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Goodwill and Identifiable Intangible Assets, Net

12 Months Ended

Dec. 31, 2011

Goodwill and Identifiable Intangible Assets, Net

Goodwill and Identifiable Intangible Assets, Net

6. Goodwill and Identifiable Intangible Assets, Net

Goodwill

The changes in the carrying amount of goodwill are as follows (in thousands):

	December 31, 2011			December 31, 2010

Balance at beginning of year	$	147,818		$	100,194
Additions (See Note 4)		16,629			53,358
Impairment adjustment		(57,354	)		(5,734	)

Balance at end of year	$	107,093		$	147,818

We perform our annual impairment testing on October 1, or more frequently, if events and circumstances indicate impairment may have occurred. As discussed in Note 2, "Summary of Significant Accounting Policies," we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. If so, we perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value.

During the third quarter of 2011 and prior to our annual impairment testing on October 1, we concluded that impairment indicators existed at four reporting units serving the Virginia, Maryland and North Carolina markets, including ColonialWebb, based upon year to date results and recent forecasts. Significant declines in year to date revenues and operating margins through the summer months when the demand for new installation and replacement services is generally higher caused us to revise our expectations in our financial models for these reporting units.

The fair value of each reporting unit was estimated using a discounted cash flow model combined with market valuation approaches. We assigned a weighting of 50% to the discounted cash flow analysis and 50% to the public company approach. There was no weighting assigned to the transaction approach due to the lack of comparable market data in 2011. The material assumptions used for the income approach included a weighted average cost of capital of 13% and a long-term growth rate of 2-3%. These reporting units had a total goodwill balance of $75.7 million. The combined implied fair value was less than the combined carrying value of goodwill and we recorded a non-cash goodwill impairment charge of $55.1 million.

We previously disclosed that our assessment of the goodwill impairment charge was preliminary. During the fourth quarter, we adjusted our estimate of the weighted average cost of capital for our Maryland reporting unit to 19%, which resulted in an additional impairment charge for the remaining $2.2 million of goodwill.

Under the income approach which is weighted 50%, a one percentage point increase in the discount rate and a one percentage point decrease in the long-term growth rate would have decreased the fair value of each of these reporting units ranging from $0.1 million to $1.8 million. Under the public company market approach which has a weighting of 50%, a 10% decrease in the market approach multiples would have decreased the fair value of each of these reporting units by $0.2 million to $2.5 million.

During our annual impairment testing on October 1, we performed the qualitative assessment described above for the remaining 21 reporting units that have a goodwill balance. Based on this assessment, we concluded that it was more likely than not that the fair value of each of the reporting units was greater than its carrying amount. Accordingly, no further testing was required. In making this determination, we considered changes in the carrying value of the reporting unit, forecasted operating results, long-term growth rates and discount rates. Additionally, we considered qualitative key events and circumstances (i.e. changes in the competitive environment, cost factors, etc.).

During 2010 and 2009, the fair value of each reporting unit was estimated using a discounted cash flow model combined with market valuation approaches. We assigned a weighting of 50% to the discounted cash flow analysis, 40% to the public company approach and 10% to the transaction approach for the year ended December 31, 2010. We assigned a weighting of 40% to the discounted cash flow analysis and 60% to the public company approach for the year ended December 31, 2009. There was no weighting assigned to the transaction approach due to the lack of comparable market data in 2009. We recorded a goodwill impairment of $5.7 million during 2010 related to our Delaware location. There was no impairment of goodwill as a result of our annual goodwill impairment test in 2009. We also did not encounter any events or changes in circumstances that indicated that an impairment was more likely than not during interim periods in 2009.

There are significant inherent uncertainties and management judgment involved in estimating the fair value of each reporting unit. While we believe we have made reasonable estimates and assumptions to estimate the fair value of our reporting units, it is possible that a material change could occur. If actual results are not consistent with our current estimates and assumptions, or the current economic downturn worsens or the projected recovery is significantly delayed beyond our projections, goodwill impairment charges may be recorded in future periods.

Identifiable Intangible Assets, Net

Identifiable intangible assets consist of the following (dollars in thousands):

		December 31, 2011					December 31, 2010

	Estimated Useful Lives in Years	Gross Book Value		Accumulated Amortization			Gross Book Value		Accumulated Amortization
Customer relationships	2 - 15	$	36,351	$	(9,880	)	$	25,948	$	(5,378	)
Backlog	1 - 2		5,890		(4,999	)		4,740		(4,253	)
Noncompete agreements	2 - 7		2,890		(1,932	)		3,490		(1,710	)
Tradenames	2 - 25		23,370		(3,341	)		19,570		(2,791	)

Total		$	68,501	$	(20,152	)	$	53,748	$	(14,132	)

As discussed in Note 4, we acquired $16.2 million of intangible assets related to the acquisition of EAS.

The amounts attributable to customer relationships, noncompete agreements and tradenames are being amortized to "Selling, General and Administrative Expenses" on a pattern of economic benefit or a straight-line method over periods from two to twenty-five years. The amounts attributable to backlog are being amortized to "Cost of Services" on a proportionate method over the remaining backlog period. Amortization expense for the years ended December 31, 2011, 2010 and 2009 was $7.5 million, $6.2 million and $3.5 million, respectively.

At December 31, 2011, future amortization expense of identifiable intangible assets is as follows (in thousands):


Year ended December 31—
2012	$	7,859
2013		6,397
2014		5,457
2015		4,358
2016		3,336
Thereafter		20,942

Total	$	48,349

We recorded an intangible asset impairment of $1.6 million during 2011. This impairment charge resulted from our estimation that the carrying value may not be fully recoverable at our operating location in Delaware.

- 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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