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Goodwill and Other Intangible Assets | 12 Months Ended
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Dec. 31, 2013
Goodwill and Other Intangible Assets |
Goodwill and Other Intangible Assets | [4] Goodwill and Other Intangible Assets The following table presents the changes in the carrying amount of goodwill allocated to the Company’s reporting units for the periods presented:
|  |  |  |  |  | Specialty |  | Management |  |  |
|  | Civil |  | Building |  | Contractors |  | Services |  | Total |
|  | (in thousands) |
Gross Goodwill Balance |  | 319,254 |  | 402,926 |  | — |  | 66,638 |  | 788,818 |
Accumulated Impairment |  | — |  | (146,847 | ) | — |  | (20,051 | ) | (166,898 | )
Goodwill recorded in connection with the acquisition of Fisk, Anderson, Lunda, GreenStar and Becho |  | 129,775 |  | 140,907 |  | — |  | — |  | 270,682 |
Reallocation based on relative fair value (1) |  | (18,267 | ) | (123,566 | ) | 141,833 |  | — |  | — |
Balance at December 31, 2011 |  | 430,762 |  | 273,420 |  | 141,833 |  | 46,587 |  | 892,602 |
Acquisition related adjustments |  | (869 | ) | — |  | — |  | — |  | (869 | )
Impairment charge |  | (55,740 | ) | (262,918 | ) | — |  | (2,429 | ) | (321,087 | )
Balance at December 31, 2012 |  | $ | 374,153 |  | $ | 10,502 |  | $ | 141,833 |  | $ | 44,158 |  | $ | 570,646 |
Goodwill recorded in connection with an acquisition (2) |  | — |  | — |  | 7,110 |  | — |  | 7,110 |
Balance at December 31, 2013 |  | $ | 374,153 |  | $ | 10,502 |  | $ | 148,943 |  | $ | 44,158 |  | $ | 577,756 |
(1) During the third quarter of 2011, the Company completed a reorganization which resulted in the formation of the Specialty Contractors reporting unit and reportable segment. The Specialty Contractors reporting unit consists of the following subsidiary companies: WDF, FSE, Nagelbush, Fisk, Desert Mechanical, Inc. (“DMI”) (all previously included in the Building reporting unit), and Superior Gunite (previously included in the Civil reporting unit). The reorganization enabled the Company to focus on vertical integration through increased self- performed work capabilities, while maintaining the specialty contractors business with third parties, and strengthened the Company’s position as a full-service contractor with greater control over scheduled delivery and risk management. The Company reallocated goodwill between its reorganized reporting units based on a relative fair value assessment in accordance with the guidance on segment reporting. (2) During the third quarter of 2013, the Company acquired a small fire protection systems contractor. As this acquisition is immaterial, no proforma disclosures are presented. 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 that suggest a material adverse change to the most recently concluded valuation. Intangible assets with finite lives are also tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. The Company did not observe any changes in facts or circumstances during the twelve months ended December 31, 2013 that would suggest a material decline in the value of goodwill and intangible assets as concluded in the fourth quarter of the year ended December 31, 2012. At December 31, 2013, the fair value of the Management Services reporting unit increased from the concluded value as of December 31, 2012, and now exceeds its carrying value by greater than 10%. The Company concluded that the short- and long-term impacts of the debt ceiling and budget resolutions reached during and subsequent to the period ended December 31, 2013, were positive indicators of increased government spending and more definitive project timeframes; however, the Company acknowledges that future political determinations could have a material impact on the valuation of the reporting unit. Despite these political impacts, the Management Services reporting unit and its competitors have been awarded Indefinite-delivery/indefinite-quantity (“IDIQ”) contracts with significant funding ceilings, although the timing of the actual funding and subsequent release of individual task orders under those contracts continues to be sporadic. The net change in the carrying amount of goodwill for the year ended December 31, 2012 was primarily due to a goodwill impairment charge of $321.1 million recorded in the second quarter of 2012. See “Goodwill Impairment” below. Goodwill Impairment The Company performs its annual impairment test of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year. The first step in the two step process is to compare the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, a second step must be followed to calculate the goodwill impairment. The second step involves determining the fair value of the individual assets and liabilities of the reporting unit and calculating the implied fair value of goodwill. To determine the fair value of its reporting units, the Company uses the income approach, which is based on the cash flows that the reporting unit expects to generate in the future. This income valuation method requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period, as well as determine the weighted-average cost of capital to be used as a discount rate. The Company also uses the market valuation method to estimate the fair value of its reporting units by utilizing industry multiples of operating earnings. Impairment assessment inherently involves management judgments as to assumptions used to project these amounts and the impact of market conditions on those assumptions. 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 35.6% and 64.5%, as of the fourth quarter of 2013 and fourth 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 several 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. 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 13.5% - 15.5% for the Company’s reporting units. Since the Company’s 2012 annual impairment analysis, the weighted average cost of capital rates were positively impacted by broader market conditions including the recent rise in comparable companies within the construction industry. 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. 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 primarily based 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. With regard to the Company’s reporting units, the carrying values of the Company’s Civil, Building, 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). 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. Intangible assets consist of the following:
|  | December 31, 2013 |  |  |
|  |  |  |  |  |  |  |  |  | Weighted |
|  |  |  |  |  | Accumulated |  |  |  | Average |
|  |  |  | Accumulated |  | Impairment |  | Carrying |  | Amortization |
|  | Cost |  | Amortization |  | Charge |  | Value |  | Period |
|  |  |  | (in thousands) |  |  |  |  |
Trade names (non-amortizable) |  | $ | 117,600 |  | $ | — |  | $ | (67,190 | ) | $ | 50,410 |  | Indefinite |
Trade names (amortizable) |  | 74,350 |  | (6,341 | ) | (23,232 | ) | 44,777 |  | 20 years |
Contractor license |  | 6,000 |  | — |  | (6,000 | ) | — |  | Indefinite |
Customer relationships |  | 39,800 |  | (14,315 | ) | (16,645 | ) | 8,840 |  | 11.4 years |
Construction contract backlog |  | 73,706 |  | (63,993 | ) | — |  | 9,713 |  | 3.6 years |
Total |  | $ | 311,456 |  | $ | (84,649 | ) | $ | (113,067 | ) | $ | 113,740 |  |  |
|  | December 31, 2012 |  |  |
|  |  |  |  |  |  |  |  |  | Weighted |
|  |  |  |  |  | Accumulated |  |  |  | Average |
|  |  |  | Accumulated |  | Impairment |  | Carrying |  | Amortization |
|  | Cost |  | Amortization |  | Charge |  | Value |  | Period |
|  |  |  | (in thousands) |  |  |  |  |
Trade names (non-amortizable) |  | $ | 117,600 |  | $ | — |  | $ | (67,190 | ) | $ | 50,410 |  | Indefinite |
Trade names (amortizable) |  | 74,350 |  | (3,854 | ) | (23,232 | ) | 47,264 |  | 20 years |
Contractor license |  | 6,000 |  | — |  | (6,000 | ) | — |  | Indefinite |
Customer relationships |  | 39,800 |  | (13,029 | ) | (16,645 | ) | 10,126 |  | 11.4 years |
Construction contract backlog |  | 73,706 |  | (54,685 | ) | — |  | 19,021 |  | 3.6 years |
Total |  | $ | 311,456 |  | $ | (71,568 | ) | $ | (113,067 | ) | $ | 126,821 |  |  |
Amortization expense for the years ended December 31, 2013, 2012, and 2011 totaled $13.1 million, $18.3 million and $13.1 million, respectively. At December 31, 2013, amortization expense is estimated to be $11.9 million in 2014, $5.3 million in 2015, $3.5 million in 2016, $3.5 million in 2017, $3.5 million in 2018 and $35.5 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 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=14024403&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 3 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16373-109275 Reference 4: 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 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 + Details
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