Goodwill and Identifiable Intangible Assets, Net

12 Months Ended

Dec. 31, 2019

Goodwill and Identifiable Intangible Assets, Net

Goodwill and Identifiable Intangible Assets, Net

5. Goodwill and Identifiable Intangible Assets, Net

Goodwill

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

	Mechanical Services		Electrical Services
	Segment		Segment		Total
Balance at December 31, 2017	$	200,584	$	—	$	200,584
Acquisitions and purchase price adjustments (See Note 4)		34,598		—		34,598
Impairment adjustment		—		—		—
Balance at December 31, 2018		235,182		—		235,182
Acquisitions and purchase price adjustments (See Note 4)		579		96,686		97,265
Impact of segment reorganization		(1,101)		1,101		—
Impairment adjustment		—		—		—
Balance at December 31, 2019	$	234,660	$	97,787	$	332,447

The aggregate goodwill balance as of December 31, 2019 and 2018 includes $116.6 million of accumulated impairment charges, all of which relate to the mechanical services segment.

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 have the option to 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 value.

During our annual impairment testing on October 1, 2019, we performed a quantitative assessment where the fair value of each reporting unit was estimated using a discounted cash flow model combined with a market valuation approach. We assigned a weighting of 50% to the discounted cash flow analysis and 50% to the public company approach for the year ended December 31, 2019. Based on this assessment, we concluded that the fair value of each of the reporting units was greater than its carrying value.

During 2018, we performed a qualitative assessment for each reporting unit, which considered various factors, including 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. macroeconomic environment, industry and market specific conditions, cost factors and events specific to the reporting unit, etc.). 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 value. Accordingly, no further testing was required.

We recorded a goodwill impairment charge of $1.1 million during the first quarter of 2017. Based on changes to our market strategy that occurred in March 2017 related to our California reporting unit (which was subsequently sold in the third quarter of 2019), we reevaluated our projected future earnings for this operating location and determined that we could no longer support the related goodwill balance and therefore the goodwill associated with this location was fully impaired. The fair value was estimated using a discounted cash flow model. The annual impairment test did not identify any additional impairment for 2017.

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 outlook worsens, 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,
	Estimated	2019				2018
	Useful Lives	Gross Book		Accumulated		Gross Book		Accumulated
	in Years	Value		Amortization		Value		Amortization
Customer relationships	1 - 15	$	183,061	$	(80,813)	$	128,480	$	(60,731)
Backlog	1 - 2		7,400		(6,388)		9,100		(8,260)
Tradenames	2 - 25		71,995		(15,281)		39,395		(12,709)
Total		$	262,456	$	(102,482)	$	176,975	$	(81,700)

The amounts attributable to customer relationships and tradenames are amortized to “Selling, General and Administrative Expenses” based upon the estimated consumption of their economic benefits, or a straight-line method over periods from one to twenty-five years if the pattern of economic benefit cannot otherwise be reliably estimated. 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, 2019, 2018 and 2017 was $27.1 million, $20.1 million and $17.4 million, respectively.

At December 31, 2019, future amortization expense of identifiable intangible assets is as follows (in thousands):

Year ended December 31—
2020	$	23,246
2021		19,191
2022		16,545
2023		15,082
2024		13,732
Thereafter		72,178
Total	$	159,974