Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Note 3 – Goodwill and Other Intangible Assets

The following table provides balances for goodwill by reportable segment as of September 30, 2020 (in millions):


	Communications		Oil and Gas		Electrical Transmission		Clean Energy and Infrastructure		Total Goodwill
Goodwill, gross	$	551.4	$	496.0	$	150.1	$	152.8	$	1,350.3
Accumulated impairment loss	—		(118.6)		—		—		(118.6)
Goodwill, net	$	551.4	$	377.4	$	150.1	$	152.8	$	1,231.7

For the nine month period ended September 30, 2020, goodwill included additions of $5.2 million from new business combinations and a net increase of $5.4 million from measurement period adjustments. Currency translation effects related to goodwill and accumulated impairment losses for the nine month period ended September 30, 2020 totaled approximately $3.2 million of losses and $2.9 million of gains, respectively.

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


	Other Intangible Assets
	Non-Amortizing				Amortizing
	Trade Names		Pre-Qualifications		Customer Relationships and Backlog		Pre-Qualifications		Other (a)		Total
Other intangible assets, gross, as of December 31, 2019	$	34.5	$	72.9	$	286.5	$	—	$	26.3	$	420.2
Accumulated amortization					(191.2)		—		(17.5)		(208.7)
Other intangible assets, net, as of December 31, 2019	$	34.5	$	72.9	$	95.3	$	—	$	8.8	$	211.5
Additions from new business combinations	—		—		9.7		—		0.1		9.8
Classification changes (b)	—		(69.8)		—		69.8		—		—
Measurement period adjustments (c)	—		—		(0.2)		—		—		(0.2)
Currency translation adjustments	—		(3.1)		—		2.1		—		(1.0)
Amortization expense					(19.8)		(7.1)		(1.5)		(28.4)
Other intangible assets, net, as of September 30, 2020	$	34.5	$	—	$	85.0	$	64.8	$	7.4	$	191.7

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

(b)In connection with its first quarter assessment of goodwill and indefinite-lived intangible assets, management reassessed the indefinite-life classification of its two pre-qualification intangible assets. Management determined that, based on changes in the assets’ characteristics, including current and expected changes in the customer mix of the associated reporting units, a finite-life classification for these assets was more appropriate. As a result, in the first quarter of 2020, the Company changed the classification of these pre-qualification intangible assets from indefinite-lived to finite-lived and began amortizing them on an accelerated basis, with an estimated remaining weighted average useful life of approximately 12 years.

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

Quarterly Assessment for Indicators of Impairment. During the third quarter of 2020, in conjunction with the Company’s quarterly review for indicators of impairment, management performed quantitative assessments of the goodwill associated with three reporting units within the Oil and Gas segment. Based on the results of these assessments, management determined that the estimated fair value of one of the reporting units, for which the related goodwill had a carrying value of approximately $15.3 million, exceeded its carrying value by approximately 10%, and the estimated fair values of the other two reporting units were determined to substantially exceed their carrying values. Significant changes in the assumptions or estimates used in management’s assessment, such as a reduction in profitability and/or cash flows, could result in non-cash goodwill and indefinite-lived intangible asset impairment charges in the future.

2020 Acquisitions. For the nine month period ended September 30, 2020, MasTec completed four acquisitions. Through a 96%-owned consolidated subsidiary, the Company acquired all of the equity interests in a heavy civil infrastructure construction company that is included within the Company’s Clean Energy and Infrastructure segment. The Company also acquired all of the equity interests in a utility service and telecommunications construction contractor that is included within the Company’s Communications segment. In addition, the Company acquired the assets of two entities, one that specializes in wireless telecommunications and one that specializes in electrical transmission services.

The aggregate purchase price for these entities was composed of approximately $9.8 million in cash, net of cash acquired, with an additional $2.8 million due through 2023, subject to certain indemnification provisions, and a five-year earn-out liability valued at approximately $7.2 million. Earn-outs are generally payable annually and are recorded within other current and other long-term liabilities in the consolidated balance sheets. As of September 30, 2020, the range of remaining potential undiscounted earn-out liabilities for the 2020 acquisitions was estimated to be up to $13 million; however, there is no maximum payment amount. Determination of the estimated fair values of the net assets acquired and the estimated earn-out liabilities for these acquisitions was preliminary as of September 30, 2020; as a result, further adjustments to these estimates may occur.

2019 Acquisitions. During 2019, MasTec completed six acquisitions, one of which specializes in water infrastructure for pipeline companies and is included within the Company’s Oil and Gas segment, four of which are included within the Company’s Communications segment, including a wireline/fiber deployment construction contractor and a telecommunications company specializing in a broad range of end-to-end wireless telecommunications solutions, and one of which specializes in construction projects in the power industry and is included in the Company’s Clean Energy and Infrastructure segment. For all but one of these acquisitions, the Company acquired all of the equity interests in the related entities. For the telecommunications company specializing in wireless telecommunications solutions, the Company acquired 96% of the entity’s equity interests, with the obligation to acquire the balance over time.

The aggregate purchase price for these entities, as adjusted, was composed of approximately $176.6 million in cash, net of cash acquired, plus earn-out liabilities and a mandatorily redeemable non-controlling interest valued at approximately $22.3 million and $17.8 million, respectively. The Company refers to its traditional earn-out arrangements and the mandatorily redeemable non-controlling interest collectively as “Earn-outs.” Earn-outs for the 2019 acquisitions have terms ranging from three to five years. As of September 30, 2020, the range of remaining potential undiscounted Earn-out liabilities for the 2019 acquisitions was estimated to be between $2 million and $62 million; however, there is no maximum payment amount. Determination of the estimated fair values of the net assets acquired and the estimated Earn-out liabilities for certain of these acquisitions was preliminary as of September 30, 2020; as a result, further adjustments to these estimates may occur.

Pro Forma Financial Information and Acquisition Results. For the three month periods ended September 30, 2020 and 2019, unaudited supplemental pro forma revenue totaled approximately $1.7 billion and $2.1 billion, respectively, and unaudited supplemental pro forma net income totaled approximately $117.9 million and $127.4 million, respectively. For the nine month periods ended September 30, 2020 and 2019, unaudited

supplemental pro forma revenue totaled approximately $4.7 billion and $5.8 billion, respectively, and unaudited supplemental pro forma net income totaled approximately $212.7 million and $300.7 million, respectively.

For the three and nine month periods ended September 30, 2020, the Company’s consolidated results of operations included acquisition-related revenue of approximately $69.3 million and $182.4 million, respectively, and included acquisition-related net losses of approximately $4.3 million and $5.0 million, respectively, based on the Company’s consolidated effective tax rates. For the three and nine month periods ended September 30, 2019, the Company’s consolidated results of operations included acquisition-related revenue of approximately $41.7 million and $116.9 million, respectively, and included acquisition-related net income of approximately $1.5 million and acquisition-related net losses of approximately $5.9 million, respectively, based on the Company’s consolidated effective tax rates. These acquisition-related results do not include the effects of acquisition costs or interest expense associated with consideration paid for the related acquisitions.