Note 3 – Goodwill and Other Intangible Assets

During the fourth quarter of 2018, the Company recorded a pre-tax non-cash goodwill impairment charge of $47.7 million for its Canadian oil and gas reporting unit. This reporting unit’s current operating performance, as well as its future operating and cash flow expectations, have been negatively affected by current market conditions. See Note 1 - Business, Basis of Presentation and Significant Accounting Policies for additional discussion.

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, 2016	$	420.7	$	377.6		$	149.9	$	117.6		$	1,065.8
Accumulated impairment loss ^(a)	—		(69.9		)	—		—			(69.9		)
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
Additions from new business combinations	—		—			—		9.8			9.8
Measurement period adjustments, net ^(b)	1.4		5.7			—		(2.5		)	4.6
Goodwill impairment	—		(47.7		)	—		—			(47.7		)
Currency translation adjustments	—		(4.0		)	—		—			(4.0		)
Goodwill, net, as of December 31, 2018	$	467.8	$	339.6		$	149.9	$	143.1		$	1,100.4
Accumulated impairment loss ^(a)	—		(116.0		)	—		—			(116.0		)
Goodwill, gross, as of December 31, 2018	$	467.8	$	455.6		$	149.9	$	143.1		$	1,216.4


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


(b)	Represents adjustments to preliminary estimates of fair value within the measurement period of up to one year from the date of acquisition.

The following table provides a reconciliation of changes in other intangible assets, net, 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, 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	—		—			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
Additions from new business combinations	—		—			3.3			0.3			3.6
Measurement period adjustments ^(b)	—		—			—			(0.7		)	(0.7		)
Amortization expense						(19.2		)	(1.4		)	(20.6		)
Currency translation adjustments	—		(3.6		)	(0.3		)	(0.1		)	(4.0		)
Other intangible assets, net, as of December 31, 2018	$	34.5	$	74.0		$	54.4		$	6.5		$	169.4
Remaining weighted average amortization period (in years)						8			7			8


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


(b)	Represents adjustments to preliminary estimates of fair value within the measurement period of up to one year from the date of acquisition.

Amortization expense associated with intangible assets for the years ended December 31, 2018, 2017 and 2016 totaled $20.6 million, $20.9 million and $21.3 million, respectively. Expected future amortization expense as of December 31, 2018 is summarized in the following table (in millions):



	Amortization Expense
2019	$	14.6
2020	11.2
2021	8.5
2022	6.9
2023	4.9
Thereafter	14.8
Total	$	60.9

2018 Acquisitions. During the first quarter of 2018, MasTec acquired all of the equity interests in a construction management firm specializing in steel building systems and acquired a wind turbine services company, both of which are included in the Company’s Power Generation and Industrial segment. The aggregate purchase price for these entities was composed of approximately $6.8 million in cash and estimated earn-out liabilities, net, totaling $1.5 million as of December 31, 2018. Determination of the estimated fair values of the net assets acquired and the estimated earn-out liabilities for these acquisitions was preliminary as of December 31, 2018; as a result, further adjustments to these estimates may occur. As of December 31, 2018, the range of remaining potential undiscounted earn-out liabilities, net, for the 2018 acquisitions was estimated to be up to $7 million; however, there is no maximum payment amount.

2017 Acquisitions. During 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.

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



Acquisition consideration:	2017
Cash	$	120.4
Estimated fair value of contingent consideration (earn-out liability)	98.5
Total consideration transferred	$	218.9
Identifiable assets acquired and liabilities assumed:
Current assets, primarily composed of accounts receivable and $2.8 million of cash acquired	$	43.8
Property and equipment and other long-term assets	57.2
Amortizing intangible assets	28.1
Current liabilities, including current portion of capital lease obligations and long-term debt	(29.5		)
Long-term debt, including capital lease obligations	(9.9		)
Deferred income taxes and other long-term liabilities	(12.0		)
Total identifiable net assets	$	77.7
Goodwill	$	141.2
Total net assets acquired, including goodwill	$	218.9

Amortizing intangible assets related to the 2017 acquisitions are primarily composed of customer relationships, backlog and certain other intangible assets, which had weighted average lives, as adjusted, of approximately 11 years, 4 years and 6 years, respectively, and a weighted average life of 10 years in total. Amortizing intangible assets are 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’s industry-specific project management expertise, as well as synergies expected to be achieved from the combined operations of the acquired companies and MasTec. Approximately $94 million of the goodwill balance related to the 2017 acquisitions is expected to be tax deductible as of December 31, 2018.

The contingent consideration (earn-out liability) included in the table above equals a portion of the acquired companies’ earnings before interest, taxes, depreciation and amortization (“EBITDA”) in excess of thresholds agreed upon with the sellers, if applicable. Earn-outs are generally payable annually for a period of five years, as set forth in the respective purchase agreements. 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 significantly higher or lower potential earn-out liabilities. As of December 31, 2018, the range of remaining potential undiscounted earn-out liabilities for the 2017 acquisitions was estimated to be between $24 million and $145 million; however, there is no maximum payment amount.

Pro Forma Financial Information and Acquisition Results. For the years ended December 31, 2018 and 2017, unaudited supplemental pro forma revenue totaled approximately $6,912.5 million and $6,724.8 million, respectively, and unaudited supplemental pro forma net income totaled approximately $257.7 million and $351.3 million, respectively.

These unaudited pro forma financial results represent the results of operations of the companies acquired as if the acquired companies had been consolidated as of the beginning of the year prior to their acquisition, and are provided for illustrative purposes only. These unaudited pro forma financial results 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 Company’s unaudited pro forma financial results were prepared by adjusting the historical results of MasTec to include the unaudited historical results of the acquired businesses described above, and then adjusted for (i) acquisition costs; (ii) amortization expense resulting from the acquired intangible assets; (iii) interest expense as a result of the cash consideration paid; (iv) interest expense from debt repaid upon acquisition; and (iv) elimination of the effects of intercompany transactions and other purchase accounting related adjustments. These unaudited 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 the Company’s control.

For the years ended December 31, 2018 and 2017, the Company’s consolidated results of operations included acquisition-related revenue of approximately $154.4 million and $160.1 million, respectively, and acquisition-related net income of approximately $1.4 million and $10.2 million, respectively, based on the Company’s consolidated effective tax rates, including, for 2018, the effects 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.