Business Acquisitions, Goodwill and Other Intangible Assets

3 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Acquisitions, Goodwill and Other Intangible Assets

Business Acquisitions, Goodwill and Other Intangible Assets

Fiscal 2016 Acquisition

On November 30, 2015, the Company acquired the Professional Services business ("Oil and Gas") of Willbros Group ("Willbros") in an all cash transaction. The $124,498 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, net of a working capital adjustment due from Willbros of $2,957. The second cash payment was made in two tranches, with $2,354 paid in March 2016 and the remaining balance paid in July 2016 in conjunction with the final net working capital settlement. Goodwill of $60,294, 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 Oil and Gas assets acquired and liabilities assumed at the acquisition date, as well as measurement period adjustments:

			November 30, 2015 (As Initially Reported)			Measurement Period Adjustments			November 30, 2015 (As Adjusted)
Cash and cash equivalents			$	355		$	—		$	355
Accounts receivable			26,406			1,857			28,263
Prepaid expenses and other current assets			7,276			(48		)	7,228
Property and equipment			3,552			—			3,552
Identifiable intangible assets:
	Customer relationships and backlog		43,500			—			43,500
	Internally developed software		1,000			—			1,000
		Total identifiable intangible assets	44,500			—			44,500
Goodwill			64,673			(4,379		)	60,294
Other non-current assets			20,683			—			20,683
Accounts payable			(2,587		)	43			(2,544		)
Accrued compensation and benefits			(7,199		)	(2		)	(7,201		)
Other accrued liabilities			(5,210		)	100			(5,110		)
Current portion of long-term debt			(6,447		)	(38		)	(6,485		)
Long-term debt, net of current portion			(18,547		)	—			(18,547		)
Non-controlling interest			$	—		$	(490	)	$	(490	)
	Net assets acquired		$	127,455		$	(2,957	)	$	124,498

Customer relationships and backlog represent the fair value of existing contracts and the underlying customer relationships. The backlog has a 1 year life and customer relationships have lives ranging from 12 years to 15 years (weighted average lives of 6 years). The internally developed software has a life of approximately 5 years (weighted average life of 5 years).

The goodwill recognized is attributable to the future strategic growth opportunities arising from the acquisition, Oil and Gas's highly skilled assembled workforce, which does not qualify for separate recognition, and the expected cost synergies of the combined operations.

The unaudited pro forma financial information summarized in the following table gives effect to the Oil and Gas acquisition assuming it occurred on July 1, 2014. 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.

	Three Months Ended
	September 25, 2015
Gross revenue	$	184,033
Net service revenue	131,709
Net income applicable to TRC Companies, Inc.	2,986
Basic earnings per common share	$	0.10
Diluted earnings per common share	$	0.10

Goodwill

The Company assesses goodwill for impairment on an annual basis as of each fiscal April period end, or at an interim date when events or changes in the business environment would more likely than not reduce the fair value of a reporting unit below its carrying value. As of September 30, 2016, the Company had $75,337 of goodwill, and does not believe there were any events or changes in circumstances since the last goodwill assessment as of April 29, 2016 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.

The carrying amount of goodwill for the three months ended September 30, 2016 by operating segment are as follows:

	Gross									Gross
	Balance,		Accumulated			Balance,				Balance,		Accumulated			Balance,
	July 1,		Impairment			July 1,		Additions /		September 30,		Impairment			September 30,
Operating Segment	2016		Losses			2016		Adjustments		2016		Losses			2016
Power	$	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		)	—
Oil and Gas	60,294		(21,981		)	38,313		—		60,294		(21,981		)	38,313
	$	136,913	$	(61,576	)	$	75,337	$	—	$	136,913	$	(61,576	)	$	75,337

Other Intangible Assets

Identifiable intangible assets as of September 30, 2016 and June 30, 2016 are included in other assets on the condensed consolidated balance sheets and were comprised of:

	September 30, 2016							June 30, 2016
	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	$	(17,374	)	$	41,844	$	59,218	$	(14,933	)	$	44,285
Contract backlog	900		(750		)	150		900		(525		)	375
Technology	1,000		(167		)	833		1,000		(117		)	883
	61,118		(18,291		)	42,827		61,118		(15,575		)	45,543
With indefinite lives:
Engineering licenses	426		—			426		426		—			426
	$	61,544	$	(18,291	)	$	43,253	$	61,544	$	(15,575	)	$	45,969

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 7 years. The weighted-average period of amortization is approximately 7 years for customer relationship assets. The amortization of intangible assets for the three months ended September 30, 2016 was $2,716. The amortization of intangible assets for the three months ended September 25, 2015 was $840.

Estimated amortization expense of intangible assets for the remainder of fiscal year 2017 and succeeding fiscal years is as follows:

Fiscal Year		Amount
2017		$	7,443
2018		9,183
2019		8,367
2020		7,821
2021		7,274
2022 and Thereafter		2,739
	Total	$	42,827

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 assessment as of April 29, 2016, which resulted in no impairments to intangible assets. 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 three months endedSeptember 30, 2016, and therefore intangible assets were not tested for impairment.