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Goodwill and Intangible Assets | 6 Months Ended
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Mar. 29, 2015
Goodwill and Intangible Assets |
Goodwill and Intangible Assets | 4.Goodwill and Intangible Assets Effective September 29, 2014, we reorganized our core operations into our WEI and RME reportable segments. The results of the wind-down of our non-core construction activities are reported in the RCM reportable segment. Prior year amounts for reportable segments have been revised to conform to the current-year presentation. The following table summarizes the changes in the carrying value of goodwill:
|  | WEI |  | RME |  | Total |
|  | (in thousands) |
Balance at September 28, 2014 |  | $ | 238,086 |  | $ | 476,104 |  | $ | 714,190 |
Foreign exchange translation |  | (15,528) |  | (27,265) |  | (42,793) |
Balance at March 29, 2015 |  | $ | 222,558 |  | $ | 448,839 |  | $ | 671,397 |
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our most recent review at June 30, 2014 (i.e. the first day of our fourth quarter in fiscal 2014), indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill. The reorganization of our core operations, described further in Note 10, “Reportable Segments”, also impacted the definition of our reporting units used for goodwill impairment testing. As a result, as of September 29, 2014, we performed impairment testing for goodwill under our new segment structure and determined that the estimated fair value of each reporting unit exceeded its corresponding carrying amount including recorded goodwill, and, as such, no impairment existed as of September 29, 2014. However, our Global Mining Practice (“GMP”) reporting unit, which is part of our RME reportable segment, had an estimated fair value that exceeded its carrying value by less than 20%. We estimate the fair value of all reporting units with a goodwill balance based on a comparison and weighting of the income approach (weighted 70%), specifically the discounted cash flow method and the market approach (weighted 30%), which estimates the fair value of our reporting units based upon comparable market prices and recent transactions and also validates the reasonableness of the multiples from the income approach. The resulting fair value is most sensitive to the assumptions we use in our discounted cash flow analysis. The assumptions that have the most significant impact on the fair value calculation are the reporting unit’s revenue growth rate and operating profit margin, and the discount rate used to convert future estimated cash flows to a single present value amount. In our discounted cash flow model for GMP as of September 29, 2014, we assumed annual revenue growth rates of 3% to 5% based on historical trends in GMP and the mining industry, projections for future mining activity, and GMP’s backlog and prospects for new orders. We discounted the resulting cash flows at a rate of 14%. Our market-based assessment resulted in a value approximating a 0.7 multiple of revenue, net of subcontractor costs, for the 12 month period preceding the valuation date. The discounted cash flow value, combined on a weighted-basis with the results of our market analysis, resulted in an estimated fair value for GMP of approximately $102.8 million compared to our carrying value including goodwill of approximately $91.8 million. As of March 29, 2015, the goodwill amount for GMP was $61.4 million. Although we believe that our current estimate of fair value is reasonable, our analysis is primarily dependent on our future level of revenue from our mining clients. However, the extent of future activity is uncertain, particularly in light of the significant contraction in the mining sector over the last two years. We currently anticipate that if GMP’s future revenue declines by 20% or more, or market prices for similar businesses decline by more than 15%, GMP’s goodwill could become impaired. Additionally, if the yield to maturity on 20-year U.S. treasury bonds (our assumed risk-free rate of return) or the additional return investors require for alternate investments, including those similar to GMP, increases, we may be required to increase the discount rate used in our cash flow analysis. If all of our operating assumptions remain constant, but we are required to increase the discount rate in our cash flow model to 15.5% or higher, GMP’s goodwill could become impaired. Foreign exchange impact relates to our foreign subsidiaries with functional currencies that are different than our reporting currency. The gross amounts of goodwill for WEI were $253.7 million and $269.2 million at March 29, 2015 and September 28, 2014, respectively, excluding $31.1 million of accumulated impairment. The gross amounts of goodwill for RME were $475.2 million and $502.5 million at March 29, 2015 and September 28, 2014, respectively, excluding $26.4 million of accumulated impairment. The gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets - net” on the condensed consolidated balance sheets, were as follows:
|  | March 29, 2015 |  | September 28, 2014 |
|  | Weighted- Average Remaining Life (in Years) |  | Gross Amount |  | Accumulated Amortization |  | Gross Amount |  | Accumulated Amortization |
|  | ($ in thousands) |
Non-compete agreements |  | 1.5 |  | $ | 933 |  | $ | (564) |  | $ | 1,086 |  | $ | (524) |
Client relations |  | 3.4 |  | 113,716 |  | (65,824) |  | 122,198 |  | (61,117) |
Backlog |  | – |  | 1,070 |  | (1,070) |  | 1,283 |  | (1,072) |
Technology and trade names |  | 1.6 |  | 2,627 |  | (1,826) |  | 2,917 |  | (1,676) |
Total |  |  |  | $ | 118,346 |  | $ | (69,284) |  | $ | 127,484 |  | $ | (64,389) |
Foreign currency translation adjustments reduced net identifiable intangible assets by $3.3 million in the first half of fiscal 2015. Amortization expense for the identifiable intangible assets for the three and six months ended March 29, 2015 was $4.8 million and $10.8 million, respectively, compared to $6.7 million and $15.3 million for the prior-year periods. Estimated amortization expense for the remainder of fiscal 2015 and succeeding years is as follows:
|  | Amount |
|  | (in thousands) |
2015 |  | $ | 8,842 |
2016 |  | 15,616 |
2017 |  | 13,727 |
2018 |  | 6,038 |
2019 |  | 2,832 |
Beyond |  | 2,007 |
Total |  | $ | 49,062 |

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- Definition The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16323-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16265-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16373-109275 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267 + Details
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