Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance was $312.7 million and $310.2 million as of January 28, 2017 and July 30, 2016, respectively. Changes in the carrying amount of goodwill for fiscal 2017 were as follows (dollars in thousands):



	Goodwill		Accumulated Impairment Losses			Total
Balance as of July 30, 2016	$	505,924	$	(195,767	)	$	310,157
Purchase price allocation adjustments	2,501		—			2,501
Balance as of January 28, 2017	$	508,425	$	(195,767	)	$	312,658

The Company’s goodwill resides in multiple reporting units. Goodwill and other indefinite-lived intangible assets are assessed annually for impairment as of the first day of the fourth fiscal quarter of each year, or more frequently if events occur that would indicate a potential reduction in the fair value of a reporting unit below its carrying value. The profitability of individual reporting units may suffer periodically due to downturns in customer demand and the level of overall economic activity including, in particular, construction and housing activity. The Company’s customers may reduce capital expenditures and defer or cancel pending projects during times of slowing economic conditions. 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 cyclical nature of the Company’s business, the high level of competition existing within its industry, and the concentration of its revenues from a limited number of customers may also cause results to vary. These factors may affect individual reporting units disproportionately, relative to the Company as a whole. As a result, the performance of one or more of the reporting units could decline, resulting in an impairment of goodwill or intangible assets.

The Company evaluates current operating results, including any losses, 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 significantly different estimates of the fair value of the reporting units and could result in impairments of goodwill or intangible assets of the reporting units. In addition, adverse changes to the key valuation assumptions contributing to the fair value of the Company’s reporting units could result in an impairment of goodwill or intangible assets.

During July 2016, the Company acquired the wireless network deployment and wireline operations of Goodman for $107.5 million, less an adjustment of approximately $6.6 million for working capital received below a target amount. The purchase price was allocated based on the fair value of the assets acquired and the liabilities assumed on the date of acquisition and was primarily allocated to goodwill and other intangible assets. The acquired operations were immediately integrated with the operations of an existing subsidiary which is a larger, well-established provider of services to the same primary customer. Subsequent to the close of this acquisition, activity levels within the contracts of the acquired operations trended considerably below prior expectations and the Company reduced its near term revenue expectations. As a result of the decline, the Company assessed whether it was more likely than not that the fair value of the reporting unit declined below the reporting unit’s carrying amount. With the immediate integration of the Goodman operations into the Company’s existing subsidiary, which is part of an existing reporting unit, the Company believes its ability to effectively perform services for the customer will provide future opportunities. Further, the acquired contracts remain in effect and the Company has not experienced any adverse changes in customer relations. Additionally, the Company believes that the fair value of the reporting unit containing the recently acquired operations remains substantially in excess of its carrying amount as of January 28, 2017. As a result, the Company determined that it was not more likely than not that the fair value of the reporting unit declined below its carrying amount as of January 28, 2017.

The Company performed its annual impairment assessment as of the first day of the fourth quarter of each of fiscal 2016, 2015, and 2014 and concluded that no impairment of goodwill or the indefinite-lived intangible asset was indicated at any reporting unit for any of the years. Qualitative assessments on reporting units that comprise a substantial portion of the Company’s consolidated goodwill balance and on its indefinite-lived intangible asset were performed. A qualitative assessment includes evaluating all identified events and circumstances that could affect the significant inputs used to determine the fair value of a reporting unit or indefinite-lived intangible asset for the purpose of determining whether it is more likely than not that these assets are impaired. The Company considers various factors while performing qualitative assessments, including macroeconomic conditions, industry and market conditions, financial performance of the reporting units, changes in market capitalization, and any other specific reporting unit considerations. These 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. Under the income approach, the key valuation assumptions used in determining the fair value estimates of the Company’s reporting units for each annual test were (a) a discount rate based on the Company’s best estimate of the weighted average cost of capital adjusted for certain risks for the reporting units; (b) terminal value based on terminal growth rates; and (c) seven expected years of cash flow before the terminal value.

The table below outlines certain assumptions in each of the Company’s fiscal 2016, 2015, and 2014 annual quantitative impairment analyses:



	2016	2015	2014
Terminal Growth Rate	2.0% - 3.0%	1.5% - 2.5%	1.5% - 3.0%
Discount Rate	11.5%	11.5%	11.5%

The discount rate reflects risks inherent within each reporting unit operating individually. These risks are greater than the risks inherent in the Company as a whole. The fiscal 2016, 2015, and 2014 analyses used the same discount rate and included consideration of market inputs such as the risk-free rate, equity risk premium, industry premium, and cost of debt, among other assumptions. The changes in these inputs from fiscal 2016, 2015 and 2014 had offsetting impacts and the discount rate remained at 11.5%. 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. Under the market approach, the guideline company method develops valuation multiples by comparing the Company’s reporting units to similar publicly traded companies. Key valuation assumptions and valuation multiples used in determining the fair value estimates of the Company’s reporting units rely on (a) the selection of similar companies; (b) obtaining estimates of forecast revenue and earnings before interest, taxes, depreciation, and amortization for the similar companies; and (c) selection of valuation multiples as they apply to the reporting unit characteristics.

The Company determined that the fair values of each of the reporting units were substantially in excess of their carrying values in the fiscal 2016 annual assessment. Management determined that significant changes were not likely in the factors considered to estimate fair value, and analyzed the impact of such changes were they to occur. Specifically, if there was a 25% decrease in the fair value of any of the reporting units due to a decline in their discounted cash flows resulting from lower operating performance, the conclusion of the assessment would remain unchanged. Additionally, if the discount rate applied in the fiscal 2016 impairment analysis had been 100 basis points higher than estimated for each of the reporting units, and all other assumptions were held constant, the conclusion of the assessment would remain unchanged and there would be no impairment of goodwill. As of July 30, 2016, the Company believes the goodwill is recoverable for all of the reporting units. As of January 28, 2017, the Company continues to believe that no impairment has occurred. However, significant adverse changes in the projected revenues and cash flows of a reporting unit could result in an impairment of goodwill. There can be no assurances that goodwill may not be impaired in future periods.

Intangible Assets

The Company’s intangible assets consisted of the following (dollars in thousands):



	Weighted Average Remaining Useful Lives (Years)	January 28, 2017		July 30, 2016
Gross carrying amount:
Customer relationships	12.3	$	289,917	$	289,955
Contract backlog	—	—		4,780
Trade names	7.6	9,650		9,800
UtiliQuest trade name	—	4,700		4,700
Non-compete agreements	2.4	685		685
		304,952		309,920
Accumulated amortization:
Customer relationships		112,395		101,012
Contract backlog		—		4,666
Trade names		6,556		6,034
Non-compete agreements		433		329
		119,384		112,041
Intangible assets, net		$	185,568	$	197,879

During the second quarter of fiscal 2017, certain contract backlog intangible assets became fully amortized. As a result, the gross carrying amount and the associated accumulated amortization each decreased $4.8 million. This decrease had no effect on the net carrying value of intangible assets as of January 28, 2017.

Amortization of the Company’s customer relationship intangibles and contract backlog intangibles is recognized on an accelerated basis as a function of the expected economic benefit. Amortization for the Company’s other finite-lived intangibles is recognized on a straight-line basis over the estimated useful life. Amortization expense for finite-lived intangible assets was $6.1 million and $4.7 million for the three months ended January 28, 2017 and January 23, 2016, respectively, and $12.3 million and $9.5 million for the six months ended January 28, 2017 and January 23, 2016, respectively.

As of January 28, 2017, the Company believes that the carrying amounts of its 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.