NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
– Business, Basis of Presentation and Significant Accounting Policies
Nature of the Business
MasTec, Inc. (collectively with its subsidiaries, “MasTec” or the “Company”) is a leading infrastructure construction company operating mainly throughout North America across a range of industries. The Company’s primary activities include the engineering, building, installation, maintenance and upgrade of communications, energy and utility infrastructure, such as: wireless, wireline/fiber, satellite communications and customer fulfillment activities; petroleum and natural gas pipeline infrastructure; electrical utility transmission and distribution; power generation; and industrial infrastructure. MasTec’s customers are primarily in these industries. MasTec reports its results under
five
reportable segments: (1) Communications; (2) Oil and Gas; (3) Electrical Transmission; (4) Power Generation and Industrial; and (5) Other.
Basis of Presentation
The accompanying condensed unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated balance sheet as of
December 31, 2016
is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended
December 31, 2016
contained in the Company’s
2016
Annual Report on Form 10-K (the “
2016
Form 10-K”). In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. Certain prior year amounts have been reclassified to conform to the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these condensed unaudited consolidated financial statements are adequate to make the information not misleading.
Principles of Consolidation
The accompanying condensed unaudited consolidated financial statements include MasTec, Inc. and its subsidiaries and include the accounts of all majority owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that MasTec consolidates are reported as non-controlling interests within equity. Net income or loss attributable to non-controlling interests is reported as a separate line item below net income or loss. The Company’s investments in entities for which the Company does not have a controlling interest, but for which it has the ability to exert significant influence, are accounted for using the equity method of accounting. Equity method investments are recorded as other long-term assets. Income or loss from these investments is recorded as a separate line item in the statements of operations. Intercompany profits or losses associated with the Company’s equity method investments are eliminated until realized by the investee in transactions with third parties. For equity investees in which the Company has an undivided interest in the assets, liabilities and profits or losses of an unincorporated entity, but the Company does not control the entity, the Company consolidates its proportional interest in the accounts of the entity. The cost method is used for investments in entities for which the Company does not have the ability to exert significant influence.
Management determines whether each business entity in which it has equity interests, debt, or other investments constitute a variable interest entity (“VIE”) based on the nature and characteristics of such arrangements. If an investment arrangement is determined to be a VIE, then management determines if the Company is the VIE’s primary beneficiary by evaluating several factors, including the Company’s: (i) risks and responsibilities; (ii) ownership interests; (iii) decision making powers; and (iv) financial and other interests, among others. If management determines the Company is the primary beneficiary of a VIE, then it would be consolidated, and other parties’ interests in the VIE would be accounted for as non-controlling interests. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the primary activities of the VIE and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE, which, in either case, could be significant to the VIE. As of
March 31, 2017
, the Company determined that certain of its investment arrangements were VIEs; however, because it does not have the power to direct the primary activities that most significantly impact the economic performance of these VIEs, the Company is not the primary beneficiary, and accordingly, has not consolidated these VIEs.
Translation of Foreign Currencies
The assets and liabilities of foreign subsidiaries with a functional currency other than the U.S. dollar are translated into U.S. dollars at period-end exchange rates, with resulting translation gains or losses accumulated within other comprehensive income or loss. Revenue and expenses are translated into U.S. dollars at average rates of exchange during the applicable period. Substantially all of the Company’s foreign operations use the local currency as the functional currency. Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in other income or expense, net. In these condensed unaudited consolidated financial statements, “$” means U.S. dollars unless otherwise noted.
Management Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Key estimates include: the recognition of revenue and project
profit or loss (which the Company defines as project revenue, less project costs of revenue, including project-related depreciation), in particular, on construction contracts accounted for under the percentage-of-completion method, for which the recorded amounts require estimates of costs to complete and the amount of probable contract price adjustments; allowances for doubtful accounts; estimated fair values of goodwill and intangible assets; acquisition-related contingent consideration and investments in equity investees; asset lives used in computing depreciation and amortization; accrued self-insured claims; share-based compensation; other accruals and allowances; accounting for income taxes; and the estimated impact of litigation and other contingencies. While management believes that such estimates are reasonable when considered in conjunction with the Company’s consolidated financial position and results of operations taken as a whole, actual results could differ materially from those estimates.
Significant Accounting Policies
Revenue Recognition
Revenue is derived from construction projects performed under master and other service agreements as well as from contracts for specific projects or jobs requiring the construction and installation of an entire infrastructure system or specified units within an entire infrastructure system. The Company frequently provides services under unit price or fixed price master service or other service agreements. Revenue and related costs for master and other service agreements billed on a time and materials basis are recognized as the services are rendered. Revenue derived from projects performed under master service and other service agreements totaled
46%
and
50%
of consolidated revenue for the three month periods ended
March 31, 2017
and
2016
, respectively. The Company also performs services under master and other service agreements on a fixed fee basis, under which MasTec furnishes specified units of service for a fixed price per unit of service and revenue is recognized as the services are rendered. Revenue from fixed price contracts provides for a fixed amount of revenue for the entire project, subject to certain additions for changed scope or specifications. Revenue from these contracts, as well as for certain projects pursuant to master and other service agreements, is recognized using the percentage-of-completion method, under which the percentage of revenue to be recognized for a given project is measured by the percentage of costs incurred to date on the contract to the total estimated costs for the contract. Such contracts provide that the customer accept completion of progress to date and compensate the Company for services rendered, which may be measured in terms of costs incurred, units installed, hours expended or some other measure of progress. Contract costs include all direct materials, labor and subcontracted costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and the operational costs of capital equipment. Much of the materials associated with the Company’s work are customer-furnished and are therefore not included in contract revenue and costs.
The estimation process for revenue recognized under the percentage-of-completion method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of contract revenue and costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected contract settlements are factors that influence estimates of total contract value and total costs to complete those contracts and, therefore, the Company’s profit recognition. Changes in these factors may result in revisions to costs and income and their effects are recognized in the period in which the revisions are determined, which could materially affect the Company’s results of operations in the period in which such changes are recognized. For the three month period ended
March 31, 2017
, project profit was affected by less than
5%
as a result of changes in contract estimates included in projects that were in process as of
December 31, 2016
. Excluding the effects of project losses of
$13.5 million
on a western Canadian oil and gas project, and
$15.1 million
on an electrical transmission project, project profit for the three month period ended
March 31, 2016
was affected by less than
5%
as a result of changes in contract estimates included in projects that were in process as of
December 31, 2015
. Provisions for losses on uncompleted contracts are made in the period in which such losses are determined to be probable and the amount can be reasonably estimated. The majority of fixed price contracts are completed within
one
year.
The Company may incur costs subject to change orders, whether approved or unapproved by the customer, and/or claims related to certain contracts. Management determines the probability that such costs will be recovered based upon engineering studies and legal opinions, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer. The Company treats such costs as a cost of contract performance in the period incurred if it is not probable that the costs will be recovered, and defers costs or recognizes revenue up to the amount of the related cost if it is probable that the contract price will be adjusted and can be reliably estimated.
As of both
March 31, 2017
and
December 31, 2016
, the Company had approximately
$17 million
of change orders and/or claims that had been included as contract price adjustments on certain contracts that were in the process of being resolved in the normal course of business, including through negotiation, arbitration and other proceedings. These contract price adjustments, which are included within costs and earnings in excess of billings or billed accounts receivable, as appropriate, represent management’s best estimate of contract revenue that has been earned and that management believes is probable of collection. As of both
March 31, 2017
and December 31, 2016, these change orders were primarily related to contracts in the Oil and Gas segment. The Company actively engages in substantive meetings with its customers to complete the final approval process, and generally expects these processes to be completed within
one
year. The amounts ultimately realized upon final acceptance by its customers could be higher or lower than such estimated amounts.
Billings In Excess of Costs and Earnings (“BIEC”) on uncompleted contracts is classified within current liabilities. Costs and Earnings In Excess of Billings (“CIEB”), which is also referred to as work in process, is classified within current assets. Work in process on contracts is based on work performed but not yet billed to customers as per individual contract terms.
Recently Issued Accounting Pronouncements
There have been no changes in the expected dates of adoption or estimated effects on the Company’s consolidated financial statements of recently issued accounting pronouncements from those disclosed in the Company’s 2016 Form 10-K. See below for additional discussion of recently issued accounting pronouncements.
Accounting Pronouncements Not Yet Adopted
In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05,
Other Income- Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting
for Partial Sales of Nonfinancial Assets
(“ASU 2017-05”). ASU 2017-05 clarifies certain guidance under Subtopic 610-20 that was issued as part of the new revenue standard, including the recognition of gains and losses on the sale or transfer of nonfinancial assets to noncustomers, and clarifies accounting for contributions of nonfinancial assets to joint ventures, among other requirements. ASU 2017-05 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-09”). The core principle of this ASU is that a company will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use judgment and make estimates when evaluating contract terms and other relevant facts and circumstances. Additionally, ASU 2014-09 requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, is effective using either the full retrospective or modified retrospective transition approach for fiscal years, and for interim periods within those years, beginning after December 15, 2017. In 2016, the FASB issued several accounting standards updates to clarify certain topics within ASU 2014-09. The Company will adopt ASU 2014-09, and its related clarifying ASUs, as of January 1, 2018.
The Company is continuing to assess the potential effects of these ASUs on its consolidated financial statements, business processes, systems and controls. The Company’s assessment includes a detailed review of representative contracts at each of the Company’s business units and a comparison of its historical accounting policies and practices to the new standard. Based on the Company’s progress in reviewing various types of revenue arrangements, the Company expects to recognize revenue and earnings over time utilizing the cost-to-cost measure of progress for its fixed price contracts and certain master service and other service agreements, consistent with current practice. For these contracts, the cost-to-cost measure of progress best depicts the transfer of control of goods or services to the customer under the new standard. The Company is continuing to assess the potential effect of accounting for uninstalled materials. Under the Company’s current practice, the cost of uninstalled materials is excluded from the measure of progress, unless specifically produced or fabricated for a project, and the Company is evaluating whether its current practice is consistent with the new standard.
The Company anticipates adopting the standard using the modified retrospective transition approach. Under this approach, the new standard would apply to all new contracts initiated on or after January 1, 2018. For existing contracts that have remaining obligations as of January 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings. Any potential effect of adoption of these ASUs has not yet been quantified; however, based on the review of contracts across all of the Company’s business units to date, the adoption of these ASUs is not expected to have a material effect on the timing or amount of revenue recognized as compared to current practices. The Company’s expectations may change as its assessment progresses, which is expected to be substantially completed in the second quarter of 2017.
Accounting Pronouncements Adopted as of January 1, 2017
The Company adopted ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”) effective January 1, 2017. Under ASU 2016-09, excess tax benefits (“windfalls”) or tax deficiencies (“shortfalls”) are recognized in the income statement, rather than as additional paid-in-capital as under the previous guidance, and are presented as operating cash flows, rather than as a financing activity. This ASU also increased the amount of tax that can be withheld by an employer for employee tax withholdings without resulting in liability classification of an award. Payments to taxing authorities for such employee withholdings are presented as financing activities. ASU 2016-09 also allows companies to account for forfeitures of share-based payments as they occur or to estimate such amounts. The provisions of ASU 2016-09 that were applicable to the Company were adopted on a prospective basis; the retrospective requirement to classify payments to taxing authorities for employee withholdings as a financing activity was consistent with the Company’s existing methodology, therefore did not result in a change. The adoption of ASU 2016-09 is expected to result in volatility in income tax expense given that windfalls or shortfalls are recognized in income tax expense in the periods in which they occur. The other components of this ASU did not have a material effect on the consolidated financial statements. See Note 2 - Earnings Per Share, Note 9 - Stock-Based Compensation and Other Employee Benefit Plans and Note 12 - Income Taxes for additional information.
Note 2
– Earnings Per Share
Basic earnings or loss per share is computed by dividing net income or loss attributable to MasTec by the weighted average number of common shares outstanding for the period, which excludes non-participating unvested restricted share awards. Diluted earnings per share is computed by dividing net income attributable to MasTec by the weighted average number of fully diluted shares, as calculated under the treasury stock method, which includes the potential effect of dilutive common stock equivalents, such as issued but unvested restricted shares and/or outstanding but unexercised stock options. The Company has no outstanding stock options as of March 31, 2017; all remaining options under the Company’s stock option grants were exercised in 2016. If the Company reports a loss, rather than income, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be anti-dilutive.
As discussed in
Note 1
- Business, Basis of Presentation and Significant Accounting Policies, the Company adopted ASU 2016-09 effective January 1, 2017 on a prospective basis. ASU 2016-09 changed the recognition of excess tax benefits or tax deficiencies upon the vesting of share-based payment awards from additional paid-in capital, within equity, to income tax benefit or expense, within the statement of operations. As a result, excess tax benefits or deficiencies under ASU 2016-09 are excluded from assumed proceeds under the treasury stock method. Previously, excess tax benefits or tax deficiencies were included within assumed proceeds. For the
three
month period ended
March 31, 2017
, this resulted in the inclusion of approximately
0.3 million
incremental shares in the Company’s total weighted average diluted shares outstanding.
The following table provides details underlying the Company’s earnings per share calculations for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
Net income (loss) attributable to MasTec:
|
|
|
|
|
Net income (loss) - basic and diluted
(a)
|
$
|
40,970
|
|
|
$
|
(2,692
|
)
|
|
Weighted average shares outstanding:
|
|
|
|
|
Weighted average shares outstanding - basic
|
80,697
|
|
|
80,156
|
|
|
Dilutive common stock equivalents
|
1,460
|
|
|
—
|
|
|
Weighted average shares outstanding - diluted
|
82,157
|
|
|
80,156
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
Weighted average anti-dilutive common stock equivalents
(b)
|
19
|
|
|
615
|
|
|
|
|
|
(a)
|
Calculated as total net income (loss) less amounts attributable to non-controlling interests.
|
|
|
|
|
(b)
|
Represents anti-dilutive common stock equivalents, which include anti-dilutive common stock equivalents as calculated under the treasury stock method, and, for the
three
month period ended
March 31, 2016
,
610,657
common stock equivalents that were anti-dilutive due to the Company having reported a net loss.
|
Note 3
- Goodwill and Other Intangible Assets
The following table provides details of goodwill by reportable segment as of
March 31, 2017
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
Oil and Gas
|
|
Electrical
Transmission
|
|
Power Generation and Industrial
|
|
Total Goodwill
|
|
Goodwill, gross
|
$
|
420.7
|
|
|
$
|
378.8
|
|
|
$
|
149.9
|
|
|
$
|
117.6
|
|
|
$
|
1,067.0
|
|
|
Accumulated impairment losses
|
—
|
|
|
(70.6
|
)
|
|
—
|
|
|
—
|
|
|
(70.6
|
)
|
|
Goodwill, net
|
$
|
420.7
|
|
|
$
|
308.2
|
|
|
$
|
149.9
|
|
|
$
|
117.6
|
|
|
$
|
996.4
|
|
For the
three
month period ended
March 31, 2017
, changes to goodwill and accumulated impairment losses were related to currency translation, and totaled
$1.1 million
of gains and
$0.6 million
of losses, respectively.
The following table provides a reconciliation of changes in other intangible assets for the period 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
|
|
|
Amortization expense
|
|
|
|
|
(3.8
|
)
|
|
(0.3
|
)
|
|
(4.1
|
)
|
|
Currency translation adjustments
|
—
|
|
|
0.3
|
|
|
0.1
|
|
|
—
|
|
|
0.4
|
|
|
Other intangible assets, net, as of March 31, 2017
|
$
|
34.5
|
|
|
$
|
74.9
|
|
|
$
|
59.5
|
|
|
$
|
7.1
|
|
|
$
|
176.0
|
|
|
|
|
|
(a)
|
Consists principally of trade names and non-compete agreements.
|
Amortization expense associated with intangible assets for the
three
month periods ended
March 31, 2017
and
2016
totaled
$4.1 million
and
$5.3 million
, respectively.
Note 4
– Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, cash collateral deposited with insurance carriers, life insurance assets, cost and equity method investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, certain intangible assets and liabilities, including off-market contracts, and debt obligations.
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value guidance establishes a valuation hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The three levels of inputs that may be used are: (i) Level 1 - quoted market prices in active markets for identical assets or liabilities; (ii) Level 2 - observable market-based inputs or other observable
inputs; and (iii) Level 3 - significant unobservable inputs that cannot be corroborated by observable market data, which are generally determined using valuation models incorporating management estimates of market participant assumptions. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Fair values of financial instruments are estimated using public market prices, quotes from financial institutions and other available information. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair values. Management believes the carrying values of notes and other receivables, cash collateral deposited with insurance carriers, deferred compensation plan assets and liabilities and outstanding balances on its credit facilities approximate their fair values.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of
March 31, 2017
and
December 31, 2016
, financial instruments required to be measured at fair value on a recurring basis consisted primarily of acquisition-related contingent consideration, which represents the estimated fair value of future earn-outs payable for acquisitions of businesses (“ASC 805 contingent consideration”). ASC 805 contingent consideration is based on management estimates and entity-specific assumptions, which are Level 3 inputs, and is evaluated on an ongoing basis. As of both
March 31, 2017
and
December 31, 2016
, the fair value of the Company’s ASC 805 contingent consideration totaled
$45.8 million
, of which
$21.8 million
was included within other current liabilities.
The fair value of the Company’s ASC 805 contingent consideration is estimated using an income approach and incorporates significant inputs not observable in the market.
These assumptions include the discount rate and probability-weighted earnings before interest, taxes, depreciation and amortization (“EBITDA”) projections. Significant changes in any of these assumptions could result in a significantly higher or lower potential earn-out liability. As of
March 31, 2017
, the range of potential undiscounted earn-out liabilities was estimated to be between
$27 million
and
$53 million
; however, there is no maximum payment amount.
ASC 805 contingent consideration activity consists primarily of additions from new business combinations, payments of earn-out liabilities, changes in the expected fair value of future earn-out obligations, and foreign currency translation gains or losses related to earn-out liabilities denominated in foreign currencies. Fair value adjustments are recorded within other income or expense, and foreign currency translation activity is recorded within other comprehensive income or loss, as appropriate. There were
no
changes in ASC 805 contingent consideration for the three month period ended
March 31, 2017
. For the
three
month period ended
March 31, 2016
, ASC 805 contingent consideration activity consisted of foreign currency translation losses totaling
$0.6 million
and a decrease in the expected fair value of future earn-out obligations of
$2.3 million
. The net reduction in ASC 805 contingent consideration for the
three
month period ended
March 31, 2016
related to a decrease in the expected earn-out obligations for certain of the Company’s western Canadian oil and gas businesses due to finalization of completed earn-out arrangements and adjustments to expected future period earn-out obligations.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities recognized or disclosed at fair value on a non-recurring basis, for which remeasurement occurs in the event of an impairment or other measurement event, if applicable, include items such as cost and equity method investments, life insurance assets, long-lived assets, goodwill, other intangible assets and liabilities and debt.
As of both
March 31, 2017
and
December 31, 2016
, the gross carrying amount of the Company’s
4.875%
senior notes due 2023 (the “4.875% Senior Notes”) totaled
$400 million
. As of
March 31, 2017
and
December 31, 2016
,
the estimated fair value of the Company’s 4.875% Senior Notes, based on quoted market prices in active markets, a Level 1 input
, totaled
$395.0 million
and
$388.0 million
, respectively.
Cost and Equity Investees.
The Company’s cost and equity investees as of
March 31, 2017
are primarily composed of: (i) the Company’s equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) the Company’s equity interests in a pre-acquisition investment of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”); (iii) a
$15 million
cost investment in Cross Country Pipeline Supply, Inc. (“CCP”); and (iv) the Company’s interests in certain proportionately consolidated non-controlled contractual joint ventures, as discussed in
Note 15
- Related Party Transactions.
The fair values of the Company’s cost and equity method investments are not readily observable. The Company is not aware of events or changes in circumstances that would have a significant adverse effect on the carrying values of its cost and/or equity investments as of
March 31, 2017
or
December 31, 2016
.
The Waha JVs
. The Waha JVs own and operate a header system and
two
pipelines that will transport natural gas to the Mexican border for export.
One
of the pipelines commenced operations in the first quarter of 2017 and the second pipeline commenced operations in the second quarter of 2017. For the
three
month period ended
March 31, 2017
, the Company made equity and other contributions of approximately
$53.3 million
to these joint ventures, and, for the three month period ended
March 31, 2016
, the Company made
no
contributions. As collateral for its equity commitments in the Waha JVs, the Company has issued letters of credit (the “Equity LC Amount”), of which
$36 million
and
$91 million
, respectively, were outstanding as of
March 31, 2017
and
December 31, 2016
. Equity in earnings related to the Company’s proportionate share of income from the Waha JVs, which totaled approximately
$1.6 million
for the
three
month period ended
March 31, 2017
, is included within the Company’s Other segment.
The Waha JVs are party to certain interest rate swaps. The Company reflects its proportionate share of any unrealized fair market value gains or losses from fluctuations in interest rates associated with these swaps in its financial statements. For the
three
month period ended
March 31, 2017
, the Company’s proportionate share of unrecognized unrealized activity on these interest rate swaps was a gain of approximately
$1.0 million
, or
$0.6 million
, net of tax, and for the
three
month period ended
March 31, 2016
, was a loss of approximately
$13.0 million
, or
$8.0 million
, net of tax, which amounts are included within other comprehensive income or loss, as appropriate.
A subsidiary of MasTec is providing pipeline construction services to the Waha JVs. For the
three
month periods ended
March 31, 2017
and 2016, revenue recognized in connection with work performed for the Waha JVs, net of intercompany eliminations, totaled
$151.4 million
and
$10.3 million
, respectively. As of
March 31, 2017
and
December 31, 2016
, related receivables, including retainage, net of BIEC, totaled
$68.5 million
and
$71.2 million
, respectively. As of
March 31, 2017
and
December 31, 2016
, the Company’s net investment in the Waha JVs represented an asset totaling approximately
$64 million
and
$6 million
, respectively. The Company’s net investment in the Waha JVs differs from its proportionate share of the net assets of the Waha JVs due to capitalized investment costs as well as the net effect of intercompany eliminations.
Other equity investees
. In connection with the 2014 acquisition of Pacer, the Company acquired equity interests in
two
joint ventures.
One
of these entities was liquidated in 2016, and the second, which is in the final stages of liquidation, is being managed by a receiver to assist with the orderly wind-down of its operations.
The aggregate net carrying value of this investment, including project and financing receivables, totaled
$19.7 million
and
$31.4 million
as of
March 31, 2017
and
December 31, 2016
, and is recorded within other current assets. In the first quarter of 2017, the Company received
$12.1 million
of proceeds related to this investment, and during the first quarter of 2016, the Company recorded
$3.6 million
of earnings related to increases in expected recoveries. There are
no
remaining amounts expected to be advanced to this entity, which is included within the Company’s Oil and Gas segment, and
all
related project work was complete as of
March 31, 2017
.
Note 5
- Accounts Receivable, Net of Allowance
The following table provides details of accounts receivable, net of allowance, as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Contract billings
|
$
|
515.0
|
|
|
$
|
564.2
|
|
|
Retainage
|
244.3
|
|
|
268.6
|
|
|
Costs and earnings in excess of billings
|
335.4
|
|
|
331.6
|
|
|
Accounts receivable, gross
|
$
|
1,094.7
|
|
|
$
|
1,164.4
|
|
|
Less allowance for doubtful accounts
|
(8.6
|
)
|
|
(8.4
|
)
|
|
Accounts receivable, net
|
$
|
1,086.1
|
|
|
$
|
1,156.0
|
|
Retainage, which has been billed, but is not due until completion of performance and acceptance by customers, is expected to be collected within one year. Receivables expected to be collected beyond one year are recorded within other long-term assets. Provisions for doubtful accounts for the
three
month periods ended
March 31, 2017
and
2016
totaled
$0.5 million
and
$0.4 million
, respectively.
The Company is party to a non-recourse financing arrangement in the ordinary course of business, under which certain receivables are purchased by a customer’s bank for a nominal fee. This arrangement, under which amounts can vary based on levels of activity, tends to improve the collection cycle time of the related receivables. The discount charge, which is included within interest expense, totaled approximately
$0.9 million
and
$0.4 million
, respectively, for the three month periods ended
March 31, 2017
and
2016
.
Note 6
- Property and Equipment, Net
The following table provides details of property and equipment, net, including property and equipment held under capital leases as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Land
|
$
|
4.6
|
|
|
$
|
4.6
|
|
|
Buildings and leasehold improvements
|
24.0
|
|
|
24.2
|
|
|
Machinery and equipment
|
1,041.6
|
|
|
997.8
|
|
|
Office furniture and equipment
|
147.0
|
|
|
146.1
|
|
|
Construction in progress
|
18.2
|
|
|
9.5
|
|
|
Total property and equipment
|
$
|
1,235.4
|
|
|
$
|
1,182.2
|
|
|
Less accumulated depreciation and amortization
|
(664.9
|
)
|
|
(633.1
|
)
|
|
Property and equipment, net
|
$
|
570.5
|
|
|
$
|
549.1
|
|
The gross amount of capitalized internal-use software, which is included within office furniture and equipment, totaled
$108.0 million
and
$107.8 million
as of
March 31, 2017
and
December 31, 2016
, respectively. Capitalized internal-use software, net of accumulated amortization, totaled
$28.5 million
and
$30.9 million
as of
March 31, 2017
and
December 31, 2016
, respectively. Depreciation and amortization expense associated with property and equipment for the
three
month periods ended
March 31, 2017
and
2016
totaled
$38.8 million
and
$33.7 million
, respectively.
Note 7
- Debt
The following table provides details of the carrying values of debt as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Maturity Date
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Senior secured credit facility:
|
|
February 22, 2022
|
|
|
|
|
|
Revolving loans
|
|
$
|
186.7
|
|
|
$
|
279.9
|
|
|
Term loan
|
|
250.0
|
|
|
237.5
|
|
|
4.875% Senior Notes
|
|
March 15, 2023
|
|
400.0
|
|
|
400.0
|
|
|
Capital lease obligations, weighted average interest rate of 3.1%
|
|
In installments through March 31, 2022
|
|
119.5
|
|
|
98.6
|
|
|
Notes payable and other debt obligations
|
|
Varies
|
|
15.0
|
|
|
19.8
|
|
|
Total long-term debt obligations
|
|
$
|
971.2
|
|
|
$
|
1,035.8
|
|
|
Less unamortized deferred financing costs
|
|
(15.1
|
)
|
|
(9.8
|
)
|
|
Total debt, net of deferred financing costs
|
|
$
|
956.1
|
|
|
$
|
1,026.0
|
|
|
Current portion of long-term debt
|
|
62.7
|
|
|
64.6
|
|
|
Long-term debt
|
|
$
|
893.4
|
|
|
$
|
961.4
|
|
Senior Secured Credit Facility
The Company has a senior secured credit facility, (the “Credit Facility”), which was amended and restated on February 22, 2017. The Company refers to its amended and restated credit facility as the “2017 Credit Facility,” and to its previous credit facility as the “2016 Credit Facility.” The 2017 Credit Facility increased the Company’s aggregate borrowing commitments from approximately
$1.2 billion
to
$1.5 billion
, which amount is composed of
$1.1 billion
of revolving commitments and a term loan in the aggregate principal amount of
$400 million
. The amended and restated credit facility also extended the Credit Facility’s maturity date to
February 22, 2022
. As of
March 31, 2017
, term loans in the aggregate principal amount of
$250 million
were drawn under the 2017 Credit Facility, which is subject to amortization in
quarterly
principal installments of
$3.1 million
commencing in December 2017, subject to adjustment as a result of additional term loan borrowings and/or the application of certain prepayments in accordance with its terms. Under the 2017 Credit Facility additional term loans of up to
$150 million
may be drawn prior to December 29, 2017. As of
December 31, 2016
, term loans in the aggregate principal amount of
$238 million
were outstanding under the 2016 Credit Facility.
The 2017 Credit Facility also increased the amount the Company can borrow either in Canadian dollars and/or Mexican pesos up to an aggregate equivalent amount of
$300 million
. The maximum amount available for letters of credit under the 2017 Credit Facility is
$650 million
, of which up to
$200 million
can be denominated in either Canadian dollars and/or Mexican pesos. The Credit Facility also provides for swing line loans of up to
$75 million
, and, subject to certain conditions, the Company has the option to increase revolving commitments and/or establish additional term loan tranches up to an aggregate amount of
$250 million
. Subject to the terms and conditions described in the Credit Facility, these additional term loan tranches may rank equal or junior in respect of right of payment and/or collateral to the Credit Facility, and may have terms and pricing that differ from the 2017 Credit Facility. Borrowings under the Credit Facility are used for working capital requirements, capital expenditures and other corporate purposes, including investments in equity or other investees, potential future acquisitions or other strategic arrangements, the repurchase or prepayment of indebtedness, and share repurchases.
Outstanding revolving loans and the term loan under the Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) a Eurocurrency Rate, as defined in the 2017 Credit Facility, plus a margin of 1.25% to 2.00% (under the 2016 Credit Facility, the margin was from 1.00% to 2.00%), or (b) a Base Rate, as defined in the 2017 Credit Facility, plus a margin of 0.25% to 1.00% (under the 2016 Credit Facility, the margin was from 0.00% to 1.00%). The Base Rate equals the highest of (i) the Federal Funds Rate, as defined in the Credit Facility, plus 0.50%, (ii) Bank of America’s prime rate, and (iii) the Eurocurrency Rate plus 1.00%.
Financial standby letters of credit and commercial letters of credit issued under the 2017 Credit Facility are subject to a letter of credit fee of 1.25% to 2.00% (under the 2016 Credit Facility, the letter of credit fee was from 1.00% to 2.00%), and performance standby letters of credit are subject to a letter of credit fee of 0.50% to 1.00% under the Credit Facility.
The Company must also pay a commitment fee to the lenders of 0.20% to 0.40% on any unused availability under the Credit Facility.
In each of the foregoing cases, the applicable margin or fee is based on the Company’s Consolidated Leverage Ratio, as defined in the Credit Facility, as of the then most recent fiscal quarter.
As of
March 31, 2017
and
December 31, 2016
, outstanding revolving loans, which included
$138 million
and
$119 million
, respectively, of borrowings denominated in foreign currencies, accrued interest at weighted average rates of approximately
3.11%
and
3.71%
per annum, respectively. The term loan accrued interest at a rate of
2.61%
and
2.77%
as of
March 31, 2017
and
December 31, 2016
, respectively. Letters of credit of approximately
$405.0 million
and
$314.3 million
were issued as of
March 31, 2017
and
December 31, 2016
, respectively. As of
March 31, 2017
and
December 31, 2016
, letters of credit fees accrued at
0.750%
and
1.00%
per annum, respectively, for performance standby letters of credit, and at
1.625%
and
2.00%
per annum, respectively, for financial standby letters of credit. Outstanding letters of credit mature at various dates and most have automatic renewal provisions, subject to prior notice of cancellation. As of
March 31, 2017
and
December 31, 2016
, borrowing capacity of
$508.2 million
and
$405.9 million
, respectively, was available for revolving loans, or up to
$245.0 million
and
$335.7 million
, respectively, for new letters of credit. Borrowing capacity as of
March 31, 2017
and
December 31, 2016
included
$162.0 million
and
$80.9 million
, respectively, of availability in either Canadian dollars or Mexican pesos. The unused facility fee as of
March 31, 2017
and
December 31, 2016
accrued at a rate of
0.30%
and
0.40%
, respectively.
The Credit Facility is guaranteed by certain subsidiaries of the Company (the “Guarantor Subsidiaries”) and the obligations under the Credit Facility are secured by substantially all of the Company’s and the Guarantor Subsidiaries’ respective assets, subject to certain exceptions.
The Credit Facility requires that the Company maintain a Maximum Consolidated Leverage Ratio, as defined in the Credit Facility, of 3.50 (subject to the Acquisition Adjustment described below). The Credit Facility also requires that the Company maintain a Minimum Consolidated Interest Coverage Ratio, as defined in the Credit Facility, of 3.00. The Credit Facility provides that, for purposes of calculating the Consolidated Leverage Ratio, certain cash charges may be added back to the calculation of Consolidated EBITDA, as defined in the Credit Facility, and funded indebtedness excludes undrawn standby performance letters of credit. Additionally, notwithstanding the terms discussed above, subject to certain conditions, if a permitted acquisition or series of permitted acquisitions having consideration exceeding $50 million occurs during a fiscal quarter, the Consolidated Leverage Ratio may be temporarily increased to up to 3.75 during such fiscal quarter and the subsequent two fiscal quarters. Such right may be exercised no more than two times during the term of the Credit Facility. Subject to customary exceptions, the Credit Facility limits the borrowers’ and the Guarantor Subsidiaries’ ability to engage in certain activities, including acquisitions, mergers and consolidations, debt incurrence, investments, capital expenditures, asset sales, debt prepayments, lien incurrence and the making of distributions or repurchases of capital stock. However, distributions payable solely in capital stock are permitted. The Credit Facility provides for customary events of default and carries cross-default provisions with the Company’s other significant debt instruments, including the Company’s indemnity agreement with its surety provider, as well as customary remedies, including the acceleration of repayment of outstanding amounts and other remedies with respect to the collateral securing the Credit Facility obligations.
Other Credit Facilities
. The Company has other credit facilities that support the working capital requirements of its foreign operations. Borrowings under these credit facilities, which have varying dates of maturity and are generally renewed on an annual basis, are denominated in Canadian dollars. As
March 31, 2017
and
December 31, 2016
, maximum borrowing capacity totaled Canadian
$20.0 million
and
$40.0 million
, respectively, or approximately
$15.0 million
and
$29.8 million
, respectively. As of
March 31, 2017
and
December 31, 2016
, outstanding borrowings totaled approximately
$10.1 million
and
$13.4 million
, respectively, and accrued interest at a weighted average rate of
3.5%
and
3.6%
, respectively.
Outstanding borrowings that are not renewed are repaid with borrowings under the Company’s senior secured credit facility. Accordingly, the carrying amounts of the Company’s borrowings under its other credit facilities, which are included within notes payable and other debt obligations in the table above, are classified within long-term debt in the Company’s consolidated balance sheets.
The Company’s other credit facilities are subject to customary provisions and covenants.
Debt Guarantees and Covenants
The 4.875% Senior Notes are senior unsecured unsubordinated obligations and rank equal in right of payment with existing and future unsubordinated debt, and rank senior in right of payment to existing and future subordinated debt and are fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by certain of the Company’s existing and future 100%-owned direct and indirect domestic subsidiaries that are each guarantors of the Company’s Credit Facility or other outstanding indebtedness.
See
Note 16
- Supplemental Guarantor Condensed Unaudited Consolidating Financial Information.
MasTec was in compliance with the provisions and covenants of its outstanding debt instruments as of
March 31, 2017
and
December 31, 2016
.
Additional Information
As of
March 31, 2017
and
December 31, 2016
, accrued interest payable, which is recorded within other accrued expenses in the consolidated balance sheets, totaled
$2.3 million
and
$8.5 million
, respectively. For additional information pertaining to the Company’s debt instruments, including its 4.875% Senior Notes, see Note 7 - Debt in the Company’s 2016 Form 10-K.
Note 8
- Lease Obligations
Capital Leases
MasTec enters into agreements that provide lease financing for machinery and equipment. The gross amount of assets held under capital leases as of
March 31, 2017
and
December 31, 2016
, which are included within property and equipment, net, totaled
$324.8 million
and
$294.9 million
, respectively. Assets held under capital leases, net of accumulated depreciation, totaled
$201.0 million
and
$177.5 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
Operating Leases
In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facility, vehicle and equipment needs, including related party leases. See
Note 15
- Related Party Transactions. Rent and related expense for operating leases that have non-cancelable terms in excess of
one year
totaled approximately
$25.6 million
and
$24.6 million
for the
three
month periods ended
March 31, 2017
and
2016
, respectively. The Company also incurred rent and related expense for facilities, vehicles and equipment having original terms of
one year
or less totaling approximately
$55.1 million
and
$46.5 million
for the
three
month periods ended
March 31, 2017
and
2016
, respectively.
Note 9
– Stock-Based Compensation and Other Employee Benefit Plans
The Company has stock-based compensation plans, under which shares of the Company’s common stock are reserved for issuance. Under all stock-based compensation plans in effect as of
March 31, 2017
, including employee stock purchase plans, there were approximately
5.0 million
shares available for future grant. In March 2017, the Company’s board of directors adopted the Amended and Restated 2013 Incentive Compensation Plan (the “Amended 2013 ICP”), which was effective as of January 1, 2017 and changed the amount of tax the Company can withhold for employee tax withholdings on share-based awards, as provided under ASU 2016-09. The Company adopted ASU 2016-09 as of January 1, 2017, as discussed in
Note 1 - Business, Basis of Presentation and Significant Accounting Policies.
Restricted Shares
MasTec grants restricted stock awards and restricted stock units (together “restricted shares”), which are valued based on the closing market share price of MasTec common stock (the “market price”) on the date of grant. During the restriction period, holders of restricted stock awards are entitled to vote the shares.
Total unearned compensation related to restricted
shares
as of
March 31, 2017
was approximately
$21.4 million
, which is expected to be recognized over a weighted average period of approximately
1.6
years. T
he intrinsic value of restricted shares that vested, which is based on the market price on the date of vesting, totaled
$11.6 million
and
$0.2 million
for the three month periods ended
March 31, 2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
|
|
|
Activity, restricted shares:
(a)
|
Restricted
Shares
|
|
Per Share Weighted Average Grant Date Fair Value
|
|
Non-vested restricted shares, as of December 31, 2016
|
1,970,586
|
|
|
$
|
21.61
|
|
|
Granted
|
162,923
|
|
|
38.61
|
|
|
Vested
|
(296,800
|
)
|
|
40.70
|
|
|
Canceled/forfeited
|
(5,000
|
)
|
|
17.30
|
|
|
Non-vested restricted shares, as of March 31, 2017
|
1,831,709
|
|
|
$
|
20.04
|
|
|
|
|
|
(a)
|
Includes
39,050
and
43,300
restricted stock units as of
March 31, 2017
and
December 31, 2016
, respectively.
|
Stock Options
The Company previously granted options to purchase its common stock to employees and members of the Board of Directors and affiliates under various stock option plans. During
2016
, all stock options that were outstanding under previous stock option grants were exercised. For the
three
month period ended
March 31, 2016
, the intrinsic value of options exercised, which is based on the difference between the exercise price and the market share price of the Company’s common stock on the date of exercise, totaled
$0.7 million
, and proceeds from options exercised totaled
$1.4 million
.
Employee Stock Purchase Plans
The Company has certain employee stock purchase plans (collectively, “ESPPs”) under which shares of the Company's common stock are available for purchase by eligible employees.
The following table provides details pertaining to the Company’s ESPPs for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
Cash proceeds
(in millions)
|
$
|
0.8
|
|
|
$
|
0.6
|
|
|
Common shares issued
|
24,026
|
|
|
43,172
|
|
|
Weighted average price per share
|
$
|
32.51
|
|
|
$
|
14.77
|
|
|
Weighted average per share grant date fair value
|
$
|
8.49
|
|
|
$
|
4.03
|
|
Non-Cash
Stock-Based Compensation Expense
Details of non-cash stock-based compensation expense and related tax benefits for the periods indicated were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
Non-cash stock-based compensation expense
|
$
|
3.8
|
|
|
$
|
3.5
|
|
|
Income Tax Effects:
|
|
|
|
|
Income tax benefit from non-cash stock-based compensation
|
$
|
1.2
|
|
|
$
|
1.6
|
|
|
Excess tax benefit from non-cash stock-based compensation
(a)
|
$
|
—
|
|
|
$
|
0.2
|
|
|
|
|
|
(a)
|
Excess tax benefits represent cash flows from tax deductions in excess of the tax effect of compensation expense associated with share-based payment arrangements. For the three month period ended
March 31, 2017
, the Company incurred a net tax deficiency of approximately
$0.2 million
related to the vesting of share-based payment awards and excess tax benefits were de minimis. As discussed in
Note 1
- Business, Basis of Presentation and Significant Accounting Policies, the company adopted ASU 2016-09 effective January 1, 2017 on a prospective basis. ASU 2016-09 changed the required presentation of excess tax benefits in the consolidated statement of cash flows from financing activities to operating activities. Excess tax benefits for the comparative prior year period are classified as cash flows from financing activities.
|
Note 10
– Other Retirement Plans
Multiemployer Plans.
Certain of MasTec’s subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenue, excluding depreciation and amortization. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a “pay-as-you-go” basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they may participate, vary depending upon the location and number of ongoing projects at a given time and the need for union resources in connection with those projects.
Total contributions to multiemployer plans, and the related number of employees covered by these plans, including with respect to the Company’s Canadian operations, for the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiemployer Plans
|
|
|
Covered Employees
|
|
Contributions
(in millions)
|
|
|
Low
|
|
High
|
|
Pension
|
|
Other Multiemployer
|
|
Total
|
|
For the Three Months Ended March 31:
|
|
|
|
|
|
|
|
|
|
|
2017
|
550
|
|
|
3,669
|
|
|
$
|
3.7
|
|
|
$
|
2.6
|
|
|
$
|
6.3
|
|
|
2016
|
1,112
|
|
|
1,409
|
|
|
$
|
4.8
|
|
|
$
|
2.2
|
|
|
$
|
7.0
|
|
The fluctuations in the average number of employees covered under multiemployer plans and related contributions in the table above related primarily to timing of activity of the Company’s union resource-based projects for its oil and gas operations.
Note 11
– Equity
Share Activity
On
February 25, 2016
, the Company’s Board of Directors authorized a
$100 million
share repurchase program (the “2016 Share Repurchase Program”). Under the 2016 Share Repurchase Program, which does not have an expiration date, the Company may repurchase shares from time to time in open market transactions or in privately-negotiated transactions in accordance with applicable securities laws. The timing and the amount of any repurchases will be determined based on market conditions, legal requirements, cash flow and liquidity needs and other factors. The share repurchase program may be modified or suspended at any time, at the Company’s discretion. Share repurchases, which are recorded at cost and are held in the Company’s treasury, are funded with available cash or with availability under the Credit Facility.
No
shares of the Company’s common stock had been repurchased under this program as of
March 31, 2017
.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is composed of unrealized foreign currency translation gains and losses, which relate primarily to fluctuations in foreign currency exchange rates of the Company’s foreign subsidiaries with a functional currency other than the U.S. dollar, and unrealized gains and losses from certain investment activities. For both the three month periods ended
March 31, 2017
and
2016
, unrealized foreign currency activity related primarily to the Company’s Canadian operations, and unrealized investment activity related to interest rate swaps associated with the Waha JVs.
Note 12
- Income Taxes
In determining the quarterly provision for income taxes, management uses an estimated annual effective tax rate based on forecasted annual pre-tax income, permanent tax differences, statutory tax rates and tax planning opportunities in the various jurisdictions in which the Company operates. The effect of significant discrete items is separately recognized in the quarter(s) in which they occur.
As discussed in
Note 1
- Business, Basis of Presentation and Significant Accounting Policies, effective January 1, 2017, the Company adopted ASU 2016-09, which changed the recognition requirements for excess tax benefits (“windfalls”) or tax deficiencies (“shortfalls”) from share-based payment awards. ASU 2016-09 requires windfalls or shortfalls to be recognized within income tax expense in the interim periods in which they occur, rather than as additional paid-in capital. Given that windfalls or shortfalls are recognized in income tax expense in the periods in which they occur, they are not included when estimating annual effective tax rates. The tax effect related to the vesting of share-based payment awards did not have a significant effect on the Company’s consolidated effective tax rate for the three month period ended
March 31, 2017
.
As of
March 31, 2017
, the Company had
$175.0 million
of long-term deferred tax liabilities. As of
December 31, 2016
, current deferred tax assets, net, totaled
$11.8 million
and long-term deferred tax liabilities, net, totaled
$178.4 million
. In addition, as of
March 31, 2017
and
December 31, 2016
, accrued taxes payable, which are included within other accrued expenses, totaled
$57.6 million
and
$40.3 million
, respectively. The Company adopted
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which changed the classification requirements for deferred tax assets and liabilities, effective January 1, 2017. ASU 2015-17 requires long-term classification of all deferred tax assets and liabilities, rather than separately classifying deferred tax assets and liabilities based on their net current and non-current amounts, as was required under the previous guidance. The Company adopted ASU 2015-17 on a prospective basis, therefore prior periods were not adjusted to conform to the current period presentation. The adoption of ASU 2015-17 did not have had a material effect on the consolidated financial statements.
Note 13
- Segments and Related Information
Segment Discussion
MasTec manages its operations under five operating segments, which represent MasTec’s five reportable segments: (1) Communications; (2) Oil and Gas; (3) Electrical Transmission; (4) Power Generation and Industrial and (5) Other. This structure is generally focused on broad end-user markets for MasTec’s labor-based construction services.
All five reportable segments derive their revenue from the engineering, installation and maintenance of infrastructure, primarily in North America.
The Communications segment performs engineering, construction, maintenance and customer fulfillment activities related to communications infrastructure primarily for wireless and wireline/fiber communications and install-to-the-home customers, and, to a lesser extent, distribution infrastructure for electrical utilities, among others.
MasTec performs engineering, construction and maintenance services on oil and natural gas pipelines and processing facilities for the energy and utilities industries through its Oil and Gas segment.
The Electrical Transmission segment primarily serves the energy and utility industries through the engineering, construction and maintenance of electrical transmission lines and substations.
The Power Generation and Industrial segment primarily serves energy, utility and other end-markets through the installation and construction of conventional and renewable power facilities, related electrical transmission infrastructure, ethanol/biofuel facilities and various types of industrial infrastructure.
The Other segment includes equity investees, the services of which vary from those provided by the Company’s four primary segments, as well as other small business units that perform construction and other services for a variety of international end-markets.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of consolidated financial information determined in accordance with U.S. GAAP with certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments, as well as items that can vary widely across different industries or among companies within the same industry, and for non-cash stock-based compensation expense, can also be subject to volatility from changes in the market price per share of our common stock or variations in the value of shares granted. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.
For the
three
month period ended
March 31, 2017
, Other segment EBITDA included
$7.0 million
of project losses on a proportionately consolidated non-controlled Canadian joint venture, which is managed by a third party, and for which we have minimal direct construction involvement. For the
three
month period ended
March 31, 2016
, Oil and Gas and Electrical Transmission segment EBITDA included project losses of
$13.5 million
and
$15.1 million
, respectively.
Summarized financial information for MasTec’s reportable segments is presented and reconciled to consolidated financial information for total MasTec in the following tables (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
Revenue:
|
2017
|
|
2016
|
|
Communications
(a)
|
$
|
559.5
|
|
|
$
|
511.6
|
|
|
Oil and Gas
|
455.9
|
|
|
292.7
|
|
|
Electrical Transmission
|
98.8
|
|
|
86.3
|
|
|
Power Generation and Industrial
|
46.6
|
|
|
81.4
|
|
|
Other
|
1.7
|
|
|
3.4
|
|
|
Eliminations
|
(4.3
|
)
|
|
(1.2
|
)
|
|
Consolidated revenue
|
$
|
1,158.2
|
|
|
$
|
974.2
|
|
|
|
|
|
(a)
|
Revenue generated primarily by utilities customers represented
13.4%
and
10.4%
of Communications segment revenue for the
three
month periods ended
March 31, 2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
EBITDA:
|
2017
|
|
2016
|
|
Communications
|
$
|
48.4
|
|
|
$
|
61.7
|
|
|
Oil and Gas
|
93.9
|
|
|
16.2
|
|
|
Electrical Transmission
|
3.2
|
|
|
(23.8
|
)
|
|
Power Generation and Industrial
|
0.8
|
|
|
2.9
|
|
|
Other
|
(5.3
|
)
|
|
0.2
|
|
|
Corporate
|
(17.5
|
)
|
|
(11.0
|
)
|
|
Consolidated EBITDA
|
$
|
123.5
|
|
|
$
|
46.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
Depreciation and Amortization:
|
2017
|
|
2016
|
|
Communications
|
$
|
12.0
|
|
|
$
|
12.3
|
|
|
Oil and Gas
|
21.9
|
|
|
18.2
|
|
|
Electrical Transmission
|
5.8
|
|
|
5.2
|
|
|
Power Generation and Industrial
|
1.5
|
|
|
1.5
|
|
|
Other
|
0.0
|
|
|
0.0
|
|
|
Corporate
|
1.7
|
|
|
1.8
|
|
|
Consolidated depreciation and amortization
|
$
|
42.9
|
|
|
$
|
39.0
|
|
The following table, which may contain slight summation differences due to rounding, presents a reconciliation of consolidated income (loss) before income taxes to EBITDA (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
EBITDA Reconciliation:
|
2017
|
|
2016
|
|
Income (loss) before income taxes
|
$
|
68.0
|
|
|
$
|
(5.0
|
)
|
|
Plus:
|
|
|
|
|
Interest expense, net
|
12.6
|
|
|
12.2
|
|
|
Depreciation and amortization
|
42.9
|
|
|
39.0
|
|
|
Consolidated EBITDA
|
$
|
123.5
|
|
|
$
|
46.2
|
|
Foreign Operations.
MasTec operates in North America, primarily in the United States and Canada, and, to a lesser extent, in Mexico. For the
three
month periods ended
March 31, 2017
and
2016
, revenue of
$1.1 billion
and
$0.9 billion
, respectively, was derived from U.S. operations, and revenue of
$59.2 million
and
$83.5 million
, respectively, was derived from foreign operations, primarily in Canada. The majority of the Company’s foreign operations during the three month periods ended
March 31, 2017
and
2016
were in the Company’s Oil and Gas segment. Long-lived assets held in the U.S. included property and equipment, net, of
$502.2 million
and
$475.3 million
as of
March 31, 2017
and
December 31, 2016
, respectively, and, for the Company’s businesses in foreign countries, primarily in Canada, totaled
$68.3 million
and
$73.8 million
, respectively. Intangible assets and goodwill, net, related to the Company’s U.S. operations totaled approximately
$1.1 billion
as of both
March 31, 2017
and
December 31, 2016
, and, for the Company’s businesses in foreign countries, primarily in Canada, totaled approximately
$108.2 million
and
$107.8 million
as of
March 31, 2017
and
December 31, 2016
, respectively. Amounts due from customers from which foreign revenue was derived accounted for approximately
10%
and
8%
, respectively, of the Company’s consolidated net accounts receivable position as of
March 31, 2017
and
December 31, 2016
, which represents accounts receivable, net, less BIEC.
Significant Customers
Revenue concentration information for significant customers as a percentage of total consolidated revenue was as follows:
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
Customer:
|
2017
|
|
2016
|
|
AT&T (including DIRECTV
®
)
(a)
|
36%
|
|
39%
|
|
Energy Transfer affiliates
(b)
|
17%
|
|
18%
|
|
|
|
|
(a)
|
The Company’s relationship with AT&T is based upon multiple separate master service and other service agreements, including for installation and maintenance services, as well as construction/installation contracts for AT&T’s: (i) wireless business; (ii) wireline/fiber businesses; and (iii) various install-to-the-home businesses, including DIRECTV®. Revenue from AT&T is included in the Communications segment.
|
|
|
|
|
(b)
|
The Company's relationship with Energy Transfer affiliates is based upon various construction contracts for pipeline activities with Energy Transfer Partners L.P., Sunoco Logistics Partners L.P., and their subsidiaries and affiliates, all of which are consolidated by Energy Transfer Equity, L.P. Revenue from Energy Transfer affiliates is included in the Oil and Gas segment.
|
Note 14
- Commitments and Contingencies
MasTec is subject to a variety of legal cases, claims and other disputes that arise from time to time in the ordinary course of its business. See Note 14 - Commitments and Contingencies in the Company’s 2016 Form 10-K for additional information. MasTec cannot provide assurance that it will be successful in recovering all or any of the potential damages it has claimed or in defending claims against the Company. The outcome of such cases, claims and disputes cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.
Other Commitments and Contingencies
Leases.
In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facility, vehicle and equipment needs, including related party leases. See
Note 8
- Lease Obligations and
Note 15
- Related Party Transactions.
Letters of Credit.
In the ordinary course of business, the Company is required to post letters of credit for its insurance carriers, surety bond providers and in support of performance under certain contracts as well as certain obligations associated with the Company’s cost and equity investees, including its variable interest entities. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit under certain conditions. If this were to occur, the Company would be required to reimburse the issuer of the letter of credit, which, depending upon the circumstances, could result in a charge to earnings. As of
March 31, 2017
and
December 31, 2016
, there were
$405.0 million
and
$314.3 million
, respectively, of letters of credit issued under the Company’s Credit Facility. The Company is not aware of material claims relating to its outstanding letters of credit as of
March 31, 2017
or
December 31, 2016
.
Performance and Payment Bonds.
In the ordinary course of business, MasTec is required by certain customers to provide performance and payment bonds for contractual commitments related to projects in process. These bonds provide a guarantee to the customer that the Company will perform under the terms of a contract and that the Company will pay subcontractors and vendors. If the Company fails to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for expenses or outlays it incurs. As of
March 31, 2017
and
December 31, 2016
, outstanding performance and payment bonds totaled
$15.2 million
and
$72.9 million
, respectively, and estimated costs to complete projects secured by these bonds totaled
$6.1 million
and
$9.5 million
, as of
March 31, 2017
and
December 31, 2016
, respectively. These amounts do not include performance and payment bonds associated with the Company’s equity investees.
Cost and Equity Investees and Other Entities.
The Company holds a
35%
undivided interest in a proportionately consolidated non-controlled Canadian contractual joint venture that was underway when the Company acquired Pacer in 2014, whose sole activity involves the construction of a bridge, a business in which the Company does not otherwise engage. This joint venture, which is managed by a third party, and for which the Company has minimal direct construction involvement, automatically terminates upon completion of the project. The Company also holds undivided interests of
85%
,
85%
and
90%
, respectively, in
three
proportionately consolidated non-controlled contractual joint ventures that provide infrastructure construction services for electrical transmission projects. Income and/or losses incurred by these joint ventures are generally shared proportionally by the respective joint venture members, with the members of the joint ventures jointly and severally liable for all of the obligations of the joint venture. The respective joint venture agreements provide that each joint venture partner indemnify the other party for any liabilities incurred by such joint venture in excess of its ratable portion of such liabilities. Thus, it is possible that the Company could be required to pay or perform obligations in excess of its share if the other joint venture partners fail or refuse to pay or perform their respective share of the obligations. As of
March 31, 2017
, the Company was not aware of circumstances that would reasonably lead to material future claims against it in connection with these arrangements.
The Company has other investment arrangements, as discussed in
Note 4
- Fair Value of Financial Instruments. From time to time, the Company may incur costs or provide financing, performance, financial and/or other guarantees to or in connection with its investees.
Self-Insurance.
MasTec maintains insurance policies for workers’ compensation, general liability and automobile liability, which are subject to per claim deductibles. The Company also maintains excess umbrella coverage. As of
March 31, 2017
and
December 31, 2016
, MasTec’s liability for unpaid claims and associated expenses, including incurred but not reported losses related to these policies, totaled
$86.4 million
and
$85.8 million
, respectively, of which
$52.3 million
and
$55.2 million
, respectively, were reflected within other long-term liabilities in the consolidated balance sheets. MasTec also maintains an insurance policy with respect to employee group medical claims, which is subject to annual per employee maximum losses. MasTec’s liability for employee group medical claims totaled
$2.6 million
as of both
March 31, 2017
and
December 31, 2016
.
The Company is required to post letters of credit and provide cash collateral to certain of its insurance carriers and to provide surety bonds in certain states. Insurance-related letters of credit for the Company’s workers’ compensation, general liability and automobile liability policies amounted to
$85.1 million
as of both
March 31, 2017
and
December 31, 2016
, respectively. In addition, cash collateral deposited with insurance carriers, which is included within other long-term assets, amounted to
$1.5 million
for these policies as of both
March 31, 2017
and
December 31, 2016
. Outstanding surety bonds related to workers’ compensation self-insurance programs amounted to
$13.5 million
as of both
March 31, 2017
and
December 31, 2016
.
Employment Agreements.
The Company has employment agreements with certain executives and other employees, which provide for compensation and certain other benefits and for severance payments under certain circumstances. Certain employment agreements also contain clauses that become effective upon a change in control of the Company. Upon the occurrence of any of the defined events in the various employment agreements, the Company would be obligated to pay certain amounts to the relevant employees, which vary with the level of the employees’ respective responsibility.
Collective Bargaining Agreements and Multiemployer Plans.
As discussed in
Note 10
- Other Retirement Plans, certain of MasTec’s subsidiaries are party to various collective bargaining agreements with unions representing certain of their employees, which require the Company to pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multiemployer pension and other multiemployer benefits plans and trusts. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act
of 1980 (collectively, “ERISA”), which governs U.S.-registered multiemployer pension plans, subjects employers to substantial liabilities in the event of the employer’s complete or partial withdrawal from, or upon termination of, such plans. The Company currently contributes, and in the past has contributed to, plans that are underfunded, and, therefore, could have potential liability associated with a voluntary or involuntary withdrawal from, or termination of, these plans. Other than the Company’s 2011 withdrawal from the Central States Southeast and Southwest Areas Pension Fund (“Central States”) and certain other underfunded plans, as described in the Company’s 2016 Form 10-K, the Company does not have plans to withdraw from, and is not aware of circumstances that would reasonably lead to material claims against it in connection with these plans. However, there can be no assurance that the Company will not be assessed liabilities in the future.
Based upon the information available to the Company from plan administrators as of
March 31, 2017
, several of the multiemployer pension plans in which it participates are underfunded and, as a result, the Company could be required to increase its contributions, including in the form of a surcharge on future benefit contributions. The amount of additional funds the Company may be obligated to contribute in the future cannot be estimated, as these amounts are based on future levels of work of the union employees covered by these plans, investment returns and the level of underfunding of such plans.
Indemnities.
The Company generally indemnifies its customers for the services it provides under its contracts, as well as other specified liabilities, which may subject the Company to indemnity claims, liabilities and related litigation. As of
March 31, 2017
and
December 31, 2016
, the Company was not aware of material asserted or unasserted claims in connection with these indemnity obligations.
Other Guarantees.
In the ordinary course of its business, from time to time, MasTec guarantees the obligations of its subsidiaries, including obligations under certain contracts with customers, certain lease obligations and in some states, obligations in connection with obtaining contractors’ licenses.
MasTec has also issued performance and other guarantees in connection with certain of its equity investees.
MasTec also generally warrants the work it performs for a one to two year period following substantial completion of a project. Much of the work performed by the Company is evaluated for defects shortly after the work is completed.
Accrued warranty claims are, and historically have been, de minimis. However, if warranty claims occur, the Company could be required to repair or replace warrantied items, or, if customers elect to repair or replace the warrantied item using the services of another provider, the Company could be required to pay for the cost of the repair or replacement.
Concentrations of Risk.
The Company had approximately
305
customers for the
three
month period ended
March 31, 2017
. As of
March 31, 2017
and
December 31, 2016
,
one
customer accounted for approximately
19%
and
17%
, respectively, of the Company’s consolidated net accounts receivable position, which represents accounts receivable, net, less BIEC. As of
March 31, 2017
and
December 31, 2016
, a separate customer accounted for approximately
16%
and
24%
, respectively, of the Company’s consolidated net accounts receivable position. In addition, the Company derived
76%
and
73%
, respectively, of its revenue from its top
ten
customers for the three month periods ended
March 31, 2017
and
2016
.
Note 15
- Related Party Transactions
For the
three
month periods ended
March 31, 2017
and
2016
, revenue recognized by the Company’s Pacer subsidiary for work performed for a contractual joint venture in which it holds a
35%
undivided interest totaled
$0.1 million
and
$0.3 million
, respectively. As of
March 31, 2017
and
December 31, 2016
, receivables from this contractual joint venture totaled
$0.6 million
and
$0.7 million
, respectively. Related performance guarantees as of both
March 31, 2017
and
December 31, 2016
totaled Canadian
$132.1 million
(or approximately
$99.2 million
and
$98.3 million
, respectively), based on the full contract value of the project. In addition, for the
three
month period ended
March 31, 2017
, the Company provided
$0.8 million
of project-related financing in connection with this contractual joint venture. As of
March 31, 2017
, there were
no
additional amounts committed to this entity. The Company also has undivided interests of
85%
,
85%
and
90%
, respectively, in
three
proportionately consolidated contractual joint ventures that provide electrical transmission infrastructure services.
MasTec purchases, rents and leases equipment used in its business from a number of different vendors on a non-exclusive basis, including CCP, in which the Company has a cost method investment. Juan Carlos Mas, who is the brother of Jorge Mas, Chairman of MasTec’s Board of Directors, and José R. Mas, MasTec’s Chief Executive Officer, serves as the chairman of CCP. For the
three
month periods ended
March 31, 2017
and
2016
, MasTec paid CCP approximately
$1.0 million
and
$0.8 million
, respectively, which amounts were net of rebates of approximately
$1.6 million
and
$0.4 million
, respectively, for equipment supplies, rentals, leases and servicing. As of
March 31, 2017
and
December 31, 2016
, related payables totaled approximately
$1.3 million
and
$1.5 million
, respectively.
MasTec has a subcontracting arrangement with an entity for the performance of construction services, the minority owners of which include an entity controlled by Jorge Mas, MasTec’s Chairman of the Board of Directors, and José R. Mas, MasTec’s Chief Executive Officer, along with
two
members of the management of a subsidiary of the Company. For the
three
month periods ended
March 31, 2017
and
2016
, MasTec incurred
$0.6 million
and
$1.5 million
, respectively, of expenses under this subcontracting arrangement. As of both
March 31, 2017
and
December 31, 2016
, related amounts payable totaled
$0.1 million
.
MasTec leases employees to a customer in which Jorge Mas and José R. Mas own a majority interest. For both
three
month periods ended
March 31, 2017
and
2016
, MasTec charged approximately
$0.2 million
to this customer. As of both
March 31, 2017
and
December 31, 2016
, outstanding receivables from employee leasing arrangements with this customer totaled
$0.2 million
. The Company also provides satellite communication services to this customer. For both
three
month periods ended
March 31, 2017
and
2016
, revenue from satellite communication services provided to this customer totaled approximately
$0.2 million
. As of
March 31, 2017
and
December 31, 2016
, amounts receivable from this arrangement totaled approximately
$0.3 million
and
$0.4 million
, respectively.
MasTec has a leasing arrangement with a third party that leases an aircraft from a Company owned by Jorge Mas. For the
three
month periods ended
March 31, 2017
and
2016
, MasTec paid
$0.5 million
and
$0.7 million
, respectively, under this leasing arrangement. As of
March 31, 2017
, there were
no
related amounts payable, and, as of
December 31, 2016
, related amounts payable were de minimis.
For the
three
month periods ended
March 31, 2017
and
2016
, related party lease payments for operational facilities and equipment, which are primarily associated with members of subsidiary management, totaled approximately
$12.7 million
and
$9.1 million
, respectively, and related amounts payable totaled approximately
$0.1 million
and
$0.3 million
as of
March 31, 2017
and
December 31, 2016
, respectively. Additionally, payments for various types of supplies and services, including ancillary construction services, project-related site restoration and marketing and business development activities associated with members of subsidiary management, totaled approximately
$6.6 million
and
$3.1 million
for the
three
month periods ended
March 31, 2017
and
2016
, respectively. As of
March 31, 2017
and
December 31, 2016
, related amounts payable totaled approximately
$0.5 million
and
$3.7 million
, respectively.
Non-controlling interests in entities consolidated by the Company represent ownership interests held by certain members of management of several of the Company’s subsidiaries, primarily in our Oil and Gas segment, and the Company has a subcontracting arrangement with
one
of these entities for the performance of ancillary oil and gas construction services. Expense related to this subcontracting arrangement is eliminated in consolidation. For the
three
month period ended
March 31, 2017
, the Company made distributions of earnings of
$1.3 million
to holders of its non-controlling interests.
Split Dollar Agreements
MasTec has split dollar insurance agreements with each of José R. Mas and Jorge Mas.
No
payments were made in connection with these agreements in either of the
three
month periods ended
March 31, 2017
or
2016
. As of both
March 31, 2017
and
December 31, 2016
, life insurance assets associated with these agreements totaled
$14.8 million
, which amount is included within other long-term assets.
Note 16
– Supplemental Guarantor Condensed Unaudited Consolidating Financial Information
The
4.875%
Senior Notes are fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by certain of the Company’s existing and future 100%-owned direct and indirect domestic subsidiaries that are each guarantors of the Credit Facility or other outstanding indebtedness (the “Guarantor Subsidiaries”). The Company’s subsidiaries organized outside of the United States and certain domestic subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) do not guarantee these notes. A Guarantor Subsidiary’s guarantee is subject to release in certain customary circumstances, including upon the sale of a majority of the capital stock or substantially all of the assets of such Guarantor Subsidiary; if the Guarantor Subsidiary’s guarantee under the Company’s Credit Facility and other indebtedness is released or discharged (other than due to payment under such guarantee); or when the requirements for legal defeasance are satisfied or the obligations are discharged in accordance with the related indentures.
The following supplemental financial information sets forth the condensed unaudited consolidating balance sheets and the condensed unaudited consolidating statements of operations and comprehensive income (loss) and cash flows for MasTec, Inc., the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and the eliminations necessary to arrive at the information for the Company as reported on a consolidated basis. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among MasTec, Inc., the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Investments in subsidiaries are accounted for using the equity method for this presentation.
CONDENSED UNAUDITED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
|
Revenue
|
$
|
—
|
|
|
$
|
1,085.1
|
|
|
$
|
94.2
|
|
|
$
|
(21.1
|
)
|
|
$
|
1,158.2
|
|
|
Costs of revenue, excluding depreciation and amortization
|
—
|
|
|
891.1
|
|
|
101.1
|
|
|
(21.1
|
)
|
|
971.1
|
|
|
Depreciation and amortization
|
—
|
|
|
34.1
|
|
|
8.8
|
|
|
—
|
|
|
42.9
|
|
|
General and administrative expenses
|
0.6
|
|
|
59.5
|
|
|
4.7
|
|
|
—
|
|
|
64.8
|
|
|
Interest expense (income), net
|
—
|
|
|
27.8
|
|
|
(15.2
|
)
|
|
—
|
|
|
12.6
|
|
|
Equity in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
|
—
|
|
|
(1.6
|
)
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
(Loss) income before income taxes
|
$
|
(0.6
|
)
|
|
$
|
72.6
|
|
|
$
|
(4.0
|
)
|
|
$
|
—
|
|
|
$
|
68.0
|
|
|
Benefit from (provision for) income taxes
|
0.2
|
|
|
(26.6
|
)
|
|
(1.0
|
)
|
|
—
|
|
|
(27.4
|
)
|
|
Net (loss) income before equity in income from subsidiaries
|
$
|
(0.4
|
)
|
|
$
|
46.0
|
|
|
$
|
(5.0
|
)
|
|
$
|
—
|
|
|
$
|
40.6
|
|
|
Equity in income from subsidiaries, net of tax
|
41.4
|
|
|
—
|
|
|
—
|
|
|
(41.4
|
)
|
|
—
|
|
|
Net income (loss)
|
$
|
41.0
|
|
|
$
|
46.0
|
|
|
$
|
(5.0
|
)
|
|
$
|
(41.4
|
)
|
|
$
|
40.6
|
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
Net income (loss) attributable to MasTec, Inc.
|
$
|
41.0
|
|
|
$
|
46.0
|
|
|
$
|
(4.7
|
)
|
|
$
|
(41.4
|
)
|
|
$
|
41.0
|
|
|
Comprehensive income (loss)
|
$
|
42.8
|
|
|
$
|
46.0
|
|
|
$
|
(3.2
|
)
|
|
$
|
(43.2
|
)
|
|
$
|
42.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
|
Revenue
|
$
|
—
|
|
|
$
|
878.1
|
|
|
$
|
96.1
|
|
|
$
|
—
|
|
|
$
|
974.2
|
|
|
Costs of revenue, excluding depreciation and amortization
|
—
|
|
|
777.2
|
|
|
107.2
|
|
|
—
|
|
|
884.4
|
|
|
Depreciation and amortization
|
—
|
|
|
31.3
|
|
|
7.7
|
|
|
—
|
|
|
39.0
|
|
|
General and administrative expenses
|
0.6
|
|
|
50.0
|
|
|
9.4
|
|
|
—
|
|
|
60.0
|
|
|
Interest expense (income), net
|
—
|
|
|
27.4
|
|
|
(15.2
|
)
|
|
—
|
|
|
12.2
|
|
|
Equity in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
|
—
|
|
|
(3.1
|
)
|
|
Other income, net
|
—
|
|
|
(11.3
|
)
|
|
(2.1
|
)
|
|
—
|
|
|
(13.4
|
)
|
|
(Loss) income before income taxes
|
$
|
(0.6
|
)
|
|
$
|
3.4
|
|
|
$
|
(7.8
|
)
|
|
$
|
—
|
|
|
$
|
(5.0
|
)
|
|
Benefit from (provision for) income taxes
|
0.2
|
|
|
(1.3
|
)
|
|
3.2
|
|
|
—
|
|
|
2.1
|
|
|
Net (loss) income before equity in losses from subsidiaries
|
$
|
(0.4
|
)
|
|
$
|
2.1
|
|
|
$
|
(4.6
|
)
|
|
$
|
—
|
|
|
$
|
(2.9
|
)
|
|
Equity in losses from subsidiaries, net of tax
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
|
Net (loss) income
|
$
|
(2.7
|
)
|
|
$
|
2.1
|
|
|
$
|
(4.6
|
)
|
|
$
|
2.3
|
|
|
$
|
(2.9
|
)
|
|
Net loss attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
Net (loss) income attributable to MasTec, Inc.
|
$
|
(2.7
|
)
|
|
$
|
2.1
|
|
|
$
|
(4.4
|
)
|
|
$
|
2.3
|
|
|
$
|
(2.7
|
)
|
|
Comprehensive (loss) income
|
$
|
(5.1
|
)
|
|
$
|
2.1
|
|
|
$
|
(7.0
|
)
|
|
$
|
4.7
|
|
|
$
|
(5.3
|
)
|
CONDENSED UNAUDITED CONSOLIDATING BALANCE SHEETS (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
—
|
|
|
$
|
1,116.0
|
|
|
$
|
194.7
|
|
|
$
|
(43.6
|
)
|
|
$
|
1,267.1
|
|
|
Property and equipment, net
|
—
|
|
|
474.5
|
|
|
96.0
|
|
|
—
|
|
|
570.5
|
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
1,034.4
|
|
|
138.0
|
|
|
—
|
|
|
1,172.4
|
|
|
Investments in and advances to consolidated affiliates, net
|
1,129.7
|
|
|
716.0
|
|
|
820.9
|
|
|
(2,666.6
|
)
|
|
—
|
|
|
Other long-term assets
|
12.6
|
|
|
26.3
|
|
|
66.9
|
|
|
—
|
|
|
105.8
|
|
|
Total assets
|
$
|
1,142.3
|
|
|
$
|
3,367.2
|
|
|
$
|
1,316.5
|
|
|
$
|
(2,710.2
|
)
|
|
$
|
3,115.8
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
—
|
|
|
$
|
742.5
|
|
|
$
|
114.4
|
|
|
$
|
(43.6
|
)
|
|
$
|
813.3
|
|
|
Long-term debt
|
—
|
|
|
874.0
|
|
|
19.4
|
|
|
—
|
|
|
893.4
|
|
|
Other long-term liabilities
|
—
|
|
|
249.6
|
|
|
11.8
|
|
|
—
|
|
|
261.4
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
1,866.1
|
|
|
$
|
145.6
|
|
|
$
|
(43.6
|
)
|
|
$
|
1,968.0
|
|
|
Total equity
|
$
|
1,142.3
|
|
|
$
|
1,501.1
|
|
|
$
|
1,170.9
|
|
|
$
|
(2,666.6
|
)
|
|
$
|
1,147.8
|
|
|
Total liabilities and equity
|
$
|
1,142.3
|
|
|
$
|
3,367.2
|
|
|
$
|
1,316.5
|
|
|
$
|
(2,710.2
|
)
|
|
$
|
3,115.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
—
|
|
|
$
|
1,256.3
|
|
|
$
|
175.8
|
|
|
$
|
(29.6
|
)
|
|
$
|
1,402.5
|
|
|
Property and equipment, net
|
—
|
|
|
456.6
|
|
|
92.5
|
|
|
—
|
|
|
549.1
|
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
1,037.4
|
|
|
138.2
|
|
|
—
|
|
|
1,175.6
|
|
|
Investments in and advances to consolidated affiliates, net
|
1,083.9
|
|
|
625.9
|
|
|
861.2
|
|
|
(2,571.0
|
)
|
|
—
|
|
|
Other long-term assets
|
12.6
|
|
|
25.3
|
|
|
18.0
|
|
|
—
|
|
|
55.9
|
|
|
Total assets
|
$
|
1,096.5
|
|
|
$
|
3,401.5
|
|
|
$
|
1,285.7
|
|
|
$
|
(2,600.6
|
)
|
|
$
|
3,183.1
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
—
|
|
|
$
|
759.7
|
|
|
$
|
109.9
|
|
|
$
|
(29.6
|
)
|
|
$
|
840.0
|
|
|
Long-term debt
|
—
|
|
|
938.7
|
|
|
22.7
|
|
|
—
|
|
|
961.4
|
|
|
Other long-term liabilities
|
—
|
|
|
256.2
|
|
|
21.9
|
|
|
—
|
|
|
278.1
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
1,954.6
|
|
|
$
|
154.5
|
|
|
$
|
(29.6
|
)
|
|
$
|
2,079.5
|
|
|
Total equity
|
$
|
1,096.5
|
|
|
$
|
1,446.9
|
|
|
$
|
1,131.2
|
|
|
$
|
(2,571.0
|
)
|
|
$
|
1,103.6
|
|
|
Total liabilities and equity
|
$
|
1,096.5
|
|
|
$
|
3,401.5
|
|
|
$
|
1,285.7
|
|
|
$
|
(2,600.6
|
)
|
|
$
|
3,183.1
|
|
CONDENSED UNAUDITED CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
|
Net cash provided by (used in) operating activities
|
$
|
—
|
|
|
$
|
166.5
|
|
|
$
|
(12.3
|
)
|
|
$
|
—
|
|
|
$
|
154.2
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(21.0
|
)
|
|
(7.9
|
)
|
|
—
|
|
|
(28.9
|
)
|
|
Proceeds from sale of property and equipment
|
—
|
|
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
0.5
|
|
|
Payments for other investments
|
—
|
|
|
—
|
|
|
(53.3
|
)
|
|
—
|
|
|
(53.3
|
)
|
|
Proceeds from other investments
|
—
|
|
|
—
|
|
|
12.1
|
|
|
—
|
|
|
12.1
|
|
|
Net cash used in investing activities
|
$
|
—
|
|
|
$
|
(20.6
|
)
|
|
$
|
(49.0
|
)
|
|
$
|
—
|
|
|
$
|
(69.6
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facilities
|
—
|
|
|
357.2
|
|
|
4.5
|
|
|
—
|
|
|
361.7
|
|
|
Repayments of credit facilities
|
—
|
|
|
(439.0
|
)
|
|
(8.1
|
)
|
|
—
|
|
|
(447.1
|
)
|
|
Repayments of other borrowings and capital lease obligations
|
—
|
|
|
(11.7
|
)
|
|
(2.6
|
)
|
|
—
|
|
|
(14.3
|
)
|
|
Payments of financing costs
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
|
—
|
|
|
(6.0
|
)
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
|
—
|
|
|
(1.3
|
)
|
|
Payments for stock-based awards, net
|
(0.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
Net financing activities and advances from (to) consolidated affiliates
|
0.8
|
|
|
(73.8
|
)
|
|
73.0
|
|
|
—
|
|
|
—
|
|
|
Net cash (used in) provided by financing activities
|
$
|
—
|
|
|
$
|
(173.3
|
)
|
|
$
|
65.5
|
|
|
$
|
—
|
|
|
$
|
(107.8
|
)
|
|
Effect of currency translation on cash
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
Net (decrease) increase in cash and cash equivalents
|
$
|
—
|
|
|
$
|
(27.4
|
)
|
|
$
|
4.3
|
|
|
$
|
—
|
|
|
$
|
(23.1
|
)
|
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
28.3
|
|
|
10.5
|
|
|
—
|
|
|
38.8
|
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
14.8
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
|
Net cash (used in) provided by operating activities
|
$
|
—
|
|
|
$
|
(5.3
|
)
|
|
$
|
21.2
|
|
|
$
|
—
|
|
|
$
|
15.9
|
|
|
Cash flows (used in) provided by investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
—
|
|
|
(12.2
|
)
|
|
(1.1
|
)
|
|
—
|
|
|
(13.3
|
)
|
|
Proceeds from sale of property and equipment
|
—
|
|
|
1.5
|
|
|
0.7
|
|
|
—
|
|
|
2.2
|
|
|
Payments for other investments
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
(1.5
|
)
|
|
Proceeds from other investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net cash used in investing activities
|
$
|
—
|
|
|
$
|
(10.7
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
—
|
|
|
$
|
(12.6
|
)
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facilities
|
$
|
—
|
|
|
$
|
286.8
|
|
|
$
|
48.9
|
|
|
$
|
—
|
|
|
$
|
335.7
|
|
|
Repayments of credit facilities
|
—
|
|
|
(270.5
|
)
|
|
(50.2
|
)
|
|
—
|
|
|
(320.7
|
)
|
|
Repayments of other borrowings and capital lease obligations
|
—
|
|
|
(16.3
|
)
|
|
(4.3
|
)
|
|
—
|
|
|
(20.6
|
)
|
|
Proceeds from (payments for) stock-based awards, net
|
2.0
|
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
Other financing activities, net
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
Net financing activities and advances (to) from consolidated affiliates
|
(2.0
|
)
|
|
13.6
|
|
|
(11.6
|
)
|
|
—
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
$
|
—
|
|
|
$
|
13.6
|
|
|
$
|
(17.2
|
)
|
|
$
|
—
|
|
|
$
|
(3.6
|
)
|
|
Effect of currency translation on cash
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(0.7
|
)
|
|
Net (decrease) increase in cash and cash equivalents
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
(1.1
|
)
|
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
4.8
|
|
|
0.3
|
|
|
—
|
|
|
5.0
|
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
3.9
|
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but are the intent, belief, or current expectations of our business and industry and the assumptions upon which these statements are based. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions or dispositions. Words such as “anticipates,” “expects,” “intends,” “will,” “could,” “would,” “should,” “may,” “plans,” “believes,” “seeks,” “estimates” and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
These risks and uncertainties include those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report and in our 2016 Form 10-K, including those described under “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors,” as updated by Item 1A, “Risk Factors” in this report and other filings we make with the SEC. Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance on forward-looking statements, which reflect management’s view only as of the date of this report. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.