5. Goodwill and Intangibles

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a business acquisition. Goodwill additions resulting from business combinations were primarily attributable to the intangible value of a successful business with an assembled workforce specialized in our areas of interest. We test our goodwill for impairment on an annual basis, and more frequently when an event occurs or circumstances indicate the carrying value of the asset may not be recoverable. We believe the methodology that we use to review impairment of goodwill, which includes a significant amount of judgment and estimates, provides us with a reasonable basis to determine whether impairment has occurred. However, many of the factors employed in determining whether our goodwill is impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in future impairments.

We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last annual review at July 2, 2012 (i.e., the first day of our fiscal fourth quarter), indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill. In addition, we regularly evaluate whether events and circumstances have occurred that may indicate a potential change in recoverability of goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, including a deterioration in general economic conditions, an increased competitive environment, a change in management, key personnel, strategy or customers, negative or declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. We assess goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. Our operating segments are the same as our reportable segments and our reporting units for goodwill impairment testing are the components one level below our reportable segments. These components constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. We aggregate components within an operating segment that have similar economic characteristics.

The impairment test for goodwill is a two-step process involving the comparison of the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. We estimate the fair value of reporting units based on a comparison and weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the fair value our reporting units based upon comparable market prices and recent transactions and also validates the reasonableness of the multiples from the income approach. If the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, we perform the second step of the goodwill impairment test to measure the amount of impairment loss to be recorded. If our goodwill is impaired, we are required to record a non-cash charge that could have a material adverse effect on our consolidated financial statements.

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. 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 Federal Aviation Administration.

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

	ECS		TSS		RCM		Total
	(in thousands)

Balance at September 30, 2012(1) (2)	$	412,308	$	173,867	$	49,783	$	635,958
Goodwill acquired	12,306		–		143,304		155,610
Foreign exchange impact(3)	(21,748)		–		(5,307)		(27,055)
Post-acquisition adjustments	2,058		350		–		2,408
Goodwill impairment	(56,600)		–		–		(56,600)
Balance at June 30, 2013	$	348,324	$	174,217	$	187,780	$	710,321

(1) Prior-year amounts for ECS and TSS have been reclassified to conform to the current-year presentation (see Note 10, “Reportable Segments” for more information). As a result, the ECS revised amount reflects $9.2 million transferred in from EAS and $7.6 million transferred out to TSS. The TSS revised amount reflects $7.5 million and $7.6 million transferred in from EAS and ECS, respectively.

(2) We recorded impairment charges of $105.0 million in fiscal 2005 and $0.9 million in fiscal 2012 in our former EAS segment.

(3) Currency translation adjustments relate to our foreign subsidiaries with functional currencies that are different than our reporting currency.

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

	June 30, 2013					September 30, 2012
	Weighted- Average Remaining Life (in Years)	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
	($ in thousands)

Non-compete agreements	2.8	$	6,174	$	(5,138)	$	5,467	$	(4,685)
Client relations	4.7	128,399		(44,231)		99,096		(31,477)
Backlog	0.6	69,640		(62,362)		59,931		(55,908)
Technology and trade names	3.1	4,109		(1,837)		3,034		(1,227)
Total		$	208,322	$	(113,568)	$	167,528	$	(93,297)

Goodwill and intangible assets increased due to acquisitions completed during the first nine months of fiscal 2013, partially offset by the goodwill impairment and foreign currency translation adjustments. Amortization expense for these intangible assets for the three and nine months ended June 30, 2013 were $9.6 million and $24.2 million, respectively, compared to $6.9 million and $22.1 million for the prior-year periods. Estimated amortization expense for the remainder of fiscal 2013 and succeeding years is as follows:

	Amount
	(in thousands)

2013	$	8,742
2014	26,238
2015	19,069
2016	15,921
2017	13,488
Beyond	11,296
Total	$	94,754