Goodwill and Other Intangible Assets

Business Acquisitions and Goodwill

As of December 25, 2015, the Company had $101,697 of goodwill, and the Company does not believe there were any events or changes in circumstances since the last goodwill assessment on April 24, 2015 that would indicate the fair value of goodwill was more likely than not reduced to below its carrying value. Accordingly, goodwill was not tested for impairment during the current fiscal quarter.

On November 30, 2015, the Company acquired the Professional Services business ("Pipeline Services") of Willbros Group ("Willbros") in an all cash transaction. The $127,455 purchase price consisted of (i) an initial cash payment of $119,955 paid at closing, and, (ii) a second cash payment due of $7,500 payable at the earlier of certain Willbros contract novations (or written approval of a subcontract) and Willbros obtaining certain consents, or March 15, 2016. Goodwill of $64,673, all of which is expected to be tax deductible, and other intangible assets of $44,500 were recorded as a result of this acquisition.

The following summarizes the estimated fair values of the Pipeline Services assets acquired and liabilities assumed, as of the acquisition date:



Cash and cash equivalents			$	355
Accounts receivable			26,406
Prepaid expenses and other current assets			7,276
Property and equipment			3,552
Identifiable intangible assets:
	Customer relationships and backlog		43,500
	Internally developed software		1,000
		Total identifiable intangible assets	44,500
Goodwill			64,673
Other non-current assets			20,683
Accounts payable			(2,587		)
Accrued compensation and benefits			(7,199		)
Other accrued liabilities			(5,210		)
Current portion of long-term debt			(6,447		)
Long-term debt, net of current portion			(18,547		)
	Net assets acquired		$	127,455

Customer relationships and backlog represent the fair value of existing contracts and the underlying customer relationships. The customer relationships and backlog have lives ranging from 1 to 15 years (weighted average lives of 6 years). The internally developed software has a life of approximately 5 years (weighted average life of 3 years).

The purchase price allocation is based upon preliminary information and is subject to change when additional information becomes available. The goodwill recognized is largely the result of the expected future synergies from combining operations, as well as Pipeline Service's assembled workforce, which does not qualify for separate recognition. The Company has not completed its final assessment of the fair values of purchased receivables, intangible assets, property and equipment, liabilities, contingent liabilities, or acquired contracts. The final fair value of the net assets acquired will result in adjustments to certain assets and liabilities, including goodwill.

The unaudited pro forma financial information summarized in the following table gives effect to the Pipeline Services acquisition assuming it occurred on July 1, 2014, the earliest period presented. These unaudited pro forma operating results do not assume any impact from revenue, cost or other operating synergies that are expected as a result of the acquisition. Pro forma adjustments have been made to reflect amortization of the identified intangible assets for the related periods, as well as the amortization of deferred debt issuance costs incurred. Identifiable intangible assets are being amortized on a basis approximating the economic value derived from those assets. These unaudited pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the acquisition occurred on July 1, 2014, nor does the information project results for any future period.



	Six Months Ended
	December 25, 2015		December 26, 2014
Gross revenue	$	368,254	$	373,123
Net service revenue	262,121		267,322
Net income applicable to TRC Companies, Inc.	6,419		2,338

Basic earnings per common share	$	0.21	$	0.08
Diluted earnings per common share	$	0.20	$	0.08

Since the acquisition date, Pipeline Services has contributed $8,017 in gross revenue , $5,986 in net service revenue, and an operating loss of $(1,161) to the Company for the period from November 30, 2015 through December 25, 2015.

Acquisition and integration expenses in the accompanying condensed consolidated statements of operations were comprised of the following:



	Three Months Ended		Six Months Ended
	December 25, 2015		December 25, 2015
Severance and personnel costs	$	238	$	686
Professional services and other expenses	1,002		1,432
Total	$	1,240	$	2,118

All acquisition and integration expenses are classified within corporate shared services, as presented in Note 12 - Operating Segments.

On September 29, 2014, the Company acquired all of the outstanding stock of NOVA Training Inc. and all of the outstanding membership interests of NOVA Earthworks, LLC (collectively "NOVA") based in Midland, Texas. NOVA provides safety training and environmental services as well as oil spill response, remediation and general oil field construction services to customers in the oil and gas industry. The initial purchase price consisted of (i) a cash payment of $7,198 payable at closing, (ii) a second cash payment of $2,600 placed into escrow, of which $508 was paid in six months and the remaining $2,092 is due 18 months from the acquisition date subject to withholding for various contractual issues, (iii) 50 shares of the Company's common stock valued at $323 on the closing date, and (iv) a $560 net working capital adjustment. The sellers are also entitled to up to $1,500 in contingent cash consideration through an earn-out provision based on the NSR performance of the acquired firm over the 24 month period following closing. The Company estimated the fair value of the contingent earn-out liability to be $893 based on the projections and probabilities of reaching the performance goals through September 2016. Goodwill of $3,683, none of which is expected to be tax deductible, and other intangible assets of $3,622 were recorded as a result of this acquisition. The goodwill is primarily attributable to the synergies and ancillary growth opportunities expected to arise after the acquisition. The fair values of assets and liabilities of the NOVA acquisition have been recorded in the Environmental operating segment. The impact of this acquisition was not material to the Company's condensed consolidated balance sheets and results of operations.

The carrying amount of goodwill for the six months ended December 25, 2015 by operating segment are as follows:



	Gross									Gross
	Balance,		Accumulated			Balance,				Balance,		Accumulated			Balance,
	July 1,		Impairment			July 1,		Additions /		December 25,		Impairment			December 25,
Operating Segment	2015		Losses			2015		Adjustments		2015		Losses			2015
Energy	$	28,506	$	(14,506	)	$	14,000	$	—	$	28,506	$	(14,506	)	$	14,000
Environmental	40,889		(17,865		)	23,024		—		40,889		(17,865		)	23,024
Infrastructure	7,224		(7,224		)	—		—		7,224		(7,224		)	—
Pipeline Services	—		—			—		64,673		64,673		—			64,673
	$	76,619	$	(39,595	)	$	37,024	$	64,673	$	141,292	$	(39,595	)	$	101,697

Other Intangible Assets

Identifiable intangible assets as of December 25, 2015 and June 30, 2015 are included in other assets on the condensed consolidated balance sheets and were comprised of:



	December 25, 2015							June 30, 2015
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
Identifiable intangible assets	Amount		Amortization			Amount		Amount		Amortization			Amount
With determinable lives:
Customer relationships	$	59,218	$	(9,564	)	$	49,654	$	16,618	$	(7,740	)	$	8,878
Contract backlog	900		(75		)	825		—		—			—
Technology	1,000		(17		)	983		—		—			—
	61,118		(9,656		)	51,462		16,618		(7,740		)	8,878
With indefinite lives:
Engineering licenses	426		—			426		426		—			426
	$	61,544	$	(9,656	)	$	51,888	$	17,044	$	(7,740	)	$	9,304

Identifiable intangible assets with determinable lives are amortized over their estimated useful lives and are also reviewed for impairment if events or changes in circumstances indicate that their carrying amount may not be realizable.

Identifiable intangible assets with determinable lives are being amortized over a weighted-average period of approximately 6 years. The weighted-average period of amortization is approximately 6 years for customer relationship assets. The amortization of intangible assets for the three and six months ended December 25, 2015 was $1,076 and $1,916. The amortization of intangible assets for the three and six months ended December 26, 2014 was $1,014 and $1,728.

Estimated amortization expense of intangible assets for the remainder of fiscal year 2016 and succeeding fiscal years is as follows:



Fiscal Year		Amount
2016		$	3,212
2017		6,264
2018		6,917
2019		6,641
2020		5,667
2021 and Thereafter		22,761
	Total	$	51,462

On an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired, the fair value of the indefinite-lived intangible assets is evaluated by the Company to determine if an impairment charge is required. The Company performed its most recent annual impairment review as of April 24, 2015. There were no events or changes in circumstances that would indicate the fair value of intangible assets was reduced to below its carrying value during the six months ended December 25, 2015, and therefore intangible assets were not tested for impairment.