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Business Acquisitions, Goodwill and Intangible Assets | 6 Months Ended
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Mar. 31, 2018
Business Acquisitions, Goodwill and Intangible Assets |
Business Acquisitions, Goodwill and Intangible Assets | 3.Business Acquisitions, Goodwill and Intangible Assets The Company completed one acquisition during the six months ended March 31, 2018, and two acquisitions during the year ended September 30, 2017 for a total consideration of $5.6 million and $164.4 million, respectively. The business combinations did not meet the quantitative thresholds to require separate disclosures based on the Company’s consolidated net assets, investments and net income. The acquisitions were accounted for under the purchase method of accounting. As such, the purchase considerations were allocated to acquired tangible and intangible assets and liabilities based upon their fair values. 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. Transaction costs associated with business acquisitions are expensed as they are incurred. 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 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 $0.4 billion, net of Company repayments. 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 Company acquired backlog and customer relationship intangible assets valued at $973.8 million representing the fair value of existing contracts and the underlying customer relationships that have lives ranging from 1 to 11 years (weighted average lives of approximately 3 years) in connection with the URS acquisition. Acquired accrued expenses and other current liabilities include URS project liabilities and approximately $240 million related to estimated URS legal settlements and uninsured legal damages; see Note 14, “Commitments and Contingencies,” including legal matters related to former URS affiliates. Amortization of intangible assets relating to URS, included in cost of revenue, was $18.2 million and $20.9 million during the three months ended March 31, 2018 and 2017, respectively, and $36.4 million and $41.8 million during the six months ended March 31, 2018 and 2017, respectively. Additionally, included in equity in earnings of joint ventures and noncontrolling interests was intangible amortization expense of $1.7 million and ($2.1) million, respectively, during the three months ended March 31, 2018 and $2.5 million and ($2.1) million, respectively, during the three months ended March 31, 2017, related to joint venture fair value adjustments. Included in equity in earnings of joint ventures and noncontrolling interests was intangible amortization expense of $3.6 million and ($4.2) million, respectively, during the six months ended March 31, 2018 and $4.5 million and ($4.2) million, respectively, during the six months ended March 31, 2017, 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. This margin fair value liability was $149.1 million at the acquisition date and its carrying value was $6.4 million at March 31, 2018 and $8.6 million at September 30, 2017, and is recognized as revenue on a percentage-of-completion basis as the applicable projects progress. The majority of this liability was recognized over the first two years from the acquisition date. Revenue and the related income from operations related to the margin fair value liability recognized during the three months ended March 31, 2018 and 2017 was $1.1 million and $1.6 million, respectively; revenue and the related income from operations related to the margin fair value liability recognized during the six months ended March 31, 2018 and 2017 was $2.2 million and $3.2 million, respectively. Acquisition and integration expenses, relating to business acquisitions, in the accompanying consolidated statements of operations are comprised of the following:
|  | Three months ended |  | Six months ended |
|  | Mar 31, 2018 |  | Mar 31, 2017 |  | Mar 31, 2018 |  | Mar 31, 2017 |
|  | (in millions) |
Severance and personnel costs |  | $ | — |  | $ | 18.4 |  | $ | — |  | $ | 29.9 |
Professional service, real estate-related, and other expenses |  | — |  | 1.6 |  | — |  | 5.5 |
Total |  | $ | — |  | $ | 20.0 |  | $ | — |  | $ | 35.4 |
Included in severance and personnel costs for the six months ended March 31, 2017 was $7.7 million of severance expenses, which was substantially all paid as of March 31, 2018. All acquisition and integration expenses are classified within the Corporate segment, as presented in Note 15. In line with the Company’s capital allocation policy prioritizing that future capital be allocated to the reduction of long-term debt and lowering its leverage ratio, management approved a plan to sell certain non-core oil and gas businesses in North America, included in the Company’s Construction Services segment (the Disposal Group). The Company classified the related assets and liabilities of the Disposal Group as held for sale in the consolidated balance sheet. The Company recorded losses related to the remeasurement of the Disposal Group based on estimated fair value less costs to sell resulting in total asset impairments of $168.2 million, recorded in Impairment of Assets Held for Sale. Fair value was estimated using Level 3 inputs, such as forecasted cash flows, and Level 2 inputs, including bid prices from potential buyers. In connection with the classification of the Disposal Group as held for sale, the Company tested the amount of goodwill and other intangible assets allocated to the Disposal Group for impairment. The Company recorded an impairment of goodwill during the three months ended March 31, 2018 of $125.4 million and an impairment of intangible and other noncurrent assets of $42.8 million. The Company expects to complete the sale of the Disposal Group by the end of the fiscal year. A summary of certain financial information of the Disposal Group is as follows:
|  | March 31, 2018 (in millions) |
Current assets |  | $ | 78.1 |
Non-current assets |  | 81.5 |
Goodwill |  | 125.4 |
Less: Impairment of assets held for sale |  | (168.2 | )
Total assets held for sale |  | $ | 116.8 |
Current liabilities |  | $ | 36.2 |
Non-current liabilities |  | 10.3 |
Total liabilities held for sale |  | $ | 46.5 |
Net Assets Held for Sale |  | $ | 70.3 |
The changes in the carrying value of goodwill by reportable segment for the six months ended March 31, 2018 were as follows:
|  | September 30, 2017 |  | Measurement Period Adjustments |  | Impairment |  | Foreign Exchange Impact |  | March 31, 2018 |
|  | (in millions) |
Design and Consulting Services |  | $ | 3,218.9 |  | $ | — |  | $ | — |  | $ | 3.5 |  | $ | 3,222.4 |
Construction Services |  | 1,049.9 |  | 64.4 |  | (125.4 | ) | (7.0 | ) | 981.9 |
Management Services |  | 1,724.1 |  | — |  | — |  | 14.2 |  | 1,738.3 |
Total |  | $ | 5,992.9 |  | $ | 64.4 |  | $ | (125.4 | ) | $ | 10.7 |  | $ | 5,942.6 |
The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of March 31, 2018 and September 30, 2017, included in intangible assets—net, in the accompanying consolidated balance sheets, were as follows:
|  | March 31, 2018 |  | September 30, 2017 |  |  |
|  | Gross Amount |  | Accumulated Amortization |  | Intangible Assets, Net |  | Gross Amount |  | Accumulated Amortization |  | Intangible Assets, Net |  | Amortization Period |
|  | (in millions) |  | (years) |
Backlog and customer relationships |  | $ | 1,287.5 |  | $ | (920.8 | ) | $ | 366.7 |  | $ | 1,283.6 |  | $ | (870.2 | ) | $ | 413.4 |  | 1 - 11 |
Trademark / tradename |  | 18.3 |  | (16.8 | ) | 1.5 |  | 18.3 |  | (16.6 | ) | 1.7 |  | 0.3 - 2 |
Total |  | $ | 1,305.8 |  | $ | (937.6 | ) | $ | 368.2 |  | $ | 1,301.9 |  | $ | (886.8 | ) | $ | 415.1 |  |  |
Amortization expense of acquired intangible assets included within cost of revenue was $50.8 million and $50.6 million for the six months ended March 31, 2018 and 2017, respectively. The following table presents estimated amortization expense of existing intangible assets for the remainder of fiscal 2018 and for the succeeding years:
Fiscal Year |  | (in millions) |
2018 (six months remaining) |  | $ | 45.6 |
2019 |  | 84.1 |
2020 |  | 70.1 |
2021 |  | 57.4 |
2022 |  | 44.6 |
Thereafter |  | 66.4 |
Total |  | $ | 368.2 |

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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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