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Business Acquisitions, Goodwill and Intangible Assets | 9 Months Ended
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Jun. 30, 2015
Business Acquisitions, Goodwill and Intangible Assets |
Business Acquisitions, Goodwill and Intangible Assets | 3.Business Acquisitions, Goodwill and Intangible Assets On October 17, 2014, the Company completed the acquisition of the U.S. headquartered URS, an international provider of engineering, construction, and technical services, by purchasing 100% of the outstanding shares of URS common stock. The purpose of the acquisition was to further diversify the Company’s market presence and accelerate the Company’s strategy to create an integrated delivery platform for customers. The Company paid a total consideration of approximately $2.3 billion in cash and issued approximately $1.6 billion of AECOM common stock to the former stockholders and certain equity award holders of URS. In connection with the acquisition, the Company also assumed URS’s senior notes totaling $1.0 billion, and subsequently repaid in full URS’s $0.6 billion 2011 term loan and $0.1 billion of URS’s revolving line of credit. Upon the occurrence of a change in control of URS, the URS senior noteholders had the right to redeem their notes at a cash price equal to 101% of the principal amount of the notes. Accordingly, on October 24, 2014, the Company purchased $0.6 billion of URS’s senior notes from the noteholders. See also Note 7, Debt. The following summarizes the estimated fair values of URS assets acquired and liabilities assumed (in millions), as of the acquisition date:
Cash and cash equivalents |  | $ | 284.8 |
Accounts receivable |  | 2,549.9 |
Prepaid expenses and other current assets |  | 398.9 |
Property and equipment |  | 581.6 |
Identifiable intangible assets: |  |  |
Customer relationships, contracts and backlog |  | 961.0 |
Tradename |  | 7.8 |
Total identifiable intangible assets |  | 968.8 |
Goodwill |  | 3,959.9 |
Other non-current assets |  | 330.3 |
Accounts payable |  | (650.0 | )
Accrued expenses and other current liabilities |  | (1,301.7 | )
Billings in excess of costs on uncompleted contracts |  | (363.7 | )
Current portion of long-term debt |  | (47.4 | )
Other long-term liabilities |  | (439.8 | )
Pension benefit obligations |  | (406.3 | )
Long-term debt |  | (520.2 | )
Noncontrolling interests |  | (224.5 | )
Net assets acquired |  | $ | 5,120.6 |
Backlog and customer relationships represent the fair value of existing contracts and the underlying customer relationships, and have lives ranging from 1 to 11 years (weighted average lives of approximately 3 years). Other intangible assets primarily consist of the fair value of office leases. The purchase price allocation is based upon preliminary information and is subject to change when additional information is obtained. Goodwill recognized largely results from a substantial assembled workforce, which does not qualify for separate recognition, as well as expected future synergies from combining operations. The Company has not completed its final assessment of the fair values of purchased receivables, intangible assets, property and equipment, deferred tax assets and liabilities, contingent liabilities, long-term leases, or acquired contracts. The final fair value of net assets acquired will result in adjustments to certain assets and liabilities, including the residual amount allocated to goodwill. Accrued expenses and other current liabilities above include URS project liabilities and approximately $220 million related to estimated URS legal settlements and uninsured legal damages; see Note 15, Commitments and Contingencies including legal matters related to former URS affiliates. The following presents summarized unaudited pro forma operating results assuming that the Company had acquired URS at October 1, 2013. These pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the related events occurred.
|  | Nine Months Ended |
|  | June 30, 2015 |  | June 30, 2014 |
|  | (in millions) |
Revenue |  | $ | 13,587 |  | $ | 13,612 |
Income from continuing operations |  | 323 |  | 93 |
Net income (loss) |  | 213 |  | (36 | )
Net income (loss) attributable to AECOM |  | 143 |  | (76 | )
Net income (loss) attributable to AECOM per share: |  |  |  |  |
Basic |  | $ | 0.94 |  | $ | (0.50 | )
Diluted |  | $ | 0.94 |  | $ | (0.50 | )
Since the acquisition date, URS contributed $6.4 billion in revenue and $102.1 million in income from operations during the nine months ended June 30, 2015. Amortization of intangible assets relating to URS was $76.7 million during the three months ended June 30, 2015 and $269.0 million during the nine months ended June 30, 2015 since the acquisition date. Additionally, included in equity in earnings of joint ventures and noncontrolling interests was intangible amortization expense of $9.7 million and $(5.7) million, respectively, during the three months ended June 30, 2015 related to joint venture fair value adjustments and $27.6 million and $(20.8) million, respectively, during the nine months ended June 30, 2015 related to joint venture fair value adjustments. Billings in excess of costs on uncompleted contracts includes a margin fair value liability associated with long-term contracts acquired in connection with the acquisition of URS on October 17, 2014. This margin fair value liability was $135.6 million at the acquisition date, and its carrying value was $75.3 million at June 30, 2015, and is recognized as revenue on a percentage-of-completion basis as the applicable projects progress. The Company anticipates the remaining liability will be recognized as revenue over the next five years. Revenue and the related income from operations related to the margin fair value liability recognized during the three and nine months ended June 30, 2015 was $6.1 million and $60.3 million, respectively. Acquisition and integration expenses in the accompanying consolidated statements of operations comprised of the following (in millions):
|  | Three Months Ended June 30, 2015 |  | Nine Months Ended June 30, 2015 |
Severance and personnel costs |  | $ | 35.1 |  | $ | 186.6 |
Professional service, real estate-related, and other expenses |  | 53.4 |  | 132.0 |
Total |  | $ | 88.5 |  | $ | 318.6 |
|  | Three and Nine Months Ended June 30, 2014 |  |  |
Personnel costs |  | $ | 2.5 |  |  |
Professional service and other expenses |  | 5.3 |  |  |
Total |  | $ | 7.8 |  |  |
Included in severance and personnel costs for the nine months ended June 30, 2015 was $86.0 million of severance expense, of which $53.0 million was paid as of June 30, 2015. All acquisition and integration expenses are classified within corporate, as presented in Note 16. Interest expense in the accompanying consolidated statements of operations for the three and nine months ended June 30, 2015 included acquisition related financing expenses of $4.0 million and $76.0 million, respectively. The acquisition related financing expenses of $76.0 million recognized in interest expense for the nine months ended June 30, 2015 primarily consisted of a $55.6 million penalty from the prepayment of the Company’s unsecured senior notes, and $9.0 million related to the write-off of capitalized debt issuance costs from its unsecured senior notes, unsecured revolving credit facility, and unsecured term credit agreement. The changes in the carrying value of goodwill by reportable segment for the nine months ended June 30, 2015 were as follows:
|  | September 30, 2014 |  | Acquired |  | Post- Acquisition Adjustments |  | Foreign Exchange Impact |  | June 30, 2015 |
|  | (in millions) |
Design and Consulting Services |  | $ | 1,479.2 |  | $ | 1,805.1 |  | $ | 5.5 |  | $ | (67.6 | ) | $ | 3,222.2 |
Construction Services |  | 276.9 |  | 393.0 |  | 13.7 |  | (25.8 | ) | 657.8 |
Management Services |  | 181.2 |  | 1,761.8 |  | — |  | (19.0 | ) | 1,924.0 |
Total |  | $ | 1,937.3 |  | $ | 3,959.9 |  | $ | 19.2 |  | $ | (112.4 | ) | $ | 5,804.0 |
The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of June 30, 2015 and September 30, 2014, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:
|  | June 30, 2015 |  | September 30, 2014 |  |  |
|  | Gross Amount |  | Accumulated Amortization |  | Intangible Assets, Net |  | Gross Amount |  | Accumulated Amortization |  | Intangible Assets, Net |  | Amortization Period |
|  | (in millions) |  | (years) |
Backlog and customer relationships |  | $ | 1,219.9 |  | $ | (466.8 | ) | $ | 753.1 |  | $ | 271.6 |  | $ | (182.8 | ) | $ | 88.8 |  | 1 — 11 |
Trademark / tradename |  | 16.4 |  | (16.3 | ) | 0.1 |  | 9.3 |  | (7.9 | ) | 1.4 |  | 0.3 — 2 |
Total |  | $ | 1,236.3 |  | $ | (483.1 | ) | $ | 753.2 |  | $ | 280.9 |  | $ | (190.7 | ) | $ | 90.2 |  |  |
Amortization expense of acquired intangible assets included within cost of revenue was $292.4 million and $17.3 million for the nine months ended June 30, 2015 and 2014, respectively. The following table presents estimated amortization expense of intangible assets for the remainder of fiscal 2015 and for the succeeding years:
Fiscal Year |  | (in millions) |
2015 (three months remaining) |  | $ | 93.5 |
2016 |  | 187.4 |
2017 |  | 98.1 |
2018 |  | 79.9 |
2019 |  | 74.6 |
Thereafter |  | 219.7 |
Total |  | $ | 753.2 |

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- Definition Description of a business combination completed during the period, including background, timing, and recognized assets and liabilities and includes disclosure of goodwill and intangible assets of the entire business. + References No definition available. + Details
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