[3] Goodwill and Other Intangible Assets

The following table presents the changes in the carrying amount of goodwill allocated to the Company’s reporting units for the periods presented:


					Specialty		Management
	Civil		Building		Contractors		Services		Total

	(in thousands)
Gross Goodwill Balance		429,893		420,267		141,833		66,638		1,058,631
Accumulated Impairment		(55,740)		(409,765)		—		(22,480)		(487,985)
Balance at December 31, 2012	$	374,153		10,502	$	141,833	$	44,158	$	570,646
Goodwill recorded in connection with an acquisition (2)		—		—		7,110		—		7,110
Balance at December 31, 2013	$	374,153	$	10,502	$	148,943	$	44,158	$	577,756
Reallocation based on relative fair value (1)		41,205		2,953		—		(44,158)		—
Acquisition related adjustments (2)		—		—		7,250		—		7,250
Balance at December 31, 2014	$	415,358	$	13,455	$	156,193	$	—	$	585,006

______________

(1)

During the first quarter of 2014, the Company completed a reorganization which resulted in the elimination of the Management Services reporting unit and reportable segment. The Management Services reporting unit formerly consisted of the following subsidiary companies: Black Construction and Perini Management Services. The reorganization was completed due to the unit no longer meeting the criteria set forth in FASB ASC Topic 280, “Segment Reporting”. The Company reallocated goodwill between its reorganized reporting units based on a relative fair value assessment in accordance with the guidance on segment reporting.

(2)

During the quarter ended September 30, 2013, the Company acquired a small fire protection systems contractor. During the quarter ended June 30, 2014, an adjustment was made to goodwill for this acquisition in the amount of $7.3 million. As this acquisition is immaterial, including adjustments, no pro forma disclosures are presented herein.

The Company tests goodwill and intangible assets with indefinite lives for impairment by applying a fair value test in the fourth quarter of each year and between annual tests if events occur or circumstances change that suggest a material adverse change to the most recently concluded valuation. Intangible assets with finite lives are also tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. The Company did not observe any changes in facts or circumstances during the twelve months ended December 31, 2014 that would suggest a material decline in the value of goodwill and intangible assets as concluded in the fourth quarter of the year ended December 31, 2013.

The net change in the carrying amount of goodwill for the year ended December 31, 2012 was due primarily to a goodwill impairment charge of $321.1 million recorded in the second quarter of 2012. See “Goodwill Impairment” below.

Goodwill Impairment

The Company performs its annual impairment test of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year. The first step in the two step process is to compare the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, a second step must be followed to calculate the goodwill impairment. The second step involves determining the fair value of the individual assets and liabilities of the reporting unit and calculating the implied fair value of goodwill. To determine the fair value of its reporting units, the Company uses the income approach, which is based on the cash flows that the reporting unit expects to generate in the future. This income valuation method requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period, as well as determine the weighted-average cost of capital to be used as a discount rate. The Company also uses the market valuation method to estimate the fair value of its reporting units by utilizing industry multiples of operating earnings. Impairment assessment inherently involves management judgments as to assumptions used to project these amounts and the impact of market conditions on those assumptions.

As part of the valuation process, the aggregate fair value of the Company was compared to its market capitalization at the valuation date in order to determine the implied control premium. The implied control premium was then compared to the control premiums paid in recent transactions within the industry. The Company’s implied market control premium of 29.3% and 35.6%, as of the fourth quarter of 2014 and fourth quarter of 2013 valuation, respectively, were determined to be in an acceptable range of market transactions observed in the construction and engineering industry in the past several years.

As part of the review process for the reporting unit valuations, the Company created multiple income-based and market-based valuation models to understand the sensitivity of the variables used in determining the fair value. These models were reviewed with the Company’s external fair value specialists who assisted in the process by providing insight into acceptable ranges on various valuation assumptions as well as preferred valuation techniques.

Weighted-average cost of capital rates used to discount the projected cash flows were developed via the capital asset pricing model which is primarily based upon market inputs. The Company used discount rates that management felt were an accurate reflection of the risks associated with the forecasted cash flows of its respective reporting units. Weighted- average cost of capital inputs ranged from 14.0%- 15.5% for the Company’s reporting units. Since the Company’s 2012 annual impairment analysis, the weighted-average cost of capital rates were positively impacted by broader market conditions including the recent rise in comparable companies within the construction industry.

Similar to previous valuations, the Company noted that small changes to valuation assumptions could have a significant impact on the concluded value; however, the Company gained comfort over the assumptions selected for valuation through comparison to historical transaction benchmarks, third party industry expectations, and the Company’s previous models.

During the second quarter of 2012, the Company experienced a sustained decrease in its stock price, causing its market capitalization to be substantially less than its carrying value and its implied control premium to increase beyond the implied control premium that was reconciled in its 2011 annual impairment analysis, and beyond the observable market comparable level. Additionally, deterioration in broader market conditions including stock market volatility, particularly in the construction industry, impacted the weighted-average cost of capital rate assumptions used in deriving the fair values of the Company’s reporting units, which are primarily based on market inputs. Finally, several of the Company’s reporting units experienced degradation in the timing of projected cash flows used in deriving the fair values of those reporting units in its 2011 annual impairment analysis caused by delays in the timing of awards and start of new work that the Company anticipated would enter into backlog in the first half of 2012, and a general decrease in profit margins on new work awards that were factored into the Company’s forecast assumptions.

With regard to the Company’s reporting units, the carrying values of the Company’s Civil and Building reporting units were greater than their fair values, and as such, the Company performed the second step of the goodwill impairment test for these reporting units which resulted in goodwill impairments as discussed above. In this second step, the Company determined the fair value of the individual assets and liabilities of the reporting units that failed Step 1 and calculated the implied fair value of goodwill for those reporting units. The Company included in this calculation the valuation of assets and liabilities that would occur in a theoretical purchase price allocation of the reporting unit in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 805 — Business Combinations, as well as the value of backlog, trade name, and customer relationships and the impact of deferred tax liabilities and assets arising from the fair valuation of these assets and liabilities.

The fair value of the Specialty Contractors reporting unit substantially exceeded its carrying value, and as such, it was not necessary to perform the second step of the goodwill impairment test for this reporting unit.

In conducting the initial step of its goodwill evaluation, the Company also evaluated its finite lived tangible and intangible assets due to the degradation in the timing of projected cash flows since the Company’s 2011 impairment analysis and changes in the planned use of certain intangible assets. The Company compared the fair value of the finite lived tangible and intangible assets to their carrying value and determined that the carrying value of a portion of these assets exceeded their fair value as determined by the income-based valuation approach and by benchmarking against observable market prices. This income-based valuation approach involved key assumptions similar to those used in the goodwill impairment analysis for the Company’s reporting units as discussed above, (e.g. projections of future cash flows associated with the Company’s trade name, contractor license, customer relationship and contract backlog intangible assets that were recorded in previous acquisitions).

Based on these circumstances and events, the Company performed an interim goodwill and indefinite lived intangible asset impairment test as of June 30, 2012 and, as a result, the Company recorded a goodwill impairment charge of $321.1 million and an indefinite lived intangible assets impairment charge of $16.4 million in the second quarter of 2012. The Company also evaluated its finite lived tangible and intangible assets due to the degradation in the timing of projected cash flows since the Company’s 2011 impairment analysis and changes in the planned use of certain intangible assets, and this analysis resulted in a $39.1 million impairment charge on the Company’s finite lived intangible assets in the second quarter of 2012.

Intangible assets consist of the following:



	December 31, 2014								Weighted
					Accumulated				Average
			Accumulated		Impairment		Carrying		Amortization
	Cost		Amortization		Charge		Value		Period

	(in thousands)

Trade names (non-amortizable)	$	117,600	$	—	$	(67,190)	$	50,410	Indefinite
Trade names (amortizable)		74,350		(8,829)		(23,232)		42,289	20 years
Contractor license		6,000		—		(6,000)		—	Indefinite
Customer relationships		39,800		(15,600)		(16,645)		7,555	11.4 years
Construction contract backlog		73,706		(73,706)		—		—	3.6 years
Total	$	311,456	$	(98,135)	$	(113,067)	$	100,254



		December 31, 2013							Weighted
					Accumulated				Average
			Accumulated		Impairment		Carrying		Amortization
		Cost	Amortization		Charge		Value		Period

	(in thousands)

Trade names (non-amortizable)	$	117,600	$	—	$	(67,190)	$	50,410	Indefinite
Trade names (amortizable)		74,350		(6,341)		(23,232)		44,777	20 years
Contractor license		6,000		—		(6,000)		—	Indefinite
Customer relationships		39,800		(14,315)		(16,645)		8,840	11.4 years
Construction contract backlog		73,706		(63,993)		—		9,713	3.6 years
Total	$	311,456	$	(84,649)	$	(113,067)	$	113,740

Amortization expense related to intangible assets for the years ended December 31, 2014, 2013, and 2012 totaled $13.5 million, $13.1 million and $18.3 million, respectively. At December 31, 2014, amortization expense related to intangible assets is estimated to be $3.7 million in 2015, $3.5 million in 2016, $3.5 million in 2017, $3.5 million in 2018, $3.6 million in 2019 and $32.0 million thereafter.