Goodwill and Intangible Assets

Goodwill

The Company's goodwill balance was $267.8 million as of July 27, 2013 and $174.8 million as of both July 28, 2012 and July 30, 2011. Changes in the carrying amount of goodwill for fiscal 2013 are as follows:



							Fiscal 2013 Changes
	As of			As of			Impairment				As of
	July 30, 2011			July 28, 2012			Losses		Acquisitions		July 27, 2013
	(Dollars in thousands)
Goodwill	$	370,616		$	370,616		$	—	$	92,961	$	463,577
Accumulated impairment losses	(195,767		)	(195,767		)	—		—		(195,767		)
	$	174,849		$	174,849		$	—	$	92,961	$	267,810

The carrying value of goodwill increased as a result of the Company's fiscal 2013 acquisitions. The Company's goodwill resides in multiple reporting units. The profitability of individual reporting units may suffer periodically from downturns in customer demand and other factors resulting from the cyclical nature of the Company's business, the high level of competition existing within the Company's industry, the concentration of the Company's revenues from a limited number of customers, and the level of overall economic activity. During times of slowing economic conditions, the Company's customers may reduce capital expenditures and defer or cancel pending projects. Individual reporting units may be relatively more impacted by these factors than the Company as a whole. As a result, demand for the services of one or more of the Company's reporting units could decline, resulting in an impairment of goodwill or intangible assets. The reporting units goodwill and other related indefinite-lived intangible assets are assessed annually as of the first day of the fourth fiscal quarter of each year in accordance with ASC Topic 350, Intangibles – Goodwill and Other, in order to determine whether their carrying value exceeds their fair value. The inputs used for fair value measurements of the reporting units and other related indefinite-lived intangible assets are the lowest level (Level 3) inputs.

The Company performed its annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2013, 2012 and 2011 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit in each of fiscal 2013, 2012 and 2011. During fiscal 2013, the Company performed qualitative assessments on reporting units that comprise less than 30% of its consolidated goodwill balance. The qualitative assessments indicated that it was more likely than not that the fair value exceeded carrying value for those reporting units. For the remaining reporting units, the Company performed the first step of the quantitative analysis described in ASC Topic 350. The key valuation assumptions contributing to the fair value estimates of the Company's reporting units were (a) a discount rate based on the Company's best estimate of the weighted average cost of capital adjusted for risks associated with the reporting units; (b) terminal value based on terminal growth rates; and (c) seven expected years of cash flow before the terminal value for each annual test. The table below outlines the key assumptions in each of the Company's fiscal 2013, 2012 and 2011 annual quantitative impairment analyses:



	2013	2012	2011
Terminal Growth Rate Range	1.5% - 2.5%	1.5% - 3%	1.5% - 3%
Discount Rate	11.5%	13.0%	13.5%

The discount rate reflects risks inherent within each reporting unit operating individually, which is greater than the risks inherent in the Company as a whole. The decreases in discount rates in both fiscal 2013 and fiscal 2012 are a result of reduced risk relative to industry conditions and a lower interest rate environment at the time of the analysis. The Company believes the assumptions used in the impairment analysis each year are reflective of the risks inherent in the business models of its reporting units and within its industry.

For businesses acquired in fiscal 2013, there were no significant changes in forecast assumptions between the initial valuation date and the annual impairment analysis. As a result, the estimated fair values determined during the fiscal 2013 annual impairment analysis approximated the reporting units' carrying values. Excluding these businesses, if the discount rate applied in the fiscal 2013 impairment analysis had been 100 basis points higher than estimated for each reporting unit and all other assumptions were held constant, the conclusion would remain unchanged and there would be no impairment of goodwill or the indefinite-lived intangible asset.

The UtiliQuest reporting unit, having a goodwill balance of approximately $35.6 million and an indefinite-lived trade name of $4.7 million, has been at lower operating levels as compared to historical levels. The fair value of the UtiliQuest reporting unit exceeds its carrying value by approximately 20%. The UtiliQuest reporting unit provides services to a broad range of customers, including utilities and telecommunication providers. These services are required prior to underground excavation and are influenced by overall economic activity, including construction activity. The goodwill balance of this reporting unit may have an increased likelihood of impairment if a downturn in customer demand were to occur, or if the reporting unit were not able to execute against customer opportunities, and the long-term outlook for their cash flows were adversely impacted. Furthermore, changes in the long-term outlook for this reporting unit may result in changes to other valuation assumptions. As of July 27, 2013, the Company believes the goodwill is recoverable for all of its reporting units; however, there can be no assurances that the goodwill will not be impaired in future periods.

Current operating results, including any losses, are evaluated by the Company in the assessment of goodwill and other intangible assets. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Changes in judgments and estimates could result in a significantly different estimate of the fair value of the reporting units and could result in impairments of goodwill or intangible assets at additional reporting units. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of the Company's reporting units. The Company can provide no assurances that, if such conditions occur, they will not trigger impairments of goodwill or other intangible assets in future periods.

Intangible Assets

The Company's intangible assets consist of the following:



	Weighted Average Remaining Useful Lives	July 27, 2013		July 28, 2012
	(Years)	(Dollars in thousands)
Carrying amount:
Customer relationships	12.4	$	164,497	$	89,145
Contract backlog	2.3	15,285		—
Trade names	5.1	8,200		2,860
UtiliQuest trade name	—	4,700		4,700
Non-compete agreements	4.3	400		150
		193,082		96,855
Accumulated amortization:
Customer relationships		56,219		45,852
Contract backlog		9,433		—
Trade names		2,071		1,182
Non-compete agreements		84		48
Net Intangible Assets		$	125,275	$	49,773

Amortization of the Company's intangible assets of customer relationships and contract backlog is recognized on an accelerated basis related to the expected economic benefit. As a result, the weighted average remaining useful lives for these intangible assets is not representative of the average period in which the amortization expense will be recognized. Amortization for the Company's other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life of the intangible asset.

The carrying amount of customer relationships, contract backlog, trade names and non-compete agreements increased $75.4 million, $15.3 million, $5.3 million, and $0.3 million, respectively, during fiscal 2013 as a result of the businesses acquired in fiscal 2013. The acquired customer relationships, contract backlog, trade names, and non-compete agreements have been assigned estimated useful lives of 15 years, 1-4 years (based on remaining contract terms), 5 years, and 5 years, respectively. Amortization expense for finite-lived intangible assets for fiscal 2013, 2012 and 2011 was $20.7 million, $6.5 million, and $6.8 million, respectively.

Estimated total amortization expense for each of the five succeeding fiscal years is as follows (including amortization for the newly acquired businesses based on the purchase price allocations as of July 27, 2013):



Period		Amount
		(Dollars in thousands)
2014		$18,125
2015		$15,035
2016		$14,315
2017		$12,893
2018		$10,705
Thereafter		$49,502

As of July 27, 2013, the Company believes that the carrying amounts of the intangible assets are recoverable. However, if adverse events were to occur or circumstances were to change indicating that the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment and the assets could be impaired.