Note 3 - Goodwill and Other Intangible Assets

The following table provides details of goodwill by reportable segment as of September 30, 2017 (in millions):



	Communications		Oil and Gas			Electrical Transmission		Power Generation and Industrial		Total Goodwill
Goodwill, gross	$	462.4	$	461.6		$	149.9	$	137.0	$	1,210.9
Accumulated impairment losses	—		(75.4		)	—		—		(75.4		)
Goodwill, net	$	462.4	$	386.2		$	149.9	$	137.0	$	1,135.5

For the nine month period ended September 30, 2017, additions to goodwill from new business combinations totaled $135.3 million. Currency translation effects related to goodwill and accumulated impairment losses totaled approximately $9.8 million of gains and $5.4 million of losses, respectively, for the nine month period ended September 30, 2017. For the nine month period ended September 30, 2016, additions to goodwill from accruals of acquisition-related contingent consideration totaled $5.8 million, and currency translation effects related to goodwill and accumulated impairment losses totaled $6.0 million of gains and $3.1 million of losses, respectively.

The following table provides a reconciliation of changes in other intangible assets for the period indicated (in millions):



	Other Intangible Assets
	Non-Amortizing				Amortizing
	Trade Names		Pre-Qualifications		Customer Relationships and Backlog			Other ^(a)			Total
Other intangible assets, gross, as of December 31, 2016	$	34.5	$	74.6	$	195.1		$	19.1		$	323.3
Accumulated amortization					(131.9		)	(11.7		)	(143.6		)
Other intangible assets, net, as of December 31, 2016	$	34.5	$	74.6	$	63.2		$	7.4		$	179.7
Additions from new business combinations	—		—		24.4			2.4			26.8
Amortization expense					(13.9		)	(1.1		)	(15.0		)
Currency translation adjustments	—		3.4		0.5			0.1			4.0
Other intangible assets, net, as of September 30, 2017	$	34.5	$	78.0	$	74.2		$	8.8		$	195.5


(a)	Consists principally of trade names and non-compete agreements.

Amortization expense associated with intangible assets for the three month periods ended September 30, 2017 and 2016 totaled $6.0 million and $5.2 million, respectively, and for the nine month periods ended September 30, 2017 and 2016, totaled $15.0 million and $15.7 million, respectively.

2017 Acquisitions. During the nine month period ended September 30, 2017, MasTec completed three acquisitions, including (i) a wireline/fiber deployment construction contractor, which is included in the Company’s Communications segment; (ii) a heavy civil construction services company, which is included in the Company’s Power Generation and Industrial segment, and (iii) an oil and gas pipeline equipment company, which is included in the Company’s Oil and Gas segment. Determination of the estimated fair values of the net assets acquired and the estimated earn-out liabilities for these acquisitions is preliminary as of September 30, 2017, and further adjustments to management’s preliminary estimates may occur.

The following table summarizes the estimated fair values of consideration paid and identifiable assets acquired and liabilities assumed as of the respective dates of acquisition (in millions).



Acquisition consideration:	2017
Cash	$	118.8
Fair value of contingent consideration (earn-out liability)	89.6
Total consideration transferred	$	208.4
Identifiable assets acquired and liabilities assumed:
Current assets, primarily composed of accounts receivable and $2.8 million of cash acquired	$	42.7
Property and equipment	56.9
Amortizing intangible assets	26.8
Other long-term assets	0.5
Current liabilities, including current portion of capital lease obligations and long-term debt	(28.4		)
Long-term debt, including capital lease obligations	(9.9		)
Deferred income taxes	(15.5		)
Total identifiable net assets	$	73.1
Goodwill	$	135.3
Total net assets acquired, including goodwill	$	208.4

Amortizing intangible assets related to the 2017 acquisitions are primarily composed of customer relationships, backlog and other amortizing intangible assets, which had weighted average lives of approximately 11 years, 4 years and 7 years, respectively, and 10 years in total, and will be amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed. The goodwill balances for the respective acquisitions represent the estimated value of each acquired company’s geographic presence in key markets, their assembled workforce, and management team industry-specific project management expertise, as well as synergies expected to be achieved from the combined operations of the acquired companies and MasTec. Approximately $75 million of the acquired goodwill balance as of September 30, 2017 is expected to be tax deductible.

The contingent consideration included in the table above equals the acquired companies’ earnings before interest, taxes, depreciation and amortization (“EBITDA”) above certain thresholds, if applicable, for a period of five years, as set forth in the respective purchase agreements, which amounts are payable annually. The fair values of the earn-out liabilities were estimated using income approaches such as discounted cash flows or option pricing models and incorporate significant inputs not observable in the market. Key assumptions in the estimated valuations include the discount rate and probability-weighted EBITDA projections. Significant changes in any of these assumptions could result in a significantly higher or lower potential earn-out liability.

For the three and nine month periods ended September 30, 2017, pro forma revenue totaled approximately $1,955.8 million and $5,077.4 million, respectively, and pro forma net income totaled approximately $64.4 million and $192.0 million, respectively. For the three and nine month periods ended September 30, 2016, pro forma revenue totaled approximately $1,634.5 million and $3,934.6 million, respectively, and pro forma net income totaled approximately $59.0 million and $81.5 million, respectively.

The above indicated unaudited pro forma financial results, which represent the results of operations of the companies acquired as if the acquired companies had been consolidated as of January 1, 2016, are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods indicated, or of the results that may be achieved by the combined companies in the future. The unaudited supplemental pro forma financial results have been prepared by adjusting the historical results of MasTec to include the historical results of the acquired businesses described above, and then adjusted (i) to remove acquisition costs; (ii) to increase amortization expense resulting from the acquired intangible assets; (iii) to increase interest expense as a result of the cash consideration paid; (iv) to reduce interest expense from debt repaid upon acquisition; and (iv) to eliminate the effect of intercompany transactions. Additionally, the unaudited supplemental pro forma financial results do not include adjustments to reflect other cost savings or synergies that may have resulted from these acquisitions. Future results may vary significantly due to future events and transactions, as well as other factors, many of which are beyond MasTec’s control.

For the three and nine month periods ended September 30, 2017, acquisition-related results included in the Company’s consolidated results of operations included revenue of approximately $62.2 million and $96.1 million, respectively, and net income of approximately $3.2 million and $4.7 million, respectively.