Goodwill and Identifiable Intangible Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identifiable Intangible Assets

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill at December 31, 2019 and 2018 was approximately $1,063.9 million and $990.9 million, respectively, and reflects the excess of the consideration transferred in a business combination over the fair value of the net assets acquired. Goodwill attributable to companies acquired in 2019 and 2018 has been valued at $72.7 million and $26.3 million, respectively. Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”) requires that all business combinations be accounted for using the acquisition method and that certain identifiable intangible assets acquired in a business combination be recognized as assets apart from goodwill. Accounting Standards Codification Topic 350, “Intangibles-Goodwill and Other” (“ASC 350”) requires goodwill and other identifiable intangible assets with indefinite useful lives, such as trade names, not be amortized, but instead be tested at least annually for impairment (which we test each October 1, absent any earlier identified impairment indicators), and be written down if impaired. ASC 350 requires that goodwill be allocated to its respective reporting unit and that identifiable intangible assets with finite lives be amortized over their useful lives. As of December 31, 2019, approximately 13.4% of our goodwill related to our United States electrical construction and facilities services segment, approximately 28.1% of our goodwill related to our United States mechanical construction and facilities services segment, approximately 27.2% of our goodwill related to our United States building services segment and approximately 31.3% of our goodwill related to our United States industrial services segment.

We test for impairment of our goodwill at the reporting unit level. Our reporting units are consistent with the reportable segments identified in Note 19, “Segment Information,” of the notes to consolidated financial statements. In assessing whether our goodwill is impaired, we compare the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, no impairment loss is recognized. However, if the carrying amount of the reporting unit exceeds the fair value, the goodwill of the reporting unit is impaired and an impairment loss in the amount of the excess is recognized and charged

to operations. The fair value of each of our reporting units is generally determined using discounted estimated future cash flows; however, in certain circumstances, consideration is given to a market approach whereby fair value is measured based on a multiple of earnings.

For the years ended December 31, 2019 and 2018, no impairment of our goodwill was recognized. As part of our annual impairment testing for the year ended December 31, 2017, we recorded a non-cash impairment charge of $57.5 million within our United States industrial services segment.

The weighted average cost of capital used in our annual testing for impairment as of October 1, 2019 was 9.5%, 9.1% and 10.5% for our domestic construction segments, our United States building services segment and our United States industrial services segment, respectively. The perpetual growth rate used for our annual testing was 2.7% for all of our domestic segments. Unfavorable changes in these key assumptions may affect future testing results. For example, keeping all other assumptions constant, a 50 basis point increase in the weighted average costs of capital would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment and our United States industrial services segment to decrease by approximately $108.8 million, $156.7 million, $98.0 million and $40.3 million, respectively. In addition, keeping all other assumptions constant, a 50 basis point reduction in the perpetual growth rate would cause the estimated fair values of our United States electrical construction and facilities services segment, our United States mechanical construction and facilities services segment, our United States building services segment and our United States industrial services segment to decrease by approximately $61.4 million, $90.5 million, $55.7 million and $20.5 million, respectively. Given the amounts by which the fair value exceeds the carrying value for each of our reporting units other than our United States industrial services segment, the decreases in estimated fair values described above would not have significantly impacted our 2019 impairment test. In the case of our United States industrial services segment, however, such decreases would cause the estimated fair value to approach its carrying value.

We also test for the impairment of trade names that are not subject to amortization by calculating the fair value using the “relief from royalty payments” methodology. This approach involves two steps: (a) estimating reasonable royalty rates for each trade name and (b) applying these royalty rates to a net revenue stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of each trade name. If the carrying amount of the trade name is greater than the implied fair value of the trade name, an impairment in the amount of the excess is recognized and charged to operations. For the years ended December 31, 2019 and 2018, no impairment of our indefinite-lived trade names was recognized. The annual impairment review of our indefinite-lived trade names for the year ended December 31, 2017 resulted in a $0.3 million non-cash impairment charge as a result of a change in the fair value of a subsidiary trade name associated with a prior acquisition reported within our United States building services segment.

In addition, we review for the impairment of other identifiable intangible assets that are being amortized whenever facts and circumstances indicate that their carrying values may not be fully recoverable. This test compares their carrying values to the undiscounted pre-tax cash flows expected to result from the use of the assets. If the assets are impaired, the assets are written down to their fair values, generally determined based on their discounted estimated future cash flows. For the years ended December 31, 2019 and 2017, no impairment of our other identifiable intangible assets was recognized. For the year ended December 31, 2018, we recorded a $0.9 million non-cash impairment charge associated with a finite-lived trade name within our United States industrial services segment.

Our development of the discounted future cash flow projections used in impairment testing is based upon assumptions and estimates by management from a review of our operating results and business plans, as well as forecasts of anticipated growth rates and margins, among other considerations. In addition, estimates of the weighted average cost of capital for each reporting unit are developed with the assistance of a third-party valuation specialist. Those assumptions and estimates can change in future periods and other factors used in assessing fair value, such as interest rates, are outside the control of management. There can be no assurance that estimates and assumptions made for purposes of our goodwill and identifiable intangible asset impairment testing will prove to be accurate predictions of the future. If our assumptions regarding future business performance including anticipated growth rates and margins are not achieved, or there is a rise in interest rates, we may be required to record goodwill and/or identifiable intangible asset impairment charges in future periods. It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such a charge would be material to our results of operations.

The changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2019 and 2018 were as follows (in thousands):



	United States electrical construction and facilities services segment		United States mechanical construction and facilities services segment			United States building services segment		United States industrial services segment		Total
Balance at December 31, 2017	$	125,707	$	256,265		$	255,733	$	327,188	$	964,893
Acquisitions, sales and purchase price adjustments	7,500		56			18,438		—		25,994
Balance at December 31, 2018	133,207		256,321			274,171		327,188		990,887
Acquisitions, sales and purchase price adjustments	9,338		48,699			14,987		—		73,024
Intersegment transfers	—		(5,800		)	—		5,800		—
Balance at December 31, 2019	$	142,545	$	299,220		$	289,158	$	332,988	$	1,063,911

The aggregate goodwill balance as of December 31, 2017 included $268.1 million of accumulated impairment charges, which were comprised of $139.5 million within the United States building services segment and $128.6 million within the United States industrial services segment.

Identifiable intangible assets as of December 31, 2019 and 2018 consist of the following (in thousands):



	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment Charge			Total
Contract backlog	$	66,745	$	(61,651	)	$	—		$	5,094
Developed technology/Vendor network	95,661		(60,156		)	—			35,505
Customer relationships	644,755		(277,601		)	(4,834		)	362,320
Trade names (amortized)	31,148		(21,830		)	—			9,318
Trade names (unamortized)	251,440		—			(52,233		)	199,207
Total	$	1,089,749	$	(421,238	)	$	(57,067	)	$	611,444



	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment Charge			Total
Contract backlog	$	58,945	$	(56,812	)	$	—		$	2,133
Developed technology/Vendor network	95,661		(55,318		)	—			40,343
Customer relationships	522,855		(240,073		)	(4,834		)	277,948
Trade names (amortized)	31,148		(20,893		)	—			10,255
Trade names (unamortized)	209,840		—			(52,233		)	157,607
Total	$	918,449	$	(373,096	)	$	(57,067	)	$	488,286

Identifiable intangible assets attributable to businesses acquired in 2019 and 2018 have been valued at $171.3 million and $36.6 million, respectively, and consist of contract backlog, customer relationships, and trade names. See Note 4 - Acquisitions of Businesses of the notes to consolidated financial statements for additional information with respect to acquisitions.

Identifiable intangible amounts are amortized on a straight-line basis, as it best approximates the pattern in which the economic benefits of the identifiable intangible assets are consumed. The weighted average amortization periods for the unamortized balances remaining are, in the aggregate, approximately 8.5 years, which are comprised of the following: 0.75 years for contract backlog, 7.5 years for developed technology/vendor network, 8.75 years for customer relationships and 10.75 years for trade names.

Amortization expense related to identifiable intangible assets with finite lives was $48.1 million, $42.4 million, and $48.6 million for the years ended December 31, 2019, 2018, and 2017, respectively. The following table presents the estimated future amortization expense of identifiable intangible assets in the following years (in thousands):



2020	$	56,680
2021	50,792
2022	48,589
2023	47,650
2024	47,300
Thereafter	161,226
	$	412,237