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Joint Ventures and Variable Interest Entities | 6 Months Ended
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Mar. 31, 2014
Joint Ventures and Variable Interest Entities |
Joint Ventures and Variable Interest Entities | 6. Joint Ventures and Variable Interest Entities The Company’s joint ventures provide architecture, engineering, program management, construction management and operations and maintenance services. Joint ventures, the combination of two or more partners, are generally formed for a specific project. Management of the joint venture is typically controlled by a joint venture executive committee, comprised of representatives from the joint venture partners. The joint venture executive committee normally provides management oversight and controls decisions which could have significant impact on the joint venture. Some of the Company’s joint ventures have no employees and minimal operating expenses. For these joint ventures, the Company’s employees perform work for the joint venture, which is then billed to a third-party customer by the joint venture. These joint ventures function as pass through entities to bill the third-party customer. For consolidated joint ventures of this type, the Company records the entire amount of the services performed and the costs associated with these services, including the services provided by the other joint venture partners, in the Company’s results of operations. For certain of these joint ventures where a fee is added by an unconsolidated joint venture to client billings, the Company’s portion of that fee is recorded in equity in earnings of joint ventures. The Company also has joint ventures that have their own employees and operating expenses, and to which the Company generally makes a capital contribution. The Company accounts for these joint ventures either as consolidated entities or equity method investments based on the criteria further discussed below. The Company follows guidance issued by the FASB on the consolidation of variable interest entities (VIEs) that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct the activities that most significantly impact the joint venture’s economic performance, including powers granted to the joint venture’s program manager, powers contained in the joint venture governing board and, to a certain extent, a company’s economic interest in the joint venture. The Company analyzes its joint ventures and classifies them as either: · a VIE that must be consolidated because the Company is the primary beneficiary or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners; or · a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest. As part of the above analysis, if it is determined that the Company has the power to direct the activities that most significantly impact the joint venture’s economic performance, the Company considers whether or not it has the obligation to absorb losses or rights to receive benefits of the VIE that could potentially be significant to the VIE. The Company has not provided financial or other support during the periods presented to any of its VIEs that it was not previously contractually required to provide. Contractually required support provided to the Company’s joint ventures is further discussed in Note 16. Summary of unaudited financial information of the consolidated joint ventures is as follows:
|  | March 31, 2014 |  | September 30, 2013 |
|  | (in millions) |
Current assets |  | $ | 237.4 |  | $ | 185.7 |
Non-current assets |  | 109.1 |  | — |
Total assets |  | $ | 346.5 |  | $ | 185.7 |
Current liabilities |  | $ | 116.2 |  | $ | 38.9 |
Non-current liabilities |  | — |  | — |
Total liabilities |  | 116.2 |  | 38.9 |
Total AECOM equity |  | 152.6 |  | 106.8 |
Noncontrolling interests |  | 77.7 |  | 40.0 |
Total owners’ equity |  | 230.3 |  | 146.8 |
Total liabilities and owners’ equity |  | $ | 346.5 |  | $ | 185.7 |
Total revenue of the consolidated joint ventures was $229.3 million and $256.0 million for the six months ended March 31, 2014 and 2013, 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. Summary of unaudited financial information of the unconsolidated joint ventures is as follows:
|  | March 31, 2014 |  | September 30, 2013 |
|  | (in millions) |
Current assets |  | $ | 406.7 |  | $ | 525.5 |
Non-current assets |  | 219.9 |  | 98.7 |
Total assets |  | $ | 626.6 |  | $ | 624.2 |
Current liabilities |  | $ | 326.9 |  | $ | 384.1 |
Non-current liabilities |  | 46.9 |  | 17.5 |
Total liabilities |  | 373.8 |  | 401.6 |
Joint venturers’ equity |  | 252.8 |  | 222.6 |
Total liabilities and joint ventures’ equity |  | $ | 626.6 |  | $ | 624.2 |
AECOM’s investment in joint ventures |  | $ | 124.4 |  | $ | 106.4 |
Total revenue of the unconsolidated joint ventures was $991.7 million and $966.0 million for the six months ended March 31, 2014 and 2013, respectively. Total gross profit, which also materially equates to net income, of the unconsolidated joint ventures was $34.3 million and $36.6 million for the six months ended March 31, 2014 and 2013, respectively. Summary of AECOM’s equity in earnings of unconsolidated joint ventures is as follows:
|  | Six Months Ended |
|  | March 31, 2014 |  | March 31, 2013 |
|  | (in millions) |
Pass through joint ventures |  | $ | 3.2 |  | $ | 3.7 |
Other joint ventures |  | 40.3 |  | 10.1 |
Total |  | $ | 43.5 |  | $ | 13.8 |
Included in equity in earnings above, the Company recorded a $37.4 million gain upon change in control ($23.4 million, net of tax) of an unconsolidated joint venture in the six months ended March 31, 2014. The Company obtained control of the joint venture through modifications to the joint venture’s operating agreement, which required the Company to consolidate the joint venture. The acquisition date fair value of the previously held equity interest was $58.0 million, excluding control premium. The measurement of the fair value of the equity interest immediately before obtaining control of the joint venture resulted in the pre-tax gain of $37.4 million. The Company utilized income and market approaches, in addition to obtaining an independent third party valuation, in determining the joint venture’s fair value, which includes making assumptions about variables such as revenue growth rates, profitability, discount rates, and industry market multiples. These assumptions are subject to a high degree of judgment. Total assets and liabilities of this entity included in the accompanying consolidated balance sheet at the acquisition date were $207.8 million and $48.1 million, respectively. This acquisition did not meet the quantitative thresholds to require pro forma disclosures of operating results based on the Company’s consolidated assets, investments and net income. This joint venture performs engineering and program management services in the Middle East and is included in the Company’s PTS segment.

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- Definition Disclosure of the entity's joint ventures and variable interest entities (VIE), including, but not limited to the nature, purpose, size, and activities of the VIE, the carrying amount and classification of consolidated assets that are collateral for the VIE's obligations, lack of recourse if creditors (or beneficial interest holders) of a consolidated VIE have no recourse to the general credit of the primary beneficiary. An enterprise that holds a significant variable interest in a VIE but is not the primary beneficiary may disclose the nature of its involvement with the VIE and when that involvement began, the nature, purpose, size, and activities of the VIE and the enterprise's maximum exposure to loss as a result of its involvement with the VIE. + References No definition available. + Details
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