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Business Acquisitions, Goodwill and Intangible Assets | 12 Months Ended
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Sep. 30, 2016
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 Corporation (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 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 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 8, Debt. Additionally, the Company repaid in full URS's $0.6 billion 2011 term loan and $0.1 billion of URS's revolving line of credit. 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 |  | $ | 284.9 |
Accounts receivable |  |  | 2,512.8 |
Prepaid expenses and other current assets |  |  | 421.0 |
Property and equipment |  |  | 570.9 |
Identifiable intangible assets: |  |  |  |
Customer relationships, contracts and backlog |  |  | 973.8 |
Tradename |  |  | 7.8 |
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Total identifiable intangible assets |  |  | 981.6 |
Goodwill |  |  | 4,059.8 |
Other non-current assets |  |  | 329.8 |
Accounts payable |  |  | (656.7 | )
Accrued expenses and other current liabilities |  |  | (1,403.7 | )
Billings in excess of costs on uncompleted contracts |  |  | (398.8 | )
Current portion of long-term debt |  |  | (47.4 | )
Other long-term liabilities |  |  | (406.1 | )
Pension benefit obligations |  |  | (406.3 | )
Long-term debt |  |  | (520.2 | )
Noncontrolling interests |  |  | (201.0 | )
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Net assets acquired |  | $ | 5,120.6 |
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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. 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. Accrued expenses and other current liabilities above include URS project liabilities and approximately $240 million related to estimated URS legal settlements and uninsured legal damages; see Note 18, 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.
|  | Twelve Months Ended |
|  | Sept 30, 2015 |  | Sept 30, 2014 |
|  | (in millions) |
Revenue |  | $ | 18,288 |  | $ | 18,776 |
Income from continuing operations |  |  | 509 |  |  | (144 | )
Net income |  |  | 325 |  |  | 1 |
Net income (loss) attributable to AECOM |  |  | 229 |  |  | (65 | )
Net income (loss) attributable to AECOM per share: |  |  |  |  |  |  |
Basic |  | $ | 1.51 |  | $ | (0.43 | )
Diluted |  | $ | 1.50 |  | $ | (0.43 | )
Amortization of intangible assets relating to URS was $183.3 million and $361.6 million during the twelve months ended September 30, 2016 and 2015, respectively. Additionally, included in equity in earnings of joint ventures and noncontrolling interests was intangible amortization expense of $23.0 million and $(13.8) million, respectively, during the twelve months ended September 30, 2016 and $37.3 million and $(26.6) million, respectively, during the twelve months ended September 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 $149.1 million at the acquisition date, and its carrying value was $14.9 million at September 30, 2016, 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 five years, with the majority over the first two years. Revenue and the related income from operations related to the margin fair value liability recognized during the twelve months ended September 30, 2016 and 2015 was $37.2 million and $96.9 million, respectively. Acquisition and integration expenses, resulting from the acquisition of URS, in the accompanying consolidated statements of operations comprised of the following (in millions):
|  | Twelve Months Ended |
|  | Sept 30, 2016 |  | Sept 30, 2015 |
Severance and personnel costs |  | $ | 23.4 |  | $ | 223.8 |
Professional service, real estate-related, and other expenses |  |  | 190.2 |  |  | 174.6 |
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Total |  | $ | 213.6 |  | $ | 398.4 |
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Included in severance and personnel costs for the twelve months ended September 30, 2016 and 2015 was $21.8 million and $101.9 million of severance expenses, respectively, of which $19.3 million and $83.6 million was paid as of September 30, 2016 and 2015, respectively. All acquisition and integration expenses are classified within Corporate, as presented in Note 19. Interest expense in the consolidated statements of operations for the twelve months ended September 30, 2015 included 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, and 2014 Credit Agreement. The Company completed one, one and two business acquisitions during the years ended September 30, 2016, 2015 and 2014, respectively. These other business acquisitions did not meet the quantitative thresholds to require pro forma disclosures of operating results, either individually or in the aggregate, based on the Company's consolidated assets, investments and net income. The Company also obtained control of an unconsolidated joint venture that resulted in its consolidation during the year ended September 30, 2014, as further discussed in Note 6. Business acquisitions during the year ended September 30, 2014 included Hunt Construction Group, a United States-based commercial construction management firm which serves clients in both the public and private sectors, and Spain-based ACE International Consultants S.L., a leading consulting firm specializing in economic and social development cooperation and private sector development. Excluding URS, the aggregate value of all consideration for acquisitions consummated during the years ended September 30, 2016, 2015 and 2014 were $5.5 million, $27.3 million and $88.5 million, respectively. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as of the acquisition dates, from acquisitions consummated during the fiscal years presented, excluding URS:
|  | Fiscal Year Ended |
|  | September 30, 2015 |  | September 30, 2014 |
|  | (in millions) |
Cash acquired |  | $ | 0.6 |  | $ | 17.1 |
Other current assets |  |  | 13.8 |  |  | 256.2 |
Identifiable intangible assets: |  |  |  |  |  |  |
Customer relationships, contracts and backlog |  |  | 1.3 |  |  | 10.4 |
Trademark / tradename |  |  | — |  |  | 1.5 |
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Total intangible assets |  | $ | 1.3 |  | $ | 11.9 |
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Goodwill |  |  | 23.6 |  |  | 72.7 |
Other non-current assets |  |  | — |  |  | 16.5 |
Current liabilities |  |  | (12.0 | ) |  | (274.1 | )
Non-current liabilities |  |  | — |  |  | (11.8 | )
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Net assets acquired |  | $ | 27.3 |  | $ | 88.5 |
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Consideration for acquisitions above, excluding URS, includes the following:
|  | Fiscal Year Ended |
|  | September 30, 2015 |  | September 30, 2014 |
|  | (in millions) |
Cash paid |  | $ | 4.8 |  | $ | 70.2 |
Contingent consideration / promissory notes |  |  | 22.5 |  |  | 18.3 |
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Total consideration |  | $ | 27.3 |  | $ | 88.5 |
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All of the above acquisitions were accounted for under the purchase method of accounting. As such, the purchase consideration of each acquired company was allocated to acquired tangible and intangible assets and liabilities based upon their fair values. The excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The determination of fair values of assets and liabilities acquired requires the Company to make estimates and use valuation techniques when market value is not readily available. The results of operations of each company acquired have been included in the Company's financial statements from the date of acquisition. Transaction costs associated with business acquisitions are expensed as they are incurred. At the time of acquisition, the Company preliminarily estimates the amount of the identifiable intangible assets acquired based upon historical valuations of similar acquisitions and the facts and circumstances available at the time. The Company determines the final value of the identifiable intangible assets as soon as information is available, but not more than 12 months from the date of acquisition. Post-acquisition adjustments primarily relate to project related liabilities. Loss on disposal activities of $42.6 million in the accompanying statements of operations for the twelve months ended September 30, 2016 included losses on the disposition of non-core energy related businesses, equipment and other assets acquired with URS and reported within the Construction Services segment. Net assets related to the loss on disposal activities were $112.8 million. Income from operations included losses incurred by non-core businesses of $36.9 million during the twelve months ended September 30, 2016. The changes in the carrying value of goodwill by reportable segment for the fiscal years ended September 30, 2016 and 2015 were as follows:
|  | Fiscal Year 2016 |
|  | September 30, 2015 |  | Post- Acquisition Adjustments |  | Foreign Exchange Impact |  | Disposed |  | September 30, 2016 |
|  | (in millions) |
Design and Consulting Services |  | $ | 3,163.3 |  | $ | 26.7 |  | $ | 8.2 |  | $ | — |  | $ | 3,198.2 |
Construction Services |  |  | 918.5 |  |  | 8.7 |  |  | (0.7 | ) |  | (11.3 | ) |  | 915.2 |
Management Services |  |  | 1,738.9 |  |  | 4.0 |  |  | (32.5 | ) |  | — |  |  | 1,710.4 |
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Total |  | $ | 5,820.7 |  | $ | 39.4 |  | $ | (25.0 | ) | $ | (11.3 | ) | $ | 5,823.8 |
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|  | Fiscal Year 2015 |
|  | September 30, 2014 |  | Post- Acquisition Adjustments |  | Foreign Exchange Impact |  | Acquired |  | September 30, 2015 |
|  | (in millions) |
Design and Consulting Services |  | $ | 1,479.2 |  | $ | 5.5 |  | $ | (96.0 | ) | $ | 1,774.6 |  | $ | 3,163.3 |
Construction Services |  |  | 276.9 |  |  | 0.6 |  |  | (34.0 | ) |  | 675.0 |  |  | 918.5 |
Management Services |  |  | 181.2 |  |  | — |  |  | (38.1 | ) |  | 1,595.8 |  |  | 1,738.9 |
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Total |  | $ | 1,937.3 |  | $ | 6.1 |  | $ | (168.1 | ) | $ | 4,045.4 |  | $ | 5,820.7 |
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The gross amounts and accumulated amortization of the Company's acquired identifiable intangible assets with finite useful lives as of September 30, 2016 and 2015, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:
|  | September 30, 2016 |  | September 30, 2015 |  |
|  | Gross Amount |  | Accumulated Amortization |  | Intangible Assets, Net |  | Gross Amount |  | Accumulated Amortization |  | Intangible Assets, Net |  | Amortization Period (years)
|  | (in millions) |  |
Backlog and customer relationships |  | $ | 1,247.1 |  | $ | (767.7 | ) | $ | 479.4 |  | $ | 1,224.7 |  | $ | (565.3 | ) | $ | 659.4 |  | 1 - 11
Trademark / tradename |  |  | 16.4 |  |  | (16.4 | ) |  | — |  |  | 16.4 |  |  | (16.4 | ) |  | — |  | 0.3 - 2
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Total |  | $ | 1,263.5 |  | $ | (784.1 | ) | $ | 479.4 |  | $ | 1,241.1 |  | $ | (581.7 | ) | $ | 659.4 |  |
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Amortization expense of acquired intangible assets included within cost of revenue was $202.4 million, $391.0 million, and $24.0 million for the years ended September 30, 2016, 2015 and 2014, respectively. The following table presents estimated amortization expense of existing intangible assets for the succeeding years:
Fiscal Year |  | (in millions) |
2017 |  | $ | 96.3 |
2018 |  |  | 82.1 |
2019 |  |  | 76.7 |
2020 |  |  | 64.8 |
2021 |  |  | 55.1 |
Thereafter |  |  | 104.4 |
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Total |  | $ | 479.4 |
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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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