SEC Company Response from AECOM (ACM) — Apr 11, 2014
AECOM
Date: April 11, 2014 · CIK: 0000868857 · Accession: 0001104659-14-027330
AI Filing Summary & Sentiment
Referenced dates: April 15, 2011, March 22, 2013
Letter
VIA EDGAR Securities and Exchange Commission Division of Corporation Finance Filed November 13, 2013 Form 10-Q for Fiscal Quarter Ended December 31, 2013 Filed February 5, 2014 File No. 0-52423
Dear Mr. O’Brien:
This letter is in response to the comment letter, dated March 11, 2014, of the Staff of the Division of Corporation Finance (the “Staff”) regarding the above-referenced filings for AECOM Technology Corporation (“AECOM” or the “Company”). To assist your review, we have retyped the text of the Staff’s comments in italics below.
Form 10-K for the Fiscal Year Ended September 30, 2013
General
1. You told us in your letter to us dated April 15, 2011 that your subsidiaries worked on various projects in Sudan and Syria, and that you expected to engage in future projects in Sudan and to complete your existing projects in Syria. Also, we note from your website that you continue to be involved in projects in Sudan. As you know, Sudan and Syria are designated as state sponsors of terrorism by the State Department and are subject to U.S. economic sanctions and export controls. Your Form 10-K does not include disclosure regarding any contacts with Sudan or Syria. Please provide us with information regarding your contacts with Sudan and Syria since the referenced letter. Your response should describe any goods, technology, services, or support you have provided into Sudan and Syria, directly or indirectly, and any agreements, arrangements, or other contacts you have had with the governments of Sudan and Syria or entities they control.
The Company has stringent policies and procedures in place that prohibit or restrict business with countries designated as state sponsors of terrorism, including Sudan and Syria. The Company’s policies only permit it to operate in such countries as permitted by licenses issued by U.S. government authorities in support of U.S. government contracts. Please find below the requested description of the Company’s contacts with each of these countries since April 15, 2011.
Syria
Consistent with the imposition of stricter U.S. sanctions in 2011, AECOM and its subsidiaries and controlled entities have terminated all business conducted by the Company in Syria as of August 2011, following completion of the two projects identified in the Company’s letter to the Staff dated April 15, 2011, and do not intend to conduct any further business unless sanctions are modified to permit such activities. Neither AECOM nor its subsidiaries/controlled entities has any legacy business or remaining contractual obligations in Syria.
Sudan and South Sudan
AECOM International Development, Inc. and AECOM Government Services, Inc. (“AGS”), both of which are subsidiaries of the Company, work on various projects in Sudan and South Sudan in support of and under the direction of the U.S. government. The Company does not conduct any activity or business in Sudan or South Sudan other than serving as a U.S. government contractor. The Company’s work in South Sudan is not subject to U.S. sanctions regulations, and in Sudan, the Company’s work falls within the scope of OFAC general license SU-2799 (31 C.F.R. § 538.531).
The contracts for work in Sudan and South Sudan are with the U.S. Department of State and in support of the efforts of (1) the United States Agency for International Development (“USAID”) and (2) the Africa Peacekeeping Program (“AFRICAP”), the primary support services contract used by the U.S. Department of State’s Bureau of African Affairs. Serving as a contractor on projects in support of U.S. government objectives in permitted areas does not violate either the spirit or letter of U.S. regulations. Moreover, the Company’s U.S. government projects and all activities undertaken pursuant to such projects are carefully scrutinized by the Company to ensure compliance with U.S. sanctions and export controls laws and regulations.
USAID Program
Since April 15, 2011, AECOM International Development, pursuant to USAID contracts, has performed the work summarized below:
USAID Project Summary
Project Title
Purpose
Period of Performance
SSTCM (South Sudan Transition and Conflict Mitigation)
To establish and manage a quick response mechanism supporting activities that strengthen Sudanese confidence and capacity to address the causes and consequences of political conflict, violence, and instability.
2011 - 2013
VISTAS (Viable Support to Transition and Stability)
To provide USAID/South Sudan with a quick response mechanism to support the U.S. government’s effort to develop creative and flexible responses to needs in South Sudan and promote stability in communities vulnerable to conflict through the implementation of small grants.
July 2013 - July 2018
U.S. Department of State AFRICAP Task Orders
AECOM’s AGS subsidiary has provided various support services in Sudan to the U.S. government pursuant to different U.S. Department of State AFRICAP task orders. Under AFRICAP, contractors provide, among other things, strategic advisory services, equipment procurement, logistical support services, and construction services consistent with and required by the State Department’s peacekeeping policies for developing countries in Africa. The two Darfur-related task orders were to provide support to the African Union-led peacekeeping operation, including establishing Security and Stabilization advisory teams to identify and respond to sources of conflict and implementing logistical support projects designed to resolve sources of local conflict within the Darfur regions. The Darfur operations are on hold pending negotiation of a new implementation agreement with the Sudanese Government. AGS has obtained and will continue to obtain export licenses and
other authorizations from the Directorate of Defense Trade Controls and Bureau of Industry and Security as required to carry out this work. A brief description of all seven task orders awarded under the AFRICAP contract, for which AECOM is a prime contractor, follows:
Task Orders Summary
Project Title
Purpose
Period of Performance
Conflict Mitigation and Stabilization Initiative
To provide security and stabilization advisors to the regional government of Southern Sudan and each of the governors’ offices in Southern Sudan.
August 2010 - November 2011
SPLA Command, Control, Communications, and Computers
To provide the following support to the Sudanese People’s Liberation Army (“SPLA”) in Southern Sudan:
· basic English language training
· computers and field furniture to support divisional headquarters
· Harris radios and new equipment training
· design and equip and All Source Production Section for the SPLA Directorate of Military Intelligence and train its personnel
· develop and implement a Command and Staff Officers Skills Course.
August 2010 - September 2012
Darfur Security and Stabilization Initiative
To establish security and stabilization advisory teams in each of the three states in the Darfur region of Sudan.
September 2010 - January 2012
SPLA Light Engineering Battalion
To perform assessment of the civil engineering capabilities of the SPLA Engineer Corps and design a program of instruction to improve ability to perform construction tasks in support of infrastructure development projects.
September 2010 - May 2011
SPLA Riverine Battalion
To provide collective and safety training to approximately officers and enlisted soldiers for the SPLA’s Riverine Battalion.
September 2010 - April 2011
Support for the United Nations African Union Mission in Darfur (UNAMID)
To implement a number of logistical support projects designed to resolve sources of local conflict within the Darfur regions.
September 2010 - September 2011
Enhancing SPLA Medical Services
To provide the following services:
· assessment of SPLA Medical Hospitals and Divisional Clinics
· installation of Medical Clinics across South Sudan
· construction of housing units for SPLA doctors, nurses, medical technicians and students at Juba Military Hospital
· design and implementation of multiple medical training courses for SPLA medical personnel
· procurement and delivery of mobile surgical hospitals
· construction for medical storage warehouses.
September 2010 - September 2014
2. Please discuss the materiality of your contacts with Sudan and Syria described in response to the foregoing comment, and whether they constitute a material investment risk for your security holders. You should address materiality in quantitative terms, including the approximate dollar amounts of any revenues, assets, and liabilities associated with Sudan and Syria for the last three fiscal years and the subsequent interim period. Also, address materiality in terms of qualitative factors that a reasonable investor would deem important in making an investment decision, including the potential impact of corporate activities upon a company’s reputation and share value. As you know, various state and municipal governments, universities, and other investors have proposed or adopted divestment or similar initiatives regarding investment in companies that do business with U.S.-designated state sponsors of terrorism. Your materiality analysis should address the potential impact of the investor sentiment evidenced by such actions directed toward companies that have operations associated with Sudan and Syria.
The Company estimates that its total revenue from the projects in Syria is approximately US$1.4 million in aggregate for the last three fiscal years and the subsequent interim period, all earned prior to August 2011. For this same period, the Company estimates that its total revenue from its work on projects under the auspices of USAID and the U.S. State Department in Sudan and South Sudan is approximately US$85.6 million in aggregate. These amounts, which combined represent approximately 0.3 percent of the Company’s total company revenues, are not significant. Accordingly, the Company does not believe that these amounts are quantitatively material to a reasonable investor.
As noted above, the Company only performs work at the behest of and in support of U. S. government objectives, such as peacekeeping and civil institution building, in Sudan and pursuant to licenses issued by relevant U.S. authorities. The Company does not conduct work in or on behalf of state sponsors of terrorism. As a result, the Company does not believe that such activities should affect its reputation or share value or require divestment since the Company does not support state-sponsors of terrorism.
As discussed above, the Company strives to comply with all applicable laws, including U.S. sanctions and export controls laws and regulations, while also realizing value for its shareholders. The Company does not believe that its work in Sudan or Syria under contracts with the U.S. government in support of peacekeeping, transition assistance and other efforts benefiting the people of Southern Sudan constitutes qualitatively material information to a reasonable investor at this time.
The Company will continue to monitor divestment legislation and initiatives, as well as shareholders’ concerns. Should the Company’s business in Sudan and the risks associated with such business become material, the Company will include an appropriate disclosure in its filings with the Commission.
Risk Factors, page 13
Our failure to meet contractual schedule or performance requirements…, page 17
3. Regarding your revenue agreements pertaining to events of defaults and remedies, in future filings please disclose in the risk factor whether losses related to such defaults and remedies, including liquidated damages clauses; have materially impacted your operating results in any of the periods presented. Absent such disclosure, it is unclear how investors can fully assess the likelihood of the risk factor having a material impact. If material, such losses should be quantified in the filing and your revenue recognition policy disclosures should be expanded to specifically state how these loss contingencies impact your revenue recognition policies. Please provide us with an example of your intended future disclosure.
The Company confirms that, in the risk factor section of future filings, it will disclose whether losses related to defaults and remedies, including liquidated damages clauses, have materially impacted the Company’s operating results for the periods presented and, if material, the Company will quantify such losses and expand its revenue recognition policy disclosures to specifically state how such loss contingencies impacted its revenue recognition policies. For the periods presented in the filings reviewed by the Staff, there were no such losses that materially impacted the Company’s operating results. Below is an example of the intended future risk factor disclosure (assuming no future material impact), with the new language underlined:
“Our failure to meet contractual schedule or performance requirements that we have guaranteed could adversely affect our operating results.
In certain circumstances, we can incur liquidated or other damages if we do not achieve project completion by a scheduled date. If we or an entity for which we have provided a guarantee subsequently fails to complete the project as scheduled and the matter cannot be satisfactorily resolved with the client, we may be responsible for cost impacts to the client resulting from any delay or the cost to complete the project. Our costs generally increase from schedule delays and/or could exceed our projections for a particular project. Although we have not suffered material impacts to our results of operations due to any schedule or performance issues for the periods presented in this report, material performance problems for existing and future contracts could cause actual results of operations to differ from those anticipated by us and also could cause us to suffer damage to our reputation within our industry and client base.”
Form 10-Q for Fiscal Quarter Ended December 31, 2013
Note 6- Joint Ventures and Variable Interest Entities, page 8
4. Per our comment letter dated March 22, 2013, for your unconsolidated joint ventures in future filings please include (a) gross profit, (b) net income and (c) net income attributable to AECOM required by Article l-02(bb)(l)(ii) of Regulation S-X.
Commencing with the Quarterly Report on Form 10-Q for the period ended March 31, 2013, the Company included additional information that it believes satisfies the requirements of Article l-02(bb)(l)(ii) of Regulation S-X. Specifically, the Company discloses revenue and operating income of the unconsolidated joint ventures. The Company’s unconsolidated joint ventures are generally established to deliver services for an individual project. As such, all costs incurred relate to the cost of providing these services for the applicable project. Accordingly, the Company’s unconsolidated joint ventures do not incur costs that would be considered by the Company to be general and administrative expenses. Therefore, the operating income the Company discloses in its Joint Ventures and Varia
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CORRESP 1 filename1.htm AECOM 555 S. Flower Street Suite 3700 Los Angeles, CA 90071 www.aecom.com 213.593.8000 213.593.8730 tel fax April 11, 2014 VIA EDGAR Terrence O’Brien Accounting Branch Chief Securities and Exchange Commission Division of Corporation Finance 1 Station Place, N.E., Stop 7010 Washington, D.C. 20549 Re: AECOM Technology Corporation Form 10-K for the Fiscal Year Ended September 30, 2013 Filed November 13, 2013 Form 10-Q for Fiscal Quarter Ended December 31, 2013 Filed February 5, 2014 File No. 0-52423 Dear Mr. O’Brien: This letter is in response to the comment letter, dated March 11, 2014, of the Staff of the Division of Corporation Finance (the “Staff”) regarding the above-referenced filings for AECOM Technology Corporation (“AECOM” or the “Company”). To assist your review, we have retyped the text of the Staff’s comments in italics below. Form 10-K for the Fiscal Year Ended September 30, 2013 General 1. You told us in your letter to us dated April 15, 2011 that your subsidiaries worked on various projects in Sudan and Syria, and that you expected to engage in future projects in Sudan and to complete your existing projects in Syria. Also, we note from your website that you continue to be involved in projects in Sudan. As you know, Sudan and Syria are designated as state sponsors of terrorism by the State Department and are subject to U.S. economic sanctions and export controls. Your Form 10-K does not include disclosure regarding any contacts with Sudan or Syria. Please provide us with information regarding your contacts with Sudan and Syria since the referenced letter. Your response should describe any goods, technology, services, or support you have provided into Sudan and Syria, directly or indirectly, and any agreements, arrangements, or other contacts you have had with the governments of Sudan and Syria or entities they control. 1 The Company has stringent policies and procedures in place that prohibit or restrict business with countries designated as state sponsors of terrorism, including Sudan and Syria. The Company’s policies only permit it to operate in such countries as permitted by licenses issued by U.S. government authorities in support of U.S. government contracts. Please find below the requested description of the Company’s contacts with each of these countries since April 15, 2011. Syria Consistent with the imposition of stricter U.S. sanctions in 2011, AECOM and its subsidiaries and controlled entities have terminated all business conducted by the Company in Syria as of August 2011, following completion of the two projects identified in the Company’s letter to the Staff dated April 15, 2011, and do not intend to conduct any further business unless sanctions are modified to permit such activities. Neither AECOM nor its subsidiaries/controlled entities has any legacy business or remaining contractual obligations in Syria. Sudan and South Sudan AECOM International Development, Inc. and AECOM Government Services, Inc. (“AGS”), both of which are subsidiaries of the Company, work on various projects in Sudan and South Sudan in support of and under the direction of the U.S. government. The Company does not conduct any activity or business in Sudan or South Sudan other than serving as a U.S. government contractor. The Company’s work in South Sudan is not subject to U.S. sanctions regulations, and in Sudan, the Company’s work falls within the scope of OFAC general license SU-2799 (31 C.F.R. § 538.531). The contracts for work in Sudan and South Sudan are with the U.S. Department of State and in support of the efforts of (1) the United States Agency for International Development (“USAID”) and (2) the Africa Peacekeeping Program (“AFRICAP”), the primary support services contract used by the U.S. Department of State’s Bureau of African Affairs. Serving as a contractor on projects in support of U.S. government objectives in permitted areas does not violate either the spirit or letter of U.S. regulations. Moreover, the Company’s U.S. government projects and all activities undertaken pursuant to such projects are carefully scrutinized by the Company to ensure compliance with U.S. sanctions and export controls laws and regulations. 2 USAID Program Since April 15, 2011, AECOM International Development, pursuant to USAID contracts, has performed the work summarized below: USAID Project Summary Project Title Purpose Period of Performance SSTCM (South Sudan Transition and Conflict Mitigation) To establish and manage a quick response mechanism supporting activities that strengthen Sudanese confidence and capacity to address the causes and consequences of political conflict, violence, and instability. 2011 - 2013 VISTAS (Viable Support to Transition and Stability) To provide USAID/South Sudan with a quick response mechanism to support the U.S. government’s effort to develop creative and flexible responses to needs in South Sudan and promote stability in communities vulnerable to conflict through the implementation of small grants. July 2013 - July 2018 U.S. Department of State AFRICAP Task Orders AECOM’s AGS subsidiary has provided various support services in Sudan to the U.S. government pursuant to different U.S. Department of State AFRICAP task orders. Under AFRICAP, contractors provide, among other things, strategic advisory services, equipment procurement, logistical support services, and construction services consistent with and required by the State Department’s peacekeeping policies for developing countries in Africa. The two Darfur-related task orders were to provide support to the African Union-led peacekeeping operation, including establishing Security and Stabilization advisory teams to identify and respond to sources of conflict and implementing logistical support projects designed to resolve sources of local conflict within the Darfur regions. The Darfur operations are on hold pending negotiation of a new implementation agreement with the Sudanese Government. AGS has obtained and will continue to obtain export licenses and 3 other authorizations from the Directorate of Defense Trade Controls and Bureau of Industry and Security as required to carry out this work. A brief description of all seven task orders awarded under the AFRICAP contract, for which AECOM is a prime contractor, follows: Task Orders Summary Project Title Purpose Period of Performance Conflict Mitigation and Stabilization Initiative To provide security and stabilization advisors to the regional government of Southern Sudan and each of the governors’ offices in Southern Sudan. August 2010 - November 2011 SPLA Command, Control, Communications, and Computers To provide the following support to the Sudanese People’s Liberation Army (“SPLA”) in Southern Sudan: · basic English language training · computers and field furniture to support divisional headquarters · Harris radios and new equipment training · design and equip and All Source Production Section for the SPLA Directorate of Military Intelligence and train its personnel · develop and implement a Command and Staff Officers Skills Course. August 2010 - September 2012 Darfur Security and Stabilization Initiative To establish security and stabilization advisory teams in each of the three states in the Darfur region of Sudan. September 2010 - January 2012 SPLA Light Engineering Battalion To perform assessment of the civil engineering capabilities of the SPLA Engineer Corps and design a program of instruction to improve ability to perform construction tasks in support of infrastructure development projects. September 2010 - May 2011 SPLA Riverine Battalion To provide collective and safety training to approximately officers and enlisted soldiers for the SPLA’s Riverine Battalion. September 2010 - April 2011 Support for the United Nations African Union Mission in Darfur (UNAMID) To implement a number of logistical support projects designed to resolve sources of local conflict within the Darfur regions. September 2010 - September 2011 Enhancing SPLA Medical Services To provide the following services: · assessment of SPLA Medical Hospitals and Divisional Clinics · installation of Medical Clinics across South Sudan · construction of housing units for SPLA doctors, nurses, medical technicians and students at Juba Military Hospital · design and implementation of multiple medical training courses for SPLA medical personnel · procurement and delivery of mobile surgical hospitals · construction for medical storage warehouses. September 2010 - September 2014 4 2. Please discuss the materiality of your contacts with Sudan and Syria described in response to the foregoing comment, and whether they constitute a material investment risk for your security holders. You should address materiality in quantitative terms, including the approximate dollar amounts of any revenues, assets, and liabilities associated with Sudan and Syria for the last three fiscal years and the subsequent interim period. Also, address materiality in terms of qualitative factors that a reasonable investor would deem important in making an investment decision, including the potential impact of corporate activities upon a company’s reputation and share value. As you know, various state and municipal governments, universities, and other investors have proposed or adopted divestment or similar initiatives regarding investment in companies that do business with U.S.-designated state sponsors of terrorism. Your materiality analysis should address the potential impact of the investor sentiment evidenced by such actions directed toward companies that have operations associated with Sudan and Syria. The Company estimates that its total revenue from the projects in Syria is approximately US$1.4 million in aggregate for the last three fiscal years and the subsequent interim period, all earned prior to August 2011. For this same period, the Company estimates that its total revenue from its work on projects under the auspices of USAID and the U.S. State Department in Sudan and South Sudan is approximately US$85.6 million in aggregate. These amounts, which combined represent approximately 0.3 percent of the Company’s total company revenues, are not significant. Accordingly, the Company does not believe that these amounts are quantitatively material to a reasonable investor. As noted above, the Company only performs work at the behest of and in support of U. S. government objectives, such as peacekeeping and civil institution building, in Sudan and pursuant to licenses issued by relevant U.S. authorities. The Company does not conduct work in or on behalf of state sponsors of terrorism. As a result, the Company does not believe that such activities should affect its reputation or share value or require divestment since the Company does not support state-sponsors of terrorism. As discussed above, the Company strives to comply with all applicable laws, including U.S. sanctions and export controls laws and regulations, while also realizing value for its shareholders. The Company does not believe that its work in Sudan or Syria under contracts with the U.S. government in support of peacekeeping, transition assistance and other efforts benefiting the people of Southern Sudan constitutes qualitatively material information to a reasonable investor at this time. The Company will continue to monitor divestment legislation and initiatives, as well as shareholders’ concerns. Should the Company’s business in Sudan and the risks associated with such business become material, the Company will include an appropriate disclosure in its filings with the Commission. 5 Risk Factors, page 13 Our failure to meet contractual schedule or performance requirements…, page 17 3. Regarding your revenue agreements pertaining to events of defaults and remedies, in future filings please disclose in the risk factor whether losses related to such defaults and remedies, including liquidated damages clauses; have materially impacted your operating results in any of the periods presented. Absent such disclosure, it is unclear how investors can fully assess the likelihood of the risk factor having a material impact. If material, such losses should be quantified in the filing and your revenue recognition policy disclosures should be expanded to specifically state how these loss contingencies impact your revenue recognition policies. Please provide us with an example of your intended future disclosure. The Company confirms that, in the risk factor section of future filings, it will disclose whether losses related to defaults and remedies, including liquidated damages clauses, have materially impacted the Company’s operating results for the periods presented and, if material, the Company will quantify such losses and expand its revenue recognition policy disclosures to specifically state how such loss contingencies impacted its revenue recognition policies. For the periods presented in the filings reviewed by the Staff, there were no such losses that materially impacted the Company’s operating results. Below is an example of the intended future risk factor disclosure (assuming no future material impact), with the new language underlined: “Our failure to meet contractual schedule or performance requirements that we have guaranteed could adversely affect our operating results. In certain circumstances, we can incur liquidated or other damages if we do not achieve project completion by a scheduled date. If we or an entity for which we have provided a guarantee subsequently fails to complete the project as scheduled and the matter cannot be satisfactorily resolved with the client, we may be responsible for cost impacts to the client resulting from any delay or the cost to complete the project. Our costs generally increase from schedule delays and/or could exceed our projections for a particular project. Although we have not suffered material impacts to our results of operations due to any schedule or performance issues for the periods presented in this report, material performance problems for existing and future contracts could cause actual results of operations to differ from those anticipated by us and also could cause us to suffer damage to our reputation within our industry and client base.” 6 Form 10-Q for Fiscal Quarter Ended December 31, 2013 Note 6- Joint Ventures and Variable Interest Entities, page 8 4. Per our comment letter dated March 22, 2013, for your unconsolidated joint ventures in future filings please include (a) gross profit, (b) net income and (c) net income attributable to AECOM required by Article l-02(bb)(l)(ii) of Regulation S-X. Commencing with the Quarterly Report on Form 10-Q for the period ended March 31, 2013, the Company included additional information that it believes satisfies the requirements of Article l-02(bb)(l)(ii) of Regulation S-X. Specifically, the Company discloses revenue and operating income of the unconsolidated joint ventures. The Company’s unconsolidated joint ventures are generally established to deliver services for an individual project. As such, all costs incurred relate to the cost of providing these services for the applicable project. Accordingly, the Company’s unconsolidated joint ventures do not incur costs that would be considered by the Company to be general and administrative expenses. Therefore, the operating income the Company discloses in its Joint Ventures and Varia