Goodwill and Intangible Assets

12 Months Ended

Sep. 29, 2013

6. Goodwill and Intangible Assets

The following table summarizes the changes in the carrying value of goodwill:

	ECS			TSS		EAS			RCM			Total

	(in thousands)
Balance at October 2, 2011	$	405,678		$	82,091	$	17,710		$	63,935		$	569,414
Inter-segment transfer ⁽¹⁾:
Fiscal 2012 realignment		(29,338	)		45,435		–			(16,097	)		–
Fiscal 2013 realignment		2,605			15,105		(17,710	)		–			–
Goodwill additions		15,367			31,236		–			1,945			48,548
Foreign exchange impact		18,910			–		–			–			18,910
Goodwill impairment		(914	)		–		–			–			(914	)

Balance at September 30, 2012		412,308			173,867		–			49,783			635,958
Goodwill additions		14,364			3,594		–			145,064			163,022
Foreign exchange impact		(16,464	)		118		–			(3,242	)		(19,588	)
Goodwill impairment		(56,600	)		–		–			–			(56,600	)

Balance at September 29, 2013	$	353,608		$	177,579	$	–		$	191,605		$	722,792

⁽¹⁾: Prior-year amounts have been reclassified due to realignment of certain operating activities in our reportable segments in fiscal 2012 and fiscal 2013. See Note 18, "Reportable Segments" for further information.

Goodwill additions are primarily attributable to acquisitions described in Note 5, "Mergers and Acquisitions" for the respective fiscal years. Additionally, fiscal 2012 goodwill additions include earn-out payments associated with an acquisition consummated prior to fiscal 2010, which was accounted for as an increase to goodwill under previous accounting rules. Substantially all of the goodwill additions are not deductible for income tax purposes. Foreign exchange impact relates to our foreign subsidiaries with functional currencies that are different than our reporting currency. The gross amounts of goodwill, excluding accumulated impairment, for ECS were $413.2 million and $411.1 million for fiscal 2012 and 2013 year-ends, respectively.

During the third quarter of fiscal 2013, certain of our reporting units experienced declines in their actual and projected financial performance. In Eastern Canada, poor economic conditions, including budget deficits, reduced customer spending, and an on-going government investigation into political corruption in Quebec slowed procurements and business activity in that region. In addition, our work for mining customers continued to slow at a faster pace than previously anticipated due to reduced demand and significant declines in prices for certain metals. To a lesser extent, we also experienced reduced performance from reporting units with a concentration of work for certain agencies of the U.S. federal government as a result of customer budgetary constraints. As a result of these factors, during the third quarter of fiscal 2013, we performed an interim goodwill impairment test for three reporting units in our ECS segment, as follows:

•

Tetra Tech Canada ("TTC"), with operations primarily in Eastern Canada, particularly Quebec;

•

Global Mining Practice ("GMP"), with operations primarily in the U.S., Canada, Australia and South America; and

•

Advanced Management Technology, Inc. ("AMT"), a U.S. federal government contractor primarily doing business with the FAA.

We performed the first step of the impairment test for each of these reporting units during the third quarter of fiscal 2013, and in each case determined that the carrying value of the reporting unit exceeded its fair value indicating potential goodwill impairment. The significant change to the assumptions used in the interim test in the third quarter of fiscal 2013 compared to the last annual impairment test as of July 2, 2012 was the projected revenue, operating income and cash flows for each reporting unit tested.

We performed the second step of the goodwill impairment test to measure the amount of the impairment loss, if any, of the applicable reporting units. The second step of the test requires the allocation of the reporting unit's fair value to its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as an impairment loss. Based on the results of the step two analyses, we recorded a $56.6 million, or $48.1 million, net of tax, goodwill impairment charge in the third quarter of fiscal 2013 related to the TTC, GMP and AMT reporting units. The carrying amounts of these reporting units, including goodwill were as follows:

	June 30, 2013

	TTC			GMP			AMT
	(in thousands)
Carrying value before impairment	$	245,634		$	116,184		$	56,474
Goodwill impairment		(27,900	)		(11,900	)		(16,800	)

Carrying value after impairment	$	217,734		$	104,284		$	39,674

As of June 30, 2013, the goodwill amounts after the impairment charges for the TTC, GMP and AMT reporting units were $111.1 million, $72.3 million and $32.6 million, respectively.

The gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in "Intangible assets – net" on the consolidated balance sheets, were as follows:

	Fiscal Year Ended

	September 29, 2013							September 30, 2012
	Weighted- Average Remaining Life (in years)		Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
	($ in thousands)
Non-compete agreements		2.6	$	6,160	$	(5,247	)	$	5,467	$	(4,685	)
Client relations		4.5		128,839		(49,189	)		99,096		(31,477	)
Backlog		0.4		68,968		(64,675	)		59,931		(55,908	)
Technology and trade names		2.9		4,204		(2,131	)		3,034		(1,227	)

Total			$	208,171	$	(121,242	)	$	167,528	$	(93,297	)

In fiscal 2013, the increases in gross amounts were attributable to the fiscal 2013 acquisitions described in Note 5, "Mergers and Acquisitions" and, to a lesser extent, foreign currency translation adjustments. Amortization expense for these intangible assets for fiscal 2013, 2012 and 2011 was $32.4 million, $29.6 million and $28.0 million, respectively. Estimated amortization expense for the succeeding five years and beyond is as follows:

	Amount

	(in thousands)
2014	$	26,815
2015		19,328
2016		15,875
2017		13,626
2018		6,333
Beyond		4,952

Total	$	86,929

- 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.

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