XML 27 R16.htm IDEA: XBRL DOCUMENT
v3.20.2

Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets | 6 Months Ended
--- | ---
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill, Intangible Assets and Other Long-Lived Assets | Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets Goodwill In connection with our acquisition of businesses, we have recorded goodwill, which represents the excess of the consideration transferred over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized but instead allocated to its respective reporting unit and evaluated for impairment annually, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. We have determined that our reporting units are consistent with the reportable segments identified in Note 15 - Segment Information of the notes to consolidated financial statements. Absent any earlier identified impairment indicators, we perform our annual goodwill impairment assessment on October 1 each fiscal year. Qualitative indicators that may trigger the need for interim quantitative impairment testing include, among others, deterioration in macroeconomic conditions, declining financial performance, deterioration in the operational environment, or an expectation of selling or disposing of a portion of a reporting unit. Additionally, an interim impairment test may be triggered by a significant change in business climate, a loss of a significant customer, increased competition, or a sustained decrease in share price. 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 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. During the second quarter of 2020, our operations were negatively impacted by the COVID-19 pandemic. In addition, the demand for oil significantly deteriorated as a result of the pandemic and the corresponding preventative measures taken around the world to mitigate the spread of the virus, including various local, state, and national jurisdictional “shelter-in-place” orders. Further, other macroeconomic events, such as geopolitical tensions between the Organization of Petroleum Exporting Countries (OPEC) and Russia, resulted in a significant drop in the price of crude oil. These negative factors created significant volatility and uncertainty in the markets in which our United States industrial services segment operates, resulting in a significant decrease in the demand for our service offerings. Consequently, we revised our near-term revenue and operating margin expectations for our United States industrial services segment. As a result of such developments, we concluded that a triggering event had occurred which indicated it was more likely than not that the fair value of our United States industrial services segment was less than its carrying amount. Accordingly, we performed a quantitative impairment test and determined that the carrying amount of our United States industrial services segment exceeded its fair value, which resulted in the recognition of a non-cash goodwill impairment charge during the quarter ended June 30, 2020 of $225.5 million. We determined the fair value of our United States industrial services segment using an income approach whereby fair value was calculated utilizing discounted estimated future cash flows, assuming a risk-adjusted industry weighted average cost of capital of 12.0%. Such weighted average cost of capital was developed with the assistance of an independent third-party valuation specialist and reflects the overall level of inherent risk within the business and the rate of return a market participant would expect to earn. Cash flow projections were derived from internal forecasts of anticipated revenue growth rates and operating margins, updated for recent events, with cash flows beyond the discrete forecast period estimated using a terminal value calculation which incorporated historical and forecasted trends, an estimate of long-term growth rates, and assumptions about the future demand for our services. The perpetual growth rate utilized in the terminal value calculation was 2.0%. NOTE 7 Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets - (Continued) Due to the inherent uncertainties involved in making estimates, our assumptions may change in future periods. Estimates and assumptions made for purposes of our goodwill impairment testing may prove to be inaccurate predictions of the future, and other factors used in assessing fair value, such as the weighted average cost of capital, are outside the control of management. Unfavorable changes in certain of these key assumptions may affect future testing results. For example, keeping all other assumptions constant, a 50 basis point increase in the weighted average cost of capital would cause the estimated fair value of our United States industrial services segment to decrease by approximately $22.9 million. In addition, keeping all other assumptions constant, a 50 basis point reduction in the perpetual growth rate would cause the estimated fair value of our United States industrial services segment to decrease by approximately $9.0 million. Upon completion of our interim goodwill impairment assessment and the recognition of the aforementioned impairment charge, the carrying value of our United States industrial services segment equals its fair value whereas our other reporting units still maintain headroom that is substantially in excess of their carrying values. Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future goodwill impairment charges. 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 segments were as follows during the six months ended June 30, 2020 (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, 2019 | $ | 142,545 |  |  | $ | 299,220 |  |  | $ | 289,158 |  |  | $ | 332,988 |  |  | $ | 1,063,911 |
Acquisitions and purchase price adjustments | — |  |  | 419 |  |  | 942 |  |  | — |  |  | 1,361 |
Impairments | — |  |  | — |  |  | — |  |  | (225,500) |  |  | (225,500) |
Balance at June 30, 2020 | $ | 142,545 |  |  | $ | 299,639 |  |  | $ | 290,100 |  |  | $ | 107,488 |  |  | $ | 839,772 |
Identifiable Intangible Assets and Other Long-Lived Assets Our identifiable intangible assets, arising out of the acquisition of businesses, include contract backlog, developed technology/vendor network, customer relationships, and certain subsidiary trade names, all of which are subject to amortization. In addition, our identifiable intangible assets include certain other subsidiary trade names, which are not subject to amortization. Absent earlier indicators of impairment, we test for impairment of subsidiary trade names that are not subject to amortization on an annual basis (October 1). In performing this test, we calculate the fair value of each trade name 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. In addition, we review for impairment of identifiable intangible assets that are being amortized as well as other long-lived assets 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. In connection with the negative market conditions disclosed above, we also evaluated certain of our identifiable intangible assets and other long-lived assets for impairment. Such assets included those associated with the businesses in our United States industrial services segment and certain businesses within our United States electrical construction and facilities services segment whose results are also highly dependent on the strength of the oil and gas industry. As a result of these assessments, during the quarter ended June 30, 2020, we recorded non-cash impairment charges of $7.3 million. Of this amount, $4.8 million related to our United States industrial services segment and was comprised of: (a) a $4.2 million subsidiary trade name impairment and (b) a $0.6 million impairment on certain other long-lived assets. The remaining $2.5 million represented a subsidiary trade name impairment within our United States electrical construction and facilities services segment. NOTE 7 Goodwill, Identifiable Intangible Assets, and Other Long-Lived Assets - (Continued) Identifiable intangible assets consist of the following as of June 30, 2020 and December 31, 2019 (in thousands):
| June 30, 2020 |  |  |  |  |  |
| Gross Carrying Amount |  | Accumulated Amortization |  | Accumulated Impairment Charge |  | Total
Contract backlog | $ | 66,945 |  |  | $ | (65,145) |  |  | $ | — |  |  | $ | 1,800 |
Developed technology/Vendor network | 95,661 |  |  | (62,575) |  |  | — |  |  | 33,086 |
Customer relationships | 645,555 |  |  | (300,590) |  |  | (4,834) |  |  | 340,131 |
Trade names (amortized) | 31,348 |  |  | (22,332) |  |  | — |  |  | 9,016 |
Trade names (unamortized) | 251,440 |  |  | — |  |  | (58,933) |  |  | 192,507 |
Total | $ | 1,090,949 |  |  | $ | (450,642) |  |  | $ | (63,767) |  |  | 576,540 |
| 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 |
Identifiable intangible assets are amortized on a straight-line basis, as it best approximates the pattern in which the economic benefits of those assets are consumed. Amortization expense related to identifiable intangible assets with finite lives was $14.7 million and $11.6 million for the three months ended June 30, 2020 and 2019, respectively, and $29.4 million and $23.2 million for the six months ended June 30, 2020 and 2019, respectively.

X
- Definition The entire disclosure for goodwill, intangible assets and other long-lived assets + References No definition available. + Details
Name: | eme_GoodwillIntangibleAssetsAndOtherLongLivedAssetsTextBlock
Namespace Prefix: | eme_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_GoodwillAndIntangibleAssetsDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration