Mergers and Acquisitions

12 Months Ended

Sep. 30, 2012

Mergers and Acquisitions

Mergers and Acquisitions

4.     Mergers and Acquisitions

        In fiscal 2010, we made certain acquisitions that enhanced our service offerings and expanded our geographic presence in the ECS, TSS and RCM segments. The aggregate purchase price for fiscal 2010 acquisitions was $107.3 million as of the respective acquisition dates, of which $86.6 million was paid to the sellers and $20.7 million was the estimated fair value of contingent earn-out liabilities on acquisition with an aggregate maximum of $26.7 million upon the achievement of specified financial objectives.

        At the beginning of the first quarter of fiscal 2011, we acquired all of the outstanding capital stock of BPR, Inc. ("BPR"), a Canadian scientific and engineering services firm that provides multidisciplinary consulting and engineering support for water, energy, industrial plants, buildings and infrastructure projects. This acquisition further expanded our geographic presence in eastern Canada, and enabled us to provide clients with additional services throughout Canada. BPR is part of our ECS segment. The estimated fair value of the purchase price was $185.7 million as of the acquisition date, of which payments of $157.0 million were financed with borrowings under our credit facility and available cash resources and $28.7 million was the estimated fair value of contingent earn-out liabilities on acquisition with a maximum of $39.2 million upon the achievement of specified financial objectives over a two-year period from the acquisition date. The goodwill related to the BPR acquisition represented the value paid for the assembled work force, the international geographic presence in eastern Canada, and engineering and consulting expertise. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

	Amount
	(in thousands)
Current assets	$	77,698
Property and equipment		7,178
Goodwill		128,140
Intangible and other assets		36,988
Current liabilities		(42,481	)
Long-term deferred taxes		(9,622	)
Noncontrolling interests		(12,222	)
Net assets acquired	$	185,679

        In fiscal 2011, we made other acquisitions that further enhanced our service offerings and expanded our geographic presence in the ECS and TSS segments. The aggregate purchase price for these acquisitions was $100.3 million as of the respective acquisition dates. Of this amount, $68.7 million was paid to the sellers, $4.5 million was accrued in accordance to the purchase agreements and $26.9 million was the estimated fair value of contingent earn-out obligations with an aggregate maximum of $32.3 million upon the achievement of specified financial objectives.

        In fiscal 2012, we made acquisitions that enhanced our service offerings and expanded our geographic presence in our ECS and TSS segments. The aggregate purchase price for these acquisitions was $63.2 million as of the respective acquisition dates. Of this amount, $42.2 million was paid to the sellers, $2.0 million was accrued in accordance to the purchase agreements and $19.0 million was the estimated fair value of contingent earn-out obligations with an aggregate maximum of $20.0 million upon the achievement of specified financial objectives.

        Goodwill additions resulting from the above business combinations are primarily attributable to the existing workforce of the acquired companies and synergies expected to arise after the acquisitions. The results of these acquisitions were included on the consolidated financial statements from their respective closing dates. None of the acquisitions were considered material, individually or in the aggregate, for the respective reporting periods. As a result, no pro forma information has been provided. The purchase price allocations related to fiscal 2012 acquisitions are preliminary, and subject to adjustment, based on the valuation and final determination of net assets acquired. We do not believe that any adjustments will have a material effect on the consolidated results of operations.

        The aggregate current estimated earn-out liabilities of $35.4 million and $64.1 million are reported in "Estimated contingent earn-out liabilities," and the aggregate non-current estimated earn-out liabilities of $16.1 million and $11.0 million are reported in "Other long-term liabilities" on the consolidated balance sheets at September 30, 2012 and October 2, 2011, respectively. Each contingent consideration is based on future operating income, and its fair value is estimated by management assessing the probability of the results being achieved in the future. At September 30, 2012, there was a maximum of $3.0 million of contingent consideration remaining for acquisitions completed prior to fiscal 2010 that will be recorded as an addition to goodwill if earned. At September 30, 2012, there was a maximum of $68.4 million of contingent consideration remaining for acquisitions completed in or after fiscal 2010.

        Every quarter-end, we re-measure the fair value of our contingent earn-out liabilities by re-evaluating the significant unobservable inputs and probability weightings in our discounted income valuation models. Any resulting decreases or increases in the fair value result in a corresponding gain or loss reported in operating income. During fiscal 2012, 2011 and 2010, we recorded a net decrease in our contingent earn-out liabilities and reported related net gains in operating income of $19.2 million ($17.3 million in the fourth quarter), $1.8 million and $0.3 million, respectively, as a result of re-measurements of fair value. In each case, subsequent to the acquisition date, we determined that the related acquired companies would achieve operating income different than the estimated level used to calculate the fair value. On a net basis, the updated estimates of operating income were lower than the original projections. The $17.3 million net decrease in our contingent earn-out liabilities in the fourth quarter of fiscal 2012 included $12.5 million related to our determination in that quarter that one of our acquisitions in the TSS segment would not achieve the operating income we previously expected for the earn-out period. The remaining fourth quarter net earn-out adjustments primarily related to several of our recent acquisitions in the ECS segment for which the earn-out periods concluded in the fourth quarter of fiscal 2012. Although certain acquired operating units with contingent earn-outs are currently expected to or did achieve lower operating income than we estimated at the time of acquisition, their results, projected earnings and related cash flows did not result in goodwill impairment.

        The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities:

	Fiscal Year Ended
	September 30, 2012			October 2, 2011			October 3, 2010
	(in thousands)
Beginning balance (at fair value)	$	75,159		$	20,504		$	–
Estimated earn-out liabilities for acquisitions during the fiscal year		18,981			55,622			20,708
Earn-out liabilities for acquisitions completed prior to fiscal 2010		9,974			21,978			13,591
Increases due to re-measurement of fair value reported in interest expense		1,374			1,612			156
Net decreases due to re-measurement of fair value reported as gains in operating income		(19,246	)		(1,755	)		(265	)
Currency translation adjustments		3,027			(743	)		(95	)
Earn-out payments:
Reported as cash used in operating activities		(601	)		–			–
Reported as cash used in investing activities		(11,773	)		(22,059	)		(13,591	)
Reported as cash used in financing activities		(18,055	)		–			–
Settlement of receivables due from sellers		(7,301	)		–			–
Ending balance (at fair value)	$	51,539		$	75,159		$	20,504