Note 3 - Goodwill and Other Intangible Assets

The following table provides a reconciliation of changes in goodwill by reportable segment for the periods indicated (in millions):



	Communications		Oil and Gas			Electrical Transmission		Power Generation and Industrial		Total Goodwill
Goodwill, gross, as of December 31, 2015	$	414.9	$	374.6		$	149.9	$	117.6	$	1,057.0
Accumulated impairment loss ^(a)	—		(68.5		)	—		—		(68.5		)
Goodwill, net, as of December 31, 2015	$	414.9	$	306.1		$	149.9	$	117.6	$	988.5
Accruals of acquisition-related contingent consideration, net^(b)	5.8		—			—		—		5.8
Currency translation adjustments	—		1.6			—		—		1.6
Goodwill, net, as of December 31, 2016	$	420.7	$	307.7		$	149.9	$	117.6	$	995.9
Additions from new business combinations	45.7		74.1			—		18.2		138.0
Currency translation adjustments	—		3.8			—		—		3.8
Goodwill, net, as of December 31, 2017	$	466.4	$	385.6		$	149.9	$	135.8	$	1,137.7
Accumulated impairment loss ^(a)	—		(74.8		)	—		—		(74.8		)
Goodwill, gross, as of December 31, 2017	$	466.4	$	460.4		$	149.9	$	135.8	$	1,212.5


(a)	Accumulated impairment losses include the effect of currency translation gains and/or losses.


(b)	Represents contingent consideration for acquisitions prior to January 1, 2009, which is accrued as incurred, in accordance with U.S. GAAP.

The following table provides a reconciliation of changes in other intangible assets for the periods 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, 2015	$	34.8		$	73.4	$	195.4		$	25.7		$	329.3
Accumulated amortization						(114.6		)	(15.3		)	(129.9		)
Other intangible assets, net, as of December 31, 2015	$	34.8		$	73.4	$	80.8		$	10.4		$	199.4
Amortization expense						(17.9		)	(3.4		)	(21.3		)
Currency translation adjustments	—			1.2		0.3			0.1			1.6
Other activity	(0.3		)	—		—			0.3			—
Other intangible assets, net, as of December 31, 2016	$	34.5		$	74.6	$	63.2		$	7.4		$	179.7
Additions from new business combinations	—			—		26.3			2.5			28.8
Amortization expense						(19.3		)	(1.6		)	(20.9		)
Currency translation adjustments	—			3.0		0.4			0.1			3.5
Other intangible assets, net, as of December 31, 2017	$	34.5		$	77.6	$	70.6		$	8.4		$	191.1
Remaining weighted average amortization period (in years)						9			8			9


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

Amortization expense associated with intangible assets for the years ended December 31, 2017, 2016 and 2015 totaled $20.9 million, $21.3 million and $28.4 million, respectively. Expected future amortization expense as of December 31, 2017 is summarized in the following table (in millions):



	Amortization Expense
2018	$	19.5
2019	13.4
2020	11.0
2021	8.4
2022	6.9
Thereafter	19.8
Total	$	79.0

2017 Acquisitions. During the year ended December 31, 2017, MasTec completed three acquisitions, which included all of the equity interests in: (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 December 31, 2017, and further adjustments to these estimates may occur.

The following table summarizes the estimated fair values of consideration paid and net assets acquired as of the respective dates of acquisition, as adjusted (in millions):



Acquisition consideration:	2017
Cash	$	117.9
Fair value of contingent consideration (earn-out liability)	93.5
Total consideration transferred	$	211.4
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	56.7
Amortizing intangible assets	28.8
Other long-term assets	0.5
Current liabilities, including current portion of capital lease obligations and long-term debt	(29.2		)
Long-term debt, including capital lease obligations	(9.9		)
Deferred income taxes	(16.2		)
Total identifiable net assets	$	73.4
Goodwill	$	138.0
Total net assets acquired, including goodwill	$	211.4

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 a weighted average life of 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, its 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 December 31, 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. As of December 31, 2017, the range of potential undiscounted earn-out liabilities for the 2017 acquisitions was estimated to be between $9 million and $185 million; however, there is no maximum payment amount.

For the years ended December 31, 2017 and 2016, unaudited pro forma revenue totaled approximately $6,680.2 million and $5,320.1 million, respectively, and unaudited pro forma net income totaled approximately $354.9 million and $140.0 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 effects of intercompany transactions. These 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 years ended December 31, 2017, acquisition-related results included in the Company’s consolidated results of operations included revenue of approximately $160.1 million and net income of approximately $10.2 million, based on the consolidated effective tax rate including the effect of the 2017 Tax Act. These acquisition-related results do not include the effects of acquisition costs or interest expense associated with consideration paid for the related acquisitions.