The fair value of the 2027 Senior Notes as of December 31, 2023 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes. Interest is payable on the 2027 Senior Notes at a rate of % 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, the Company may redeem all or part of the 2027 Senior Notes, at a redemption price equal to % 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, the Company may redeem all or part of the 2027 Senior Notes at a redemption price equal to % 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.
The Company was in compliance with the covenants relating to the 2027 Senior Notes as of December 31, 2023.
Other Debt and Other Items
Other debt consists primarily of obligations under capital leases and loans, and unsecured credit facilities. The Company’s 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, 2023 and September 30, 2023, these outstanding standby letters of credit totaled $ million and $ million, respectively. As of December 31, 2023, the Company had $ million available under these unsecured credit facilities.
Effective Interest Rate
The Company’s average effective interest rate on its total debt, including the effects of the interest rate swap and interest rate cap agreements, during the three months ended December 31, 2023 and 2022 was % and %, respectively.
Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2023 and 2022 of $ million and $ million, respectively.
15
%
February 2023
March 2028
| | | | | | | | |
September 30, 2023 | ||||||||
Notional Amount | | Notional Amount | | Fixed | | Effective | | Expiration |
Currency |
| (in millions) |
| Rate |
| Date |
| Date |
USD | |
| % | | February 2023 | | March 2028 | |
In the fourth quarter of fiscal 2021, the Company entered into new interest rate swap agreements with a notional value of $ million to manage the interest rate exposure of its variable rate loans. The new swaps became effective February 2023 and terminate in March 2028. By entering into the swap agreements, the Company converted a portion of the SOFR rate-based liability into a fixed rate liability. The Company will pay a fixed rate of % and receive payment at the prevailing one-month SOFR.
In the third quarter of fiscal 2022, the Company purchased interest rate cap agreements with a notional value of $ million to manage interest rate exposure of its variable rate loans. The caps became effective on June 30, 2022 and terminate in March 2028. The caps reduce the Company’s exposure to one-month SOFR. In the event one-month SOFR exceeds %, the Company will receive the spread between prevailing one-month SOFR and %.
Other Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts which are not designated as accounting hedges to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. Gains and losses on these contracts were not material for the three months ended December 31, 2023 and 2022.
Fair Value Measurements
The Company’s non-pension financial assets and liabilities recorded at fair value relate to the interest rate swap and interest rate cap agreements included in other current assets, other non-current assets, and other long-term liabilities on December 31, 2023 and were $ million, $ million and $ million, respectively. The fair values of the interest rate swap and interest rate cap agreements included in other current assets and other non-current assets on September 30, 2023 were $ million and $ million, respectively. The fair values of the interest rate swap and interest rate cap agreements were derived by taking the net present value of the expected cash flows using observable market inputs (Level 2) such as SOFR rate curves, futures, volatilities and basis spreads (when applicable).
See Note 14 for accumulated balances and reporting period activities of derivatives related to reclassifications out of accumulated other comprehensive loss for the three months ended December 31, 2023 and 2022. Additionally, there were material losses recognized in income due to amounts excluded from effectiveness testing from the Company’s interest rate swap agreements.
16
Restricted stock units and PEP units activity for the three months ended December 31 was as follows:
$
$
$
$
Granted
$
$
$
$
PEP units earned
—
$
—
$
—
$
—
$
Vested
()
$
()
$
()
$
()
$
Outstanding at December 31,
$
$
$
$
Total compensation expense related to these share-based payments including stock options was $ million and $ million during the three months ended December 31, 2023 and 2022, respectively. Unrecognized compensation expense related to total share-based payments outstanding as of December 31, 2023 and September 30, 2023 was $ million and $ million, respectively, to be recognized on a straight-line basis over the awards’ respective vesting periods which are generally .
% and % for the three months ended December 31, 2023 and 2022, respectively. The most significant items contributing to the difference between the statutory U.S. federal corporate tax rate of % and the Company’s effective tax rate for the three-month period ended December 31, 2023 were a tax benefit of $ million related to income tax credits and incentives, tax expense of $ million related to foreign residual income, a tax benefit of $ million related to an audit settlement, tax expense of $ million related to changes in valuation allowances, and tax expense of $ million related to state income taxes. All these items, except for the audit settlement, are expected to have a continuing impact on the effective tax rate for the remainder of the fiscal year.
The most significant items contributing to the difference between the statutory U.S. federal corporate tax rate of % and the Company’s effective tax rate for the three-month period ended December 31, 2022 were a tax benefit of $ million related to income tax credits and incentives and tax expense of $ million related to foreign residual income.
During the first quarter of fiscal 2024, the Company settled its tax audit in Hong Kong for fiscal year 2011 through fiscal year 2021 and recorded a tax benefit of $ million due primarily to changes in uncertain tax positions.
The Company is utilizing the annual effective tax rate method under ASC 740 to compute its interim tax provision. The Company’s effective tax rate fluctuates from quarter to quarter due to various factors including the change in the mix of global income and expenses, outcomes of administrative audits, changes in the assessment of valuation allowances due to management’s consideration of new positive or negative evidence during the quarter, and changes in enacted tax laws. The U.S.and many international legislative and regulatory bodies have proposed legislation that could significantly impact how our business activities are taxed. These proposed changes could have a material impact on the Company’s income tax expense and deferred tax balances.
The Company is currently under tax audit in several jurisdictions including the U.S. and believes the outcomes which are reasonably possible within the next twelve months, including lapses in statutes of limitations, could result in future adjustments in the liability for uncertain tax positions, but an estimate of the range of the reasonably possible outcomes cannot be made.
Generally, the Company does not provide for U.S. taxes or foreign withholding taxes on gross book-tax differences in its non-U.S. subsidiaries because such basis differences of approximately $ billion are able to and intended to be reinvested indefinitely. If these basis differences were distributed, foreign tax credits could become available under current law to partially or
17
Potential common shares
Denominator for diluted earnings per share
$
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Variable lease cost
Total lease cost
$
$
18
$
Finance lease assets
Property and equipment – net
Total lease assets
$
$
Liabilities:
Current:
Operating lease liabilities
Accrued expenses and other current liabilities
$
$
Finance lease liabilities
Current portion of long-term debt
Total current lease liabilities
Non-current:
Operating lease liabilities
Operating lease liabilities, noncurrent
Finance lease liabilities
Long-term debt
Total non-current lease liabilities
$
$
| | | | | |
| | As of | | As of | |
|
| December 31, 2023 |
| September 30, 2023 | |
Weighted average remaining lease term (in years): | | |
| |
|
Operating leases |
| | | ||
Finance leases |
| | | ||
Weighted average discount rates: |
| | | | |
Operating leases |
|
| % |
| % |
Finance leases |
|
| % |
| % |
Additional cash flow information related to leases is as follows:
$
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new operating leases
Right-of-use assets obtained in exchange for new finance leases
Total remaining lease payments under both the Company’s operating and finance leases are as follows:
$
2025
2026
2027
2028
Thereafter
—
Total lease payments
$
$
Less: Amounts representing interest
$
()
$
()
Total lease liabilities
$
$
19
$
Accrued contract costs
Other accrued expenses
Total
$
$
Accrued contract costs above include balances related to professional liability accruals of $ million and $ million as of December 31, 2023 and September 30, 2023, respectively. The remaining accrued contract costs primarily relate to costs for services provided by subcontractors and other non-employees. Liabilities recorded related to accrued contract losses were not material as of December 31, 2023 and September 30, 2023. The Company did not have material revisions to estimates for contracts where revenue is recognized using the input method during the three months ended December 31, 2023 and 2022. During the first three months of fiscal 2024, the Company incurred restructuring expenses of $ million, including personnel and other costs of $ million and real estate costs of $ million, of which $ million was accrued and unpaid at December 31, 2023. During the first three months of fiscal 2023, the Company incurred restructuring expenses of $ million, including personnel and other costs of $ million and real estate costs of $ million, of which $ million was accrued and unpaid at December 31, 2022.
On November 13, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $ per share, which was paid on January 19, 2024 to stockholders of record as of January 4, 2024. As of December 31, 2023, accrued and unpaid dividends totaled $ million and were classified within other accrued expenses on the consolidated balance sheet.
)
$
()
$
$
()
Other comprehensive (loss) income before reclassification
()
()
Amounts reclassified from accumulated other comprehensive loss
—
()
()
Balances at December 31, 2023
$
()
$
()
$
$
()
| | | | | | | | | | | | |
| | | | | Foreign | | | | | Accumulated | ||
| | Pension | | Currency | | Gain/(Loss) on | | Other | ||||
| | Related | | Translation | | Derivative | | Comprehensive | ||||
|
| Adjustments |
| Adjustments |
| Instruments |
| Loss | ||||
Balances at September 30, 2022 | | $ | () | | $ | () | | $ |
| | $ | () |
Other comprehensive income (loss) before reclassification | |
| () | | |
| | | () | | |
|
Amounts reclassified from accumulated other comprehensive income (loss) | | |
| | | — | | | — | | |
|
Balances at December 31, 2022 | | $ | () | | $ | () | | $ |
| | $ | () |
20
At December 31, 2023, the Company was contingently liable in the amount of approximately $ million in issued standby letters of credit and $ billion in issued surety bonds primarily to support project execution.
In the ordinary course of business, the Company enters 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.
The Company’s investment adviser jointly manages and sponsors the AECOM-Canyon Equity Fund, L.P. (the “Fund”), in which the Company indirectly holds an equity interest and has an ongoing capital commitment to fund investments. At December 31, 2023, the Company has capital commitments of $ million to the Fund over the next .
In addition, in connection with the investment activities of AECOM Capital, the Company provides guarantees of certain contractual obligations, including guarantees for completion of projects, repayment of debt, environmental indemnity obligations and other lender required guarantees.
In February 2024, the Company was informed of a potential liability as one of the indemnitors on a divested business’ surety bonds. The Company does not have sufficient information to determine the range of potential impacts, however, it is reasonably possible that the Company may incur additional costs related to these bonds.
Department of Energy Deactivation, Demolition, and Removal Project
A former affiliate of the Company, Amentum Environment & Energy, Inc., f/k/a AECOM Energy and Construction, Inc. (“Former Affiliate”), executed a cost-reimbursable task order with the Department of Energy (DOE) in 2007 to provide deactivation, demolition and removal services at a New York State project site that, during 2010, experienced contamination and performance issues. In February 2011, the Former Affiliate and the DOE executed a Task Order Modification that changed some cost-reimbursable contract provisions to at-risk. The Task Order Modification, including subsequent amendments, required the DOE to pay all project costs up to $ million, required the Former Affiliate and the DOE to equally share in all project costs incurred from $ million to $ million, and required the Former Affiliate to pay all project costs exceeding $ million.
21
On January 31, 2020, the Company completed the sale of its Management Services business, including the Former Affiliate who worked on the DOE project, to Maverick Purchaser Sub LLC (MS Purchaser), an affiliate of American Securities LLC and Lindsay Goldberg LLC. The Company and the MS Purchaser agreed that all future DOE project claim recoveries and costs will be split % to the MS Purchaser and % 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 the DOE, or any additional incurred claims or costs, which could have a material adverse effect on the Company’s results of operations.
Refinery Turnaround Project
A Former Affiliate of the Company entered into an agreement to perform turnaround maintenance services during a planned shutdown at a refinery in Montana in December 2017. The turnaround project was completed in February 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 of over $ million and is entitled to payment from the refinery owner of approximately $ million. In March 2019, the refinery owner sent a letter to the Company’s Former Affiliate alleging it incurred approximately $ million in damages due to the Company’s Former Affiliate’s project performance. In April 2019, the Company’s Former Affiliate filed and perfected a $ million construction lien against the refinery for unpaid labor and materials costs. In August 2019, following a subcontractor complaint filed in the Thirteenth 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. In October 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. In December 2019, the refinery owner claimed $ million in damages and offsets against the Company’s Former Affiliate.
On January 31, 2020, the Company completed the sale of its Management Services business, including the Former Affiliate, to the MS Purchaser; however, the Refinery 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.
22
$
$
$
—
$
Gross profit
—
Equity in earnings of joint ventures
()
—
()
General and administrative expenses
—
—
()
()
()
Restructuring costs
—
—
—
()
()
Operating income (loss)
$
$
$
()
$
()
$
Gross profit as a % of revenue
%
%
—
—
%
Three Months Ended December 31, 2022:
Revenue
$
$
$
$
—
$
Gross profit
—
Equity in earnings of joint ventures
—
General and administrative expenses
—
—
()
()
()
Restructuring costs
—
—
—
()
()
Operating income
$
$
$
$
()
$
Gross profit as a % of revenue
%
%
—
—
%
| | | | | | | | | | | | | | | |
Reportable Segments: |
| |
| |
| |
| |
| | |||||
Total assets | | | | | | | | | | | | | | | |
December 31, 2023 | | $ |
| | $ |
| | $ |
| | $ |
| | | |
September 30, 2023 | | $ |
| | $ |
| | $ |
| | $ |
| | | |
23
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
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, geopolitical events, and conflicts; 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 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 public and private clients worldwide in major end markets such as transportation, facilities, water, environmental, and energy.
Our business focuses primarily on providing fee-based knowledge-based services. 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. 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
24
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 public and private clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy. |
| ● | International: Planning, consulting, architectural and engineering design services and program management to public and private clients in Europe, the Middle East, India, Africa and the Asia-Australia-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy. |
| ● | AECOM Capital: Primarily invests in and develops real estate projects. |
Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources and capital to profitable and high growth markets, secure new contracts, and renew existing client agreements. 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 November 2023, the Board approved an increase in our stock repurchase authorization to $1.0 billion. At December 31, 2023, we have approximately $950.0 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. As part of our ongoing plan to improve profitability and maintain a reduced risk profile, we continuously evaluate our geographic exposure.
In fiscal year 2023, we announced that we had initiated a process to explore strategic options for the AECOM Capital business. This process is consistent with our focus on our professional services business. AECOM Capital will continue to support existing investment vehicles and investments in a manner consistent with their current obligations. We have conducted a project-by-project review of the existing investment portfolio, including an analysis of the incremental cash requirements that might be required to carry the investments on our balance sheet if the current market conditions persist. We determined that the incremental investments to these assets did not meet the objectives of our capital allocation policy. We reflected this change in strategy and the expected acceleration of these investment exits as an impairment charge of $307.0 million in the third quarter of fiscal 2023 and $35.9 million in the first quarter of fiscal 2024. This impairment did not relate to investments in respect of which affiliates of AECOM Capital provide advisory services or manage third party capital.
We expect to incur restructuring costs of approximately $50 million to $70 million in fiscal 2024, primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies. Our estimated restructuring costs include the ongoing optimization of our office real estate portfolio and exit of certain countries in Southeast Asia, subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile.
25
Results of Operations
Three months ended December 31, 2023 compared to the three months ended December 31, 2022
Consolidated Results
| | | | | | | | | | | | |
| | Three Months Ended | | |||||||||
| | December 31, | | December 31, | | Change | | |||||
|
| 2023 |
| 2022 |
| $ |
| % |
| |||
| | ( in millions) | ||||||||||
Revenue | | $ | 3,899.9 | | $ | 3,382.4 | | $ | 517.5 | | 15.3 | % |
Cost of revenue | | | 3,655.9 | | | 3,167.4 | | | 488.5 | | 15.4 | |
Gross profit | | | 244.0 | | | 215.0 | | | 29.0 | | 13.5 | |
Equity in (losses) earnings of joint ventures | | | (29.0) | | | 9.8 | | | (38.8) | | (395.9) | |
General and administrative expenses | | | (35.7) | | | (35.6) | | | (0.1) | | 0.3 | |
Restructuring costs | | | (16.2) | | | (37.5) | | | 21.3 | | (56.8) | |
Income from operations | | | 163.1 | | | 151.7 | | | 11.4 | | 7.5 | |
Other income | | | 2.6 | | | 2.1 | | | 0.5 | | 23.8 | |
Interest income | | | 12.1 | | | 5.8 | | | 6.3 | | 108.6 | |
Interest expense | | | (41.3) | | | (36.7) | | | (4.6) | | 12.5 | |
Income from continuing operations before taxes | | | 136.5 | | | 122.9 | | | 13.6 | | 11.1 | |
Income tax expense for continuing operations | | | 26.6 | | | 25.8 | | | 0.8 | | 3.1 | |
Net income from continuing operations | | | 109.9 | | | 97.1 | | | 12.8 | | 13.2 | |
Net loss from discontinued operations | | | (1.3) | | | (0.4) | | | (0.9) | | 225.0 | |
Net income | | | 108.6 | | | 96.7 | | | 11.9 | | 12.3 | |
Net income attributable to noncontrolling interests from continuing operations | | | (13.1) | | | (9.6) | | | (3.5) | | 36.5 | |
Net (loss) income attributable to noncontrolling interests from discontinued operations | | | (1.1) | | | 0.8 | | | (1.9) | | (237.5) | |
Net income attributable to noncontrolling interests | | | (14.2) | | | (8.8) | | | (5.4) | | 61.4 | |
Net income attributable to AECOM from continuing operations | | | 96.8 | | | 87.5 | | | 9.3 | | 10.6 | |
Net (loss) income attributable to AECOM from discontinued operations | | | (2.4) | | | 0.4 | | | (2.8) | | (700.0) | |
Net income attributable to AECOM | | $ | 94.4 | | $ | 87.9 | | $ | 6.5 | | 7.4 | % |
The following table presents the percentage relationship of statement of operations items to revenue:
| | | | | |
| | Three Months Ended | | ||
| | December 31, | | December 31, | |
|
| 2023 |
| 2022 |
|
Revenue | | 100.0 | % | 100.0 | % |
Cost of revenue | | 93.7 | | 93.6 | |
Gross profit | | 6.3 | | 6.4 | |
Equity in (losses) earnings of joint ventures | | (0.7) | | 0.3 | |
General and administrative expenses | | (1.0) | | (1.1) | |
Restructuring costs | | (0.4) | | (1.1) | |
Income from operations | | 4.2 | | 4.5 | |
Other income | | 0.1 | | 0.1 | |
Interest income | | 0.3 | | 0.2 | |
Interest expense | | (1.1) | | (1.2) | |
Income from continuing operations before taxes | | 3.5 | | 3.6 | |
Income tax expense for continuing operations | | 0.7 | | 0.7 | |
Net income from continuing operations | | 2.8 | | 2.9 | |
Net loss from discontinued operations | | 0.0 | | 0.0 | |
Net income | | 2.8 | | 2.9 | |
Net income attributable to noncontrolling interests from continuing operations | | (0.3) | | (0.3) | |
Net (loss) income attributable to noncontrolling interests from discontinued operations | | (0.1) | | 0.0 | |
Net income attributable to noncontrolling interests | | (0.4) | | (0.3) | |
Net income attributable to AECOM from continuing operations | | 2.5 | | 2.6 | |
Net (loss) income attributable to AECOM from discontinued operations | | (0.1) | | (0.0) | |
Net income attributable to AECOM | | 2.4 | % | 2.6 | % |
26
Revenue
Our revenue for the three months ended December 31, 2023 increased $517.5 million, or 15.3%, to $3,899.9 million as compared to $3,382.4 million for the corresponding period last year.
The increase in revenue for the three months ended December 31, 2023 was primarily attributable to increases in revenues in both our Americas and International segments of $459.4 million and $58.2 million, respectively, 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, 2023 and 2022 were $2.2 billion and $1.8 billion, respectively. Pass-through revenue as a percentage of revenue was 56% and 53% during the three months ended December 31, 2023 and 2022, respectively.
Gross Profit
Our gross profit for the three months ended December 31, 2023 increased $29.0 million, or 13.5%, to $244.0 million as compared to $215.0 million for the corresponding period last year. For the three months ended December 31, 2023, gross profit, as a percentage of revenue, decreased to 6.3% from 6.4% in the corresponding period last year.
Gross profit changes were due to the reasons noted in Americas and International reportable segments below.
Equity in (Losses) Earnings of Joint Ventures
Our equity in losses of joint ventures for the three months ended December 31, 2023 was $29.0 million as compared to equity in earnings of $9.8 million in the corresponding period last year.
The decrease in earnings of joint ventures for the three months ended December 31, 2023 compared to the same period in the prior year was primarily due to losses recorded by our AECOM Capital segment in fiscal 2024 compared to earnings in fiscal 2023. These impairments were primarily as a result of continued volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.
General and Administrative Expenses
Our general and administrative expenses for the three months ended December 31, 2023 increased $0.1 million, or 0.3%, to $35.7 million as compared to $35.6 million for the corresponding period last year. For the three months ended December 31, 2023, general and administrative expenses, as a percentage of revenue, was 1.0% as compared to 1.1% in 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, 2023, we incurred total restructuring expenses of $16.2 million, primarily related to actions taken to align our real estate portfolio with our employee flexibility initiatives and costs incurred associated with the ongoing exit of certain countries in Southeast Asia. During the three months ended December 31, 2022, we incurred restructuring expenses of $37.5 million, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.
Other Income
Our other income for the three months ended December 31, 2023 increased to $2.6 million from $2.1 million for the corresponding period last year.
Interest Income
Our interest income for the three months ended December 31, 2023 increased to $12.1 million from $5.8 million for the corresponding period last year.
27
The increase in interest income for the three months ended December 31, 2023 was primarily due to an increase in interest rates on our interest-bearing assets.
Interest Expense
Our interest expense for the three months ended December 31, 2023 was $41.3 million as compared to $36.7 million for the corresponding period last year.
The increase in interest expense for the three months ended December 31, 2023 was primarily due to an increase in interest rates on the variable component of our debt.
Income Tax Expense
Our income tax expense for the three months ended December 31, 2023 was $26.6 million as compared to $25.8 million in the corresponding period last year. The increase in tax expense for the current period compared to the corresponding period last year was due primarily to the tax impact of an increase in pre-tax income of $13.6 million, a tax benefit of $6.9 million related to an audit settlement, an increase in tax benefit of $4.4 million related to income tax credits and incentives, an increase in tax expense of $3.4 million related to changes in valuation allowances, an increase in tax expense of $2.8 million related to foreign residual income, and an increase in tax expense of $2.8 million related to excess tax benefits.
During the three months ended December 31, 2023, the Company settled its tax audit in Hong Kong for fiscal year 2011 through fiscal year 2021 and recorded a tax benefit of $6.9 million due primarily to changes in uncertain tax positions.
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.
Net loss from discontinued operations was $1.3 million for the three months ended December 31, 2023 and was $0.4 million for the three months ended December 31, 2022, an increase of $0.9 million.
Net Income Attributable to AECOM
The factors described above resulted in net income attributable to AECOM of $94.4 million for the three months ended December 31, 2023 as compared to net income attributable to AECOM of $87.9 million for the three months ended December 31, 2022.
Results of Operations by Reportable Segment:
Americas
| | | | | | | | | | | | |
| | Three Months Ended |
| |||||||||
| | December 31, | | December 31, | | Change |
| |||||
|
| 2023 |
| 2022 |
| $ |
| % |
| |||
| | ( in millions) |
| |||||||||
Revenue | | $ | 3,038.7 | | $ | 2,579.3 | | $ | 459.4 | | 17.8 | % |
Cost of revenue | |
| 2,867.7 | | | 2,416.4 | | | 451.3 | | 18.7 | |
Gross profit | | $ | 171.0 | | $ | 162.9 | | $ | 8.1 | | 5.0 | % |
The following table presents the percentage relationship of statement of operations items to revenue:
| | | | | |
| | Three Months Ended |
| ||
| | December 31, | | December 31, |
|
|
| 2023 |
| 2022 |
|
Revenue | | 100.0 | % | 100.0 | % |
Cost of revenue | | 94.4 | | 93.7 | |
Gross profit |
| 5.6 | % | 6.3 | % |
28
Revenue
Revenue for our Americas segment for the three months ended December 31, 2023 increased $459.4 million, or 17.8%, to $3,038.7 million as compared to $2,579.3 million for the corresponding period last year.
The increase in revenue for the three months ended December 31, 2023 was primarily driven by increased project activity in the Americas design business including growth in the Water, Transportation, and Program Management businesses.
Gross Profit
Gross profit for our Americas segment for the three months ended December 31, 2023 increased $8.1 million, or 5.0%, to $171.0 million as compared to $162.9 million for the corresponding period last year. As a percentage of revenue, gross profit decreased to 5.6% of revenue for the three months ended December 31, 2023 from 6.3% in the corresponding period last year due to an increase in pass - through revenues of $405.4 million.
The increase in gross profit for the three months ended December 31, 2023 was primarily due to revenue growth, particularly underlying revenue excluding pass - through revenue, strength across the Company’s Water, Transportation, and Program Management end markets and the benefits of actions taken to accelerate the realization of the Company’s long-term margin potential.
International
| | | | | | | | | | | | |
| | Three Months Ended |
| |||||||||
| | December 31, | | December 31, | | Change |
| |||||
|
| 2023 |
| 2022 |
| $ |
| % |
| |||
|
| ( in millions) | | |||||||||
Revenue | | $ | 861.0 | | $ | 802.8 | | $ | 58.2 | | 7.2 | % |
Cost of revenue | |
| 788.2 | | | 751.0 | | | 37.2 | | 5.0 | |
Gross profit | | $ | 72.8 | | $ | 51.8 | | $ | 21.0 | | 40.5 | % |
The following table presents the percentage relationship of statement of operations items to revenue:
| | | | | |
| | Three Months Ended |
| ||
| | December 31, | | December 31, |
|
|
| 2023 |
| 2022 |
|
Revenue | | 100.0 | % | 100.0 | % |
Cost of revenue |
| 91.5 | | 93.5 | |
Gross profit |
| 8.5 | % | 6.5 | % |
Revenue
Revenue for our International segment for the three months ended December 31, 2023 increased $58.2 million, or 7.2%, to $861.0 million as compared to $802.8 million for the corresponding period last year.
The increase in revenue for the three months ended December 31, 2023 was primarily due to growth in the United Kingdom, Middle East and Australia compared to the prior year. Growth was led by the Transportation, Facilities, and Water markets.
Gross Profit
Gross profit for our International segment for the three months ended December 31, 2023 increased $21.0 million, or 40.5%, to $72.8 million as compared to $51.8 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 8.5% of revenue for the three months ended December 31, 2023 from 6.5% 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, 2023 was primarily due to an increase in revenue and reduced costs resulting from ongoing country exits, growing usage of enterprise capability centers and shared service centers, and delivery efficiency.
29
AECOM Capital
| | | | | | | | | | | | |
| | Three Months Ended |
| |||||||||
| | December 31, | | December 31, | | Change |
| |||||
|
| 2023 |
| 2022 |
| $ |
| % |
| |||
| | ( in millions) |
| |||||||||
Revenue | | $ | 0.2 | | $ | 0.3 | | $ | (0.1) | | (33.3) | % |
Equity in earnings of joint ventures | | $ | (36.9) | | $ | 5.6 | | $ | (42.5) | | (758.9) | |
General and administrative expenses | | $ | (2.4) | | $ | (2.7) | | $ | 0.3 | | (11.1) | % |
Equity in earnings of joint ventures for the three months ended December 31, 2023 decreased $42.5 million, or 758.9%, to $(36.9) million compared to $5.6 million for the corresponding period last year. The decrease was primarily due to impairment losses recognized in the first quarter of fiscal 2024.
Seasonality
We experience seasonal trends in our business. Our revenue is typically higher in the last half of the fiscal year. The fourth quarter of our fiscal year (July 1 to September 30) is typically our strongest quarter. 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. In addition, 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. 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. Our construction and project management services also typically expand during the high construction season of the summer months. The first quarter of our fiscal year (October 1 to December 31) is typically our lowest revenue 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. For these reasons, coupled with the number and significance of client contracts commenced and completed during a particular period, as well as the timing 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 $110 million in restructuring costs in fiscal 2024 associated with ongoing restructuring actions that are expected to deliver continued margin improvement and efficiencies.
Generally, we do not provide for U.S. 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, 2023, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation. Based on the available sources of cash flows discussed above, we anticipate we will continue to have the ability to permanently reinvest these remaining amounts.
At December 31, 2023, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,193.3 million, a decrease of $68.9 million, or 5.5%, from $1,262.2 million at September 30, 2023. The decrease in cash and cash equivalents was primarily attributable to $92.1 million of cash used to repurchase common stock, of which $70.0 million was related to repurchases under the existing Board repurchase authorization.
Net cash provided by operating activities was $143.1 million for the three months ended December 31, 2023 as compared to $120.0 million for the three months ended December 31, 2022. The change was primarily attributable to an increase in net income of approximately $11.8 million and an increase in adjustments for non-cash items of approximately $31.9 million, offset by a decrease in cash provided by working capital of approximately $20.7 million. The sale of trade receivables to financial institutions included in
30
operating cash flows increased $50.6 million during the three months ended December 31, 2023 compared to the three months ended December 31, 2022. We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to us.
Net cash used in investing activities was $86.8 million for the three months ended December 31, 2023, as compared to $45.2 million for the three months ended December 31, 2022. The change was primarily attributable to an increase in cash payments for capital expenditures of approximately $19.9 million and cash paid for a business acquisition, net of cash acquired of $18.7 million.
Net cash used in financing activities was $126.3 million for the three months ended December 31, 2023 as compared to $91.4 million for the three months ended December 31, 2022. The change from prior year was primarily attributable to a $20.0 million increase in stock repurchases under our stock repurchase program and a $3.7 million increase in dividends paid. 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 $39.7 million, or 12.4%, to $279.5 million at December 31, 2023 from $319.2 million at September 30, 2023. Net accounts receivable and contract assets, net of contract liabilities, increased to $2,986.3 million at December 31, 2023 from $2,880.8 million at September 30, 2023.
Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 67 days at December 31, 2023 compared to 65 days at September 30, 2023.
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, | ||
|
| 2023 |
| 2023 | ||
| | (in millions) | ||||
Credit Agreement | | $ | 1,112.4 | | $ | 1,119.8 |
2027 Senior Notes | |
| 997.3 | | | 997.3 |
Other debt | |
| 105.3 | | | 100.2 |
Total debt | |
| 2,215.0 | | | 2,217.3 |
Less: Current portion of debt and short-term borrowings | |
| (91.6) | | | (89.5) |
Less: Unamortized debt issuance costs | |
| (13.2) | | | (14.4) |
Long-term debt | | $ | 2,110.2 | | $ | 2,113.4 |
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The following table presents, in millions, scheduled maturities of our debt as of December 31, 2023:
| | | |
Fiscal Year |
| | |
2024 (nine months remaining) | | $ | 77.6 |
2025 | |
| 52.7 |
2026 | |
| 415.7 |
2027 | |
| 1,012.3 |
2028 | |
| 656.7 |
Total | | $ | 2,215.0 |
Credit Agreement
On February 8, 2021, we entered into the 2021 Refinancing Amendment to the Credit Agreement (as amended, modified or otherwise supplemented, the “Credit Agreement”), pursuant to which we amended and restated our Syndicated Credit Facility Agreement, dated as of October 17, 2014 (as amended prior to February 8, 2021, the “Original Credit Agreement”), between the Company, as borrower, Bank of America, N.A., as administrative agent, and other parties thereto. At the time of amendment, the Credit Agreement consisted of a $1,150,000,000 revolving credit facility (the “Revolving Credit Facility”) and a $246,968,737.50 term loan A facility (the “Term A Facility,” together with the Revolving Credit Facility, the “Credit Facilities”), each of which mature on February 8, 2026. 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 our subsidiaries as additional co-borrowers from time to time. Currently, there are no co-borrowers under the Credit Facilities.
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.
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.
On May 23, 2023, the Company entered into Amendment No. 12 to the Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by, in the case of US Dollar-denominated loans, a secured overnight financing rate subject to a spread adjustment, and, in the case of loans denominated in other currencies, other customary successor rates, subject in certain cases to a spread adjustment. On May 23, 2023, the Company entered into Amendment No. 13 to the Credit Agreement, pursuant to which the spread adjustments with respect to the Revolving Credit Facility and the Term A Facility were amended.
The applicable interest rate for loans under the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.
The applicable interest rate for U.S. Dollar-denominated loans under the Revolving Credit Facility and the Term A Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus an applicable margin (the “SOFR Applicable Margin”), which is currently at 1.2250% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin,” and together with the SOFR Applicable Margin, the “Applicable Margins”), which is currently at 0.2250%. The applicable interest rate for loans under the Revolving Credit Facility denominated in other currencies is calculated at a per annum rate equal to a customary floating reference rate for such currency specified in the Credit Agreement plus the SOFR Applicable Margin. The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to our CO2 emissions and the percentage of employees who identify as women (each, a “Sustainability Metric”). The Applicable Margins for the Term A Facility and the Revolving Credit Facility and the commitment fees for the Revolving Credit Facility will be adjusted on an annual basis based on our achievement of preset thresholds for each Sustainability Metric.
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Some of our material subsidiaries (the “Guarantors”) have guaranteed the obligations of the borrowers under the Credit Agreement, subject to certain exceptions. The borrowers’ obligations under the Credit Agreement are secured by a lien on substantially all of our assets and the Guarantors’ assets, subject to certain exceptions.
The Credit Agreement contains customary negative covenants that include, among other things, limitations on our and certain of our subsidiaries’ ability, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of our business, consummate mergers, consolidations and the sale of all or substantially all of our respective assets, taken as a whole, and transact with affiliates. 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”). The Financial Covenants do not apply to the Term B Facility. Our consolidated leverage ratio was 2.00 to 1.00 at December 31, 2023. As of December 31, 2023, we were in compliance with the covenants of the Credit Agreement.
The Credit Agreement contains customary affirmative covenants, including, among other things, compliance with applicable law, preservation of existence, maintenance of properties and of insurance, and keeping proper books and records. 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.
At December 31, 2023 and September 30, 2023, letters of credit totaled $4.4 million and $4.4 million, respectively, under our Revolving Credit Facility. As of December 31, 2023 and September 30, 2023, 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, 2023, the estimated fair value of the 2027 Senior Notes was approximately $979.8 million. The fair value of the 2027 Senior Notes as of December 31, 2023 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes. Interest is payable on the 2027 Senior Notes at a rate of 5.125% per annum. 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, 2023.
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, 2023 and September 30, 2023, these outstanding standby letters of credit totaled $887.6 million and $878.9 million, respectively. As of December 31, 2023, we had $406.1 million available under these unsecured credit facilities.
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Effective Interest Rate
Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements and interest rate cap agreements during the three months ended December 31, 2023 and 2022 was 5.4% and 5.1%, respectively.
Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2023 and 2022 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, 2023, there was approximately $891.9 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees. For those projects for which we have issued a performance guarantee, if the project subsequently fails to meet guaranteed performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.
We recognized on our balance sheet the funded status of our pension benefit plans, measured as the difference between the fair value of plan assets and the projected benefit obligation. At December 31, 2023, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $157.9 million. The total amounts of employer contributions paid for the three months ended December 31, 2023 were $2.3 million for U.S. plans and $6.2 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, 2023, we contributed $3.0 million to multiemployer pension plans.
Contractual Obligations
Refer to our Annual Report on Form 10-K for the year ended September 30, 2023 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, 2023.
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.
34
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, 2023 and September 30, 2023, and for the three months ended December 31, 2023.
Condensed Combined Balance Sheets
Parent and Subsidiary Guarantors
(unaudited - in millions)
| | | | | | |
|
| December 31, 2023 |
| September 30, 2023 | ||
Current assets | | $ | 2,605.8 | | $ | 2,617.7 |
Non-current assets | |
| 3,227.4 | | | 3,230.7 |
Total assets | | $ | 5,833.2 | | $ | 5,848.4 |
| | | | | | |
Current liabilities | | $ | 2,462.9 | | $ | 2,414.4 |
Non-current liabilities | |
| 2,569.5 | | | 2,601.6 |
Total liabilities | | $ | 5,032.4 | | $ | 5,016.0 |
| | | | | | |
Total stockholders’ equity | |
| 800.8 | | | 832.4 |
Total liabilities and stockholders’ equity | | $ | 5,833.2 | | $ | 5,848.4 |
Condensed Combined Statement of Operations
Parent and Subsidiary Guarantors
(unaudited - in millions)
| | | |
| | For the three months ended | |
|
| December 31, 2023 | |
Revenue | | $ | 1,941.9 |
| | | |
Cost of revenue | |
| 1,825.8 |
Gross profit | | | 116.1 |
| | | |
Net income from continuing operations | |
| 13.1 |
Net loss from discontinued operations | |
| — |
Net income | | $ | 13.1 |
| | | |
Net income attributable to AECOM | | $ | 13.1 |
New Accounting Pronouncements and Changes in Accounting
For information regarding recent accounting pronouncements, see Notes to Consolidated Financial Statements included in Part I, Item 1.
Critical Accounting Estimates
Our accounting policies 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, revenues and expenses. If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected.
The Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Form 10-K, and “Critical Accounting Estimates” in Part II, Item 7 of the 2023 Form 10-K describe the significant accounting policies and estimates used in the preparation of our consolidated financial statements. We have not materially changed our estimation methodology since the 2023 Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Financial Market Risks
Financial Market Risks
We are exposed to market risk, primarily related to foreign currency exchange rates and interest rate exposure of our debt obligations that bear interest based on floating rates. We actively monitor these exposures. Our objective is to reduce, where we deem appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign exchange rates and interest rates. In order to accomplish this objective, we sometimes enter into derivative financial instruments, such as forward contracts and interest rate hedge contracts. It is our policy and practice to use derivative financial instruments only to the extent necessary to manage our exposures. We do not use derivative financial instruments for trading purposes.
Foreign Exchange Rates
We are exposed to foreign currency exchange rate risk resulting from our operations outside of the U.S. We use foreign currency forward contracts from time to time to mitigate foreign currency risk. We limit exposure to foreign currency fluctuations in most of our contracts through provisions that require client payments in currencies corresponding to the currency in which costs are incurred. As a result of this natural hedge, we generally do not need to hedge foreign currency cash flows for contract work performed. The functional currency of our significant foreign operations is the respective local currency.
Interest Rates
Our Credit Agreement and other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As of December 31, 2023 and September 30, 2023, we had $1,112.4 million and $1,119.8 million, respectively, in outstanding borrowings under our term credit agreements and revolving credit facility. Interest on amounts borrowed under these agreements is subject to adjustment based on specified levels of financial performance. The applicable margin that is added to the borrowing’s base rate can range from 0.25% to 1.00% and the applicable margin that is added to borrowings in the eurocurrency rate can range from 1.25% to 2.00%. For the three months ended December 31, 2023, our weighted average floating rate borrowings were $1,540.8 million, or $840.8 million excluding borrowings with effective fixed interest rates due to interest rate swap and interest rate cap agreements. If short-term floating interest rates had increased by 1.00%, our interest expense for the three months ended December 31, 2023 would have increased by $2.1 million. We invest our cash in a variety of financial instruments, consisting principally of money market securities or other highly liquid, short-term securities that are subject to minimal credit and market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), our CEO and CFO have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), were effective as of December 31, 2023 to ensure that information required to be disclosed by us in this Quarterly Report on Form 10-Q or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2023 identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.OTHER INFORMATION
Item 1. Legal Proceedings
As a government contractor, we are subject to various laws and regulations that are more restrictive than those applicable to non-government contractors. Intense government scrutiny of contractors’ compliance with those laws and regulations through audits and investigations is inherent in government contracting; and from time to time, we receive inquiries, subpoenas, and similar demands related to our ongoing business with government entities. Violations can result in civil or criminal liability as well as suspension or debarment from eligibility for awards of new government contracts or option renewals.
We are involved in various investigations, claims and lawsuits in the normal conduct of our business. We are not always aware if we or our affiliates are under investigation or the status of such matters. Although the outcome of our legal proceedings cannot be predicted with certainty and no assurances can be provided, in the opinion of our management, based upon current information and discussions with counsel, with the exception of the matters noted in Note 15, Commitments and Contingencies, to the financial statements contained in this report to the extent stated therein, none of the investigations, claims and lawsuits in which we are involved is expected to have a material adverse effect on our consolidated financial position, results of operations, cash flows or our ability to conduct business. See Note 15, Commitments and Contingencies, to the financial statements contained in this report for a discussion of certain matters to which we are a party. The information set forth in such note is incorporated by reference into this Item 1. From time to time, we establish reserves for litigation when we consider it probable that a loss will occur.
Item 1A. Risk Factors
There have been no material changes to the risk factors as disclosed in Part I, Item 1A, Risk Factors in our most recent Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Stock Repurchase Program
The following table shows the repurchase activity for each of the three months ended December 31, 2023:
| | | | | | | | | | |
| | | | | | | Total Number of | | Maximum | |
| | | | | | | Shares Purchased | | Approximate Dollar | |
| | Total Number | | | | | as Part of Publicly | | Value that May Yet Be | |
| | of Shares | | Average Price | | Announced Plans | | Purchased Under the | ||
Fiscal Period |
| Purchased |
| Paid Per Share |
| or Programs |
| Plans or Programs(1) | ||
| | | | | | | | | | |
October 1 - 31, 2023 | | 238,487 | | $ | 83.88 | | 238,487 | | $ | 200,200,000 |
November 1 - 30, 2023 | | 229,299 | | $ | 87.24 | | 229,299 | | $ | 980,000,000 |
December 1- 31, 2023 | | 340,777 | | $ | 88.05 | | 340,777 | | $ | 950,000,000 |
Total | | 808,563 | | $ | 86.59 | | 808,563 | | | |
| (1) | On November 9, 2023, the Board approved an increase in the Company’s repurchase authorization up to an aggregate amount of $1.0 billion with no expiration date. Stock repurchases can be made through open market purchases or other methods, including pursuant to a Rule 10b5-1 plan. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
None.
Item 5. Other Information
During the fiscal quarter ended December 31, 2023, or of the adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement as each term is defined in Item 408(a) of Regulation S-K.
37
Item 6. Exhibits
The following documents are filed as Exhibits to the Report:
| | | | | | Incorporated by Reference | | | ||
|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | (Exchange Act Filings Located | | | ||
| | | | | | at File No. 0-52423) | | | ||
Exhibit | | | | | | | | Filing | | Filed |
Numbers |
| Description |
| Form |
| Exhibit |
| Date |
| Herewith |
| | | | | | | | | | |
3.1 | | | Form 10-K | | 3.1 | | 11/21/2011 | | | |
| | | | | | | | | | |
3.2 | | Certificate of Amendment to Amended and Restated Certificate of Incorporation | | Form S-4 | | 3.2 | | 8/1/2014 | | |
| | | | | | | | | | |
3.3 | | Certificate of Correction of Amended and Restated Certificate of Incorporation | | Form 10-K | | 3.3 | | 11/17/2014 | | |
| | | | | | | | | | |
3.4 | | Certificate of Amendment to the Certificate of Incorporation | | Form 8-K | | 3.1 | | 1/9/2015 | | |
| | | | | | | | | | |
3.5 | | Certificate of Amendment to the Certificate of Incorporation | | Form 8-K | | 3.1 | | 3/3/2017 | | |
| | | | | | | | | | |
3.6 | | | Form 8-K | | 3.1 | | 5/19/2023 | | | |
| | | | | | | | | | |
10.1#* | | | | | | | | | X | |
| | | | | | | | | | |
10.2# | | | | | | | | | X | |
| | | | | | | | | | |
10.3# | | Second Amendment to the AECOM Executive Deferred Compensation Plan | | | | | | | | X |
| | | | | | | | | | |
10.4# | | Third Amendment to the AECOM Executive Deferred Compensation Plan | | | | | | | | X |
| | | | | | | | | | |
31.1 | | | | | | | | | X | |
| | | | | | | | | | |
31.2 | | | | | | | | | X | |
| | | | | | | | | | |
32 | | | | | | | | | X | |
| | | | | | | | | | |
101 | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 were formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | | | | | | | | X |
| | | | | | | | | | |
104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, formatted in Inline XBRL | | | | | | | | X |
#Management contract or compensatory plan or arrangement
*Portions of the exhibit have been omitted as confidential
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| AECOM | |
| | |
| | |
Date: February 6, 2024 | By: | /S/ GAURAV KAPOOR |
| | Gaurav Kapoor |
| | Chief Financial Officer |
39