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Goodwill and Intangible Assets | 9 Months Ended
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Sep. 30, 2012
Goodwill and Intangible Assets [Abstract] |
Goodwill and Intangible Assets |
(6) | Goodwill and Intangible Assets
The Company tests goodwill and intangible assets with indefinite lives for impairment by applying a fair value test in the fourth quarter of each year and between annual tests if events occur or circumstances change which suggest that the goodwill or intangible assets should be evaluated. Intangible assets with finite lives are also tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. During the second quarter of 2012, the Company experienced a sustained decrease in its stock price, causing its market capitalization to be substantially less than its carrying value and its implied control premium to increase beyond the implied control premium that was reconciled in its 2011 annual impairment analysis, and beyond the observable market comparable level. Additionally, deterioration in broader market conditions including stock market volatility, particularly in the construction industry, impacted the weighted average cost of capital rate assumptions used in deriving the fair values of the Company's reporting units, which are based primarily on market inputs. Finally, several of the Company's reporting units experienced degradation in the timing of projected cash flows used in deriving the fair values of those reporting units in its 2011 annual impairment analysis caused by delays in the timing of awards and start of new work that the Company anticipated would enter into backlog in the first half of 2012, and a general decrease in profit margins on new work awards that were factored into the Company's forecast assumptions. In the Building reporting unit, the most significant decrease in estimated new work cash flow was the result of political decisions that negatively impacted the advance of a large project for an existing customer. In addition, the Company observed an unfavorable change in the margin mix of new work obtained in the first half of 2012 compared with prior years. The majority of the new work awards in the first half of 2012 as well as the near term new work prospects were comprised of lower margin private client work and not the higher margin public works the Building reporting unit completed in the past. The projected cash flows for the Building reporting unit as of June 30, 2012 took into consideration the changes in assumptions on new work awards and unfavorable change in margin mix, consistent with its actual results in the first half of 2012. In the Civil reporting unit, the fourth quarter of 2011 valuation anticipated the award and start and/or ramp-up of a number of projects during 2012. Many of these projects were delayed for several reasons including political pressures, timing of funding, and general economic concerns. The change in the estimated timing of recent awards and resulting ramp-up of production resulted in deterioration in anticipated future cash flows from fourth quarter of 2011 expectations. The projected cash flows for the Civil reporting unit as of June 30, 2012 took into consideration the change in estimated timing of award and ramp-up of new work. Within the Management Services reporting unit valuation for the fourth quarter of 2011, cash flow projections included the anticipated ramp-up of work associated with the movement of Pacific Marine Corps operations from the island of Okinawa to the island of Guam. During April 2012, United States bipartisan legislators were unable to come to agreement on government spending cuts and certain government projects were suspended. This left doubt around the timing and magnitude of the proposed move. The projected cash flows for the Management Services reporting unit as of June 30, 2012 took into consideration the uncertainty of timing surrounding significant projects with the Pacific Marine Corps on the island of Guam. Based on these circumstances and events, the Company performed an interim goodwill and indefinite lived intangible asset impairment test as of June 30, 2012 and, as a result, the Company recorded a goodwill impairment charge of $321.1 million and an indefinite lived intangible assets impairment charge of $16.4 million in the second quarter of 2012. The Company also evaluated its finite lived tangible and intangible assets due to the degradation in the timing of projected cash flows since the Company's 2011 impairment analysis and changes in the planned use of certain intangible assets, and this analysis resulted in a $39.1 million impairment charge on the Company's finite lived intangible assets in the second quarter of 2012. These non-cash charges did not impact the Company's overall business operations. The first step in the two-step process of the impairment analysis was to determine the fair value of the Company and each of its reporting units and compare the fair value of each reporting unit to its carrying value. If the carrying value of the reporting unit exceeded its fair value, a second step was followed to calculate the goodwill impairment. The second step involved determining the fair value of the individual assets and liabilities of the reporting unit that failed the first step and calculating the implied fair value of goodwill. To determine the fair value of the Company and each of its reporting units, the Company utilized both an income-based valuation approach as well as a market-based valuation approach. The income-based valuation approach was based on the cash flows that the reporting unit expected to generate in the future and required the Company to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit in a discrete period, as well as to determine the weighted average cost of capital to be used as a discount rate and a terminal value growth rate for the non-discrete period. The market-based valuation approach to estimate the fair value of the Company's reporting units utilized industry multiples of revenues and operating earnings. The Company equally weighted the fair values calculated under the income-based and market-based valuation approaches in arriving at the concluded fair values of its reporting units. As part of the valuation process, the aggregate fair value of the Company was compared to its market capitalization at the valuation date in order to determine the implied control premium. The implied control premium was then compared to the control premiums paid in recent transactions within the industry. The Company's implied market control premium of 78.1% and 42.5%, as of the fourth quarter of 2011 and the second quarter of 2012 valuation, respectively, were determined to be in an acceptable range of market transactions observed in the construction and engineering industry in the past seven years. As part of the review process for the reporting unit valuations, the Company created multiple income-based and market-based valuation models to understand the sensitivity of the variables used in determining the fair value. These models were reviewed with the Company's external fair value specialists who assisted in the process by providing insight into acceptable ranges on various valuation assumptions as well as preferred valuation techniques. Impairment assessment inherently involves management judgments as to the assumptions used to project these amounts and the impact of market conditions on those assumptions. The key assumptions that the Company used to estimate the fair value of its reporting units under the income-based approach were as follows:
| · | Weighted average cost of capital used to discount the projected cash flows;
| · | Cash flows generated from existing and new work awards; and
| · | Projected operating margins.
Weighted average cost of capital rates used to discount the projected cash flows were developed via the capital asset pricing model which is primarily based upon market inputs. The Company used discount rates that management felt were an accurate reflection of the risks associated with the forecasted cash flows of its respective reporting units. Weighted average cost of capital inputs ranged from 15% - 16.5% for the Company's reporting units. As discussed above, since the Company's 2011 annual impairment analysis, the weighted average cost of capital rates were impacted by broader market conditions including the recent stock market volatility, particularly in the construction industry. To develop the cash flows generated from new work awards and future operating margins, the Company tracked prospective work for each of its reporting units primarily on a project-by-project basis as well as the estimated timing of when the work would be bid or prequalified, started and completed. The Company also gave consideration to its relationships with the prospective owners, the pool of competitors that were capable of performing large, complex work, changes in business strategy, and the Company's history of success in winning new work in each reporting unit. With regard to operating margins, the Company gave consideration to its historical reporting unit operating margins in the end markets that the prospective work opportunities were most significant, current market trends in recent new work procurement, and changes in business strategy. Similar to previous valuations, the Company noted that small changes to valuation assumptions could have a significant impact on the concluded value; however, the Company gained comfort over the assumptions selected for valuation through comparison to historical transaction benchmarks, third party industry expectations, and the Company's previous models. The Company also estimated the fair value of its reporting units under a market-based approach by applying industry-comparable multiples of revenues and operating earnings to its reporting units' projected performance. The conditions and prospects of companies in the construction industry depend on common factors such as overall demand for services. Changes in the Company's assumptions or estimates could materially affect the determination of the fair value of a reporting unit. Such changes in assumptions could be caused by:
| · | Terminations, suspensions, reductions in scope or delays in the start up of the revenues and cash flows from backlog as well as the prospective work tracked;
| · | Reductions in available government, state and local agencies and non-residential private industry funding and spending;
| · | The Company's ability to effectively compete for new work and maintain and grow market penetration in the regions that the Company operates in;
| · | The Company's ability to successfully control costs, work schedule, and project delivery; or
| · | Broader market conditions, including stock market volatility in the construction industry and its impact on the weighted average cost of capital assumption.
With regard to the Company's reporting units, the carrying values of the Company's Building, Civil and Management Services reporting units were greater than their fair values, and as such, the Company performed the second step of the goodwill impairment test for these reporting units which resulted in goodwill impairments as discussed above. In this second step, the Company determined the fair value of the individual assets and liabilities of the reporting units that failed Step 1 and calculated the implied fair value of goodwill for those reporting units. The Company included in this calculation the valuation of assets and liabilities that would occur in a theoretical purchase price allocation of the reporting unit in accordance with the Financial Accounting Standards Board's (the "FASB") Accounting Standards Codification ("ASC") 805 – Business Combinations, as well as the value of backlog, trade name, and customer relationships and the impact of deferred tax liabilities and assets arising from the fair valuation of these assets and liabilities. The fair value of the Specialty Contractors reporting unit substantially exceeded its carrying value, and as such, it was not necessary to perform the second step of the goodwill impairment test for this reporting unit. In conducting the initial step of its goodwill evaluation, the Company also evaluated its finite lived tangible and intangible assets due to the degradation in the timing of projected cash flows since the Company's 2011 impairment analysis and changes in the planned use of certain intangible assets. The Company compared the fair value of the finite lived tangible and intangible assets to their carrying value and determined that the carrying value of a portion of these assets exceeded their fair value as determined by the income-based valuation approach and by benchmarking against observable market prices. This income-based valuation approach involved key assumptions similar to those used in the goodwill impairment analysis for the Company's reporting units as discussed above, (e.g. projections of future cash flows associated with the Company's trade name, contractor license, customer relationship and contract backlog intangible assets that were recorded in previous acquisitions). This analysis resulted in an impairment charge of $39.1 million associated with its finite lived intangible assets. During the third quarter of 2012, the Company completed its evaluation of the key assumptions used in its interim impairment analysis of goodwill and intangible assets with indefinite lives, and concluded that there were no adjustments required to be made to the impairment charges recorded in the second quarter of 2012. Changes in the carrying amount of goodwill during the nine months ended September 30, 2012 are shown in the table below (in thousands):
|  | Building |  |  | Civil |  |  | Specialty Contractors |  |  | Management Services |  |  | Total |
Gross Goodwill |  | $ | 420,267 |  |  | $ | 430,762 |  |  | $ | 141,833 |  |  | $ | 66,638 |  |  | $ | 1,059,500 |
Accumulated Impairment |  |  | (146,847 | ) |  |  | - |  |  |  | - |  |  |  | (20,051 | ) |  |  | (166,898 | )
Balance at December 31, 2011 |  |  | 273,420 |  |  |  | 430,762 |  |  |  | 141,833 |  |  |  | 46,587 |  |  |  | 892,602 |
Acquisition related adjustments |  |  | - |  |  |  | (869 | ) |  |  | - |  |  |  | - |  |  |  | (869 | )
Impairment charge |  |  | (262,918 | ) |  |  | (55,740 | ) |  |  | - |  |  |  | (2,429 | ) |  |  | (321,087 | )
Balance at September 30, 2012 |  | $ | 10,502 |  |  | $ | 374,153 |  |  | $ | 141,833 |  |  | $ | 44,158 |  |  | $ | 570,646 |
Intangible assets consist of the following (in thousands):
|  | September 30, 2012 |  |  | Weighted
|  | Cost |  |  | Accumulated Amortization |  |  | Accumulated Impairment Charge |  |  | Carrying Value |  |  | Average Amortization Period
Trade names (non-amortizable) |  | $ | 117,600 |  |  | $ | - |  |  | $ | (67,190 | ) |  | $ | 50,410 |  |  | Indefinite
Trade names (amortizable) |  |  | 74,350 |  |  |  | (3,232 | ) |  |  | (23,232 | ) |  |  | 47,886 |  |  | 20 years
Contractor license |  |  | 6,000 |  |  |  | - |  |  |  | (6,000 | ) |  |  | - |  |  |  | N/A |
Customer relationships |  |  | 39,800 |  |  |  | (12,708 | ) |  |  | (16,645 | ) |  |  | 10,447 |  |  | 11.4 years
Construction contract backlog |  |  | 73,706 |  |  |  | (52,357 | ) |  |  | - |  |  |  | 21,349 |  |  | 3.6 years
Total |  | $ | 311,456 |  |  | $ | (68,297 | ) |  | $ | (113,067 | ) |  | $ | 130,092 |  |  |  |  |
|  | December 31, 2011 |  |  | Weighted
|  | Cost |  |  | Accumulated Amortization |  |  | Accumulated Impairment Charge |  |  | Carrying Value |  |  | Average Amortization Period
Trade names (non-amortizable) |  | $ | 117,600 |  |  | $ | - |  |  | $ | (56,100 | ) |  | $ | 61,500 |  |  | Indefinite
Trade names (amortizable) |  |  | 74,350 |  |  |  | (788 | ) |  |  | (800 | ) |  |  | 72,762 |  |  | 20 years
Contractor license |  |  | 6,000 |  |  |  | - |  |  |  | (680 | ) |  |  | 5,320 |  |  | Indefinite
Customer relationships |  |  | 39,800 |  |  |  | (10,585 | ) |  |  | - |  |  |  | 29,215 |  |  | 11.6 years
Construction contract backlog |  |  | 71,140 |  |  |  | (41,938 | ) |  |  | - |  |  |  | 29,202 |  |  | 2.9 years
Total |  | $ | 308,890 |  |  | $ | (53,311 | ) |  | $ | (57,580 | ) |  | $ | 197,999 |  |  |  |  |
Amortization expense on intangible assets for the three and nine months ended September 30, 2012 was $3.6 million and $15.0 million, respectively. Amortization expense on intangible assets for the three and nine months ended September 30, 2011 was $2.9 million and $6.9 million, respectively. As of September 30, 2012, amortization expense on intangible assets is estimated to be $3.3 million for the remainder of 2012, $13.1 million in 2013, $11.9 million in 2014, $5.3 million in 2015, $3.5 million in 2016 and $42.6 million thereafter.

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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 3 -URI http://asc.fasb.org/extlink&oid=7658586&loc=d3e16373-109275 Reference 2: 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=7658586&loc=d3e16265-109275 Reference 3: 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=7658586&loc=d3e16323-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 142 -Paragraph 42, 43, 44, 45, 46, 47 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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=14024403&loc=d3e13854-109267 Reference 6: 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=14024403&loc=d3e13816-109267 + Details
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