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GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Overview—Our goodwill balance is attributable to the excess of the purchase price over the fair value of net assets acquired in connection with the Combination. The changes in the carrying amount of goodwill by reporting segment for 2018 are as follows:

	NCSA			EARC			MENA		APAC			Technology			Total
	(In millions)
Balance as of December 31, 2017	$	-		$	-		$	-	$	-		$	-		$	-
Acquired goodwill		2,525			461			46		52			1,738			4,822
Goodwill impairment		(1,484	)		(40	)		-		(52	)		(592	)		(2,168	)
Balance as of December 31, 2018	$	1,041		$	421		$	46	$	-		$	1,146		$	2,654

Reporting Units—Our reporting units consist of five operating groups, which represent our reporting segments. Goodwill is not amortized, but instead is reviewed for impairment at least annually at a reporting unit level, absent any interim indicators of impairment. Interim testing for impairment is performed if indicators of potential impairment exist. We did not have indicators of impairment through the third quarter of 2018.

Annual Impairment Assessment—We performed our first annual quantitative impairment assessment for each of our five reporting units during the fourth quarter of 2018. During the fourth quarter of 2018, we experienced a significant sustained decrease in the trading price of our common stock. During the fourth quarter of 2018, we also completed a preferred stock issuance and the arrangement of a new letter of credit facility, each at a high cost (see Note 13, Debt, and Note 21, Redeemable Preferred Stock) and noted market indicators of increases in the cost of capital for peers in our industry and associated market risk relative to project awards and execution. Further, incremental unfavorable changes in estimates to complete the acquired Cameron LNG, Freeport LNG and Calpine projects (see Note 4, Revenue Recognition and Note 5, Changes in Project Estimates for discussion) resulted in a decrease in our future cash flow expectations and an increase in our associated risk assumptions.

To determine the fair value of our reporting units and test for impairment, we utilized an income approach (discounted cash flow method), as we believe this is the most direct approach to incorporate the specific economic attributes and risk profiles of our reporting units into our valuation model. We generally do not utilize a market approach given the lack of relevant information generated by market transactions involving comparable businesses. However, to the extent market indicators of fair value become available, we consider such market indicators as well as market participant assumptions in our discounted cash flow analysis and determination of fair value. The discounted cash flow methodology is based, to a large extent, on assumptions about future events, which may or may not occur as anticipated, and such deviations could have a significant impact on the calculated estimated fair values of our reporting units. These assumptions included the use of significant unobservable inputs, representative of a Level 3 fair value measurement, and included, but were not limited to, estimates of discount rates, future growth rates and terminal values for each reporting unit.

The discounted cash flow analysis for each of our reporting units included forecasted cash flows over a five-year forecast period (2019 through 2023), with our 2019 management budget used as the basis for our projections. These forecasted cash flows took into consideration historical and recent results, the reporting unit’s backlog and near-term prospects and management’s outlook for the future. A terminal value was also calculated using a terminal value growth assumption to derive the annual cash flows after the discrete forecast period. A reporting unit specific discount rate was applied to the forecasted cash flows and terminal cash flows to determine the discounted future cash flows, or fair value, of each reporting unit. Our assessment took into consideration the incremental changes in project estimates discussed above and reflected the increased market risk surrounding the award and execution of future projects and adjusted our cost of capital assumptions to be in-line with recent market indicators for our company and industry. These increases in cost of capital and risk premium assumptions resulted in a significant increase in our discount rates utilized for purposes of determining our discounted cash flows and reduced the estimated fair values of our reporting units.

Based on our quantitative assessments, goodwill for our NCSA, EARC and Technology reporting units was partially impaired and goodwill for our APAC reporting unit was fully impaired. We determined the goodwill associated with our MENA reporting unit was not impaired as the fair value of the reporting units exceeded its net book value by more than 100%. The impairment did not have a net tax benefit due to our full VAs recorded on DTAs.

Additional Reporting Unit Disclosures:

•

NCSA—Key assumptions used in deriving the reporting unit’s fair value included a discount rate of 28%, a compound annual growth rate (“CAGR”) of approximately 13% from 2019 through 2023 and a terminal growth rate of 2.0%. The impairment primarily resulted from increases in our discount rate assumptions driven by increases in our cost of capital and risk premium assumptions associated with forecasted cash flows relating to future awards.

•

EARC—Key assumptions used in deriving the reporting unit’s fair value included a discount rate of 32%, a CAGR of approximately 76% from 2019 through 2023 and a terminal growth rate of 2.0%. The impairment primarily resulted from increases in our discount rate assumptions driven by increases in our cost of capital and risk premium assumptions associated with forecasted cash flows relating to future awards.

•

Technology—Key assumptions used in deriving the reporting unit’s fair value included a discount rate of 14.5%, a CAGR of approximately 11% from 2019 through 2023 and a terminal growth rate of 2.0%. The impairment primarily resulted from increases in our discount rate assumptions driven by increases in our cost of capital assumptions, as well as increased risk premium assumptions resulting from Technology’s pull-through work derived from our other reporting units.

•

APAC—Key assumptions used in deriving the reporting unit’s fair value included a discount rate of 25%, a CAGR of approximately 45% from 2019 through 2023 and a terminal growth rate of 2.0%. The impairment primarily resulted from increases in our discount rate assumptions driven by increases in our cost of capital and risk assumptions associated with forecasted cash flows relating to future awards.

Project-Related Intangibles

Our project-related intangibles at December 31, 2018 were as follows:

	December 31, 2018
	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Weighted Average Life
	(In millions)									(In years)
Project-related intangible assets	$	259		$	(122	)	$	137			4
Project-related intangible liabilities		(109	)		43			(66	)		2
Total ⁽¹⁾	$	150		$	(79	)	$	71

⁽¹⁾

^{All project-related intangible assets at December 31, 2018 resulted from the Combination. Amortization expense, included in the Project intangibles and inventory related amortization line in our Consolidated Statements of Operations, was $79 million for the year ended December 31, 2018 and is anticipated to be $33 million, $23 million, $5 million, $8 million and $7 million in 2019, 2020, 2021, 2022 and 2023, respectively.}

Other Intangible Assets

Our other intangible assets at December 31, 2018 were as follows:

	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Life
	(In millions)							(In years)
Process technologies	$	514	$	(14	)	$	500		27
Trade names		401		(23	)		378		12
Customer relationships		129		(23	)		106		10
Trademarks		27		(2	)		25		10
Total⁽¹⁾	$	1,071	$	(62	)	$	1,009

⁽¹⁾	^{All other intangible assets at December 31, 2018 resulted from the Combination. Amortization expense was $62 million for the year ended December 31, 2018 and is anticipated to be $87 million, $87 million, $81 million, $74 million and $68 million for 2019, 2020, 2021, 2022 and 2023, respectively.}