NOTES TO 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, install-to-the-home and customer fulfillment activities; petroleum and natural gas pipeline infrastructure; electrical utility transmission and distribution; power generation; heavy civil; 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.
Principles of Consolidation
The accompanying 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 exercise control over 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. Certain prior year amounts have been reclassified to conform to the current period presentation.
Management determines whether each business entity in which it has equity interests, debt, or other investments constitutes 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 interests, among other factors. 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
December 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 their local currency as their 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 consolidated financial statements, “$” means U.S. dollars unless otherwise noted.
Management Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based on historical experience and various other assumptions, the results of which form the basis of making judgments about the Company’s operating results and the carrying values of assets and liabilities that are not readily apparent from other sources. 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; fair value estimates, including those related to business acquisitions, valuations of goodwill and intangible assets, acquisition-related contingent consideration and equity investments; asset lives used in computing depreciation and amortization; fair values of financial instruments; self-insurance liabilities; other accruals and allowances; income taxes; and the estimated effects 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
The following is a summary of significant accounting policies followed in the preparation of the accompanying consolidated financial statements.
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
36%
,
43%
and
48%
of consolidated revenue for the years ended
December 31, 2017
,
2016
and
2015
, 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 both the years ended
December 31, 2017
and
2016
, 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
and
2015
, respectively. 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 December 31, 2017 and 2016, the Company had approximately $146 million and $17 million, respectively, 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
December 31, 2017
and
2016
, these change orders were primarily related to contracts in the Oil and Gas segment. Revenue related to unapproved change orders totaled approximately
$142 million
and
$4 million
, respectively, for the years ended
December 31, 2017
and
2016
. 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.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management analyzes the collectibility of trade accounts receivable and the adequacy of the allowance for doubtful accounts on a regular basis taking into consideration the aging of account balances, historical bad debt experience, customer concentrations, customer credit-worthiness, customer financial condition and credit reports, availability of mechanics’ and other liens, existence of payment bonds and other sources of payment and the current economic environment. The Company establishes an allowance for doubtful accounts for anticipated losses of its business units when a business unit has historical experience of losses that are considered to be ordinary course. In addition, an allowance is established when it is probable that a specific receivable is not collectible and the loss can be reasonably estimated. Amounts are written off against the allowance when they are considered to be uncollectible.
If estimates of the collectibility of accounts receivable change, or should customers experience unanticipated financial difficulties, or if anticipated recoveries in existing bankruptcies or other work-out situations fail to materialize, additional allowances may be required. Estimates of collectibility are subject to significant change during times of economic weakness or uncertainty in either the overall economy or within the industries served by MasTec. Management actively monitors the economic environment and its impact on MasTec’s customers in connection with its evaluation of the Company’s accounts receivable portfolio and the adequacy of its allowance for doubtful accounts.
Cash and Cash Equivalents
Cash consisting of interest-bearing demand deposits is carried at cost, which approximates fair value. All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents, which are carried at fair value. On a daily basis, available funds are swept from the Company’s depository accounts into a concentration account and used to repay outstanding revolving loans under the Company’s senior secured credit facility. Cash balances maintained by certain operating subsidiaries and by entities that are proportionately consolidated that are not swept into the concentration account, as well as deposits made subsequent to the daily cash sweep, are classified as cash. Included in the Company’s cash balances as of
December 31, 2017
and
2016
are amounts held by entities that are proportionately consolidated totaling
$17.3 million
and
$7.7 million
, respectively. These amounts are available to support the operations of those entities, but are not available for the Company’s other operations. The Company generally does not fund its disbursement accounts for checks it has written until the checks are presented to the bank for payment.
Outstanding checks that have not yet cleared through the banking system represent book overdrafts, which are classified within accounts payable. There are no compensating balance requirements associated with the Company’s depository accounts and there are no other restrictions on the transfer of cash associated with the Company’s depository accounts. As of
December 31, 2017
and
2016
, book overdrafts totaled
$30.0 million
and
$39.9 million
, respectively.
Inventories
Inventories consist of materials and supplies for construction and installation projects, which are valued at the lower of cost or net realizable value using either the average cost or specific identification methods of costing. For materials or supplies purchased on behalf of specific customers or projects, loss of the customer or cancellation of the project could result in an impairment of the value of materials purchased. Technological or market changes can also render certain materials obsolete. Allowances for inventory obsolescence are determined based upon specific facts and circumstances and market conditions. As of
December 31, 2017
and
2016
, inventory obsolescence reserves were
$7.7 million
and
$3.5 million
, respectively.
Long-Lived Assets
The Company’s long-lived assets consist primarily of property and equipment and finite-lived intangible assets. Property and equipment are recorded at cost, or, if acquired in a business combination, at the acquisition date fair value. Certain costs incurred in connection with developing or obtaining internal-use software are capitalized within office furniture and equipment. Depreciation and amortization of long-lived assets is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the shorter of the term of the lease or the estimated useful lives of the improvements. Property and equipment under capital leases are depreciated over their estimated useful lives. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized and depreciated over the remaining useful lives of the assets. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal, with resulting gains or losses included in other income or expense. When the Company identifies assets to be sold, those assets are valued based on their estimated fair value less costs to sell, classified as held-for-sale and depreciation is no longer recorded. Estimated losses on disposal are included within other expense. Acquired intangible assets that have finite lives are amortized over their useful lives, which are generally based on contractual or legal rights. Finite-lived intangible assets are amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed.
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared with the asset’s carrying amount to determine if there has been an impairment, which is calculated as the difference between the fair value of an asset and its carrying value. Estimates of future undiscounted cash flows are based on expected growth rates for the business, anticipated future economic conditions and estimates of residual values. Fair values take into consideration management’s estimates of risk-adjusted discount rates, which are believed to be consistent with assumptions that marketplace participants would use in their estimates of fair value. Other than certain asset write-downs as discussed within “Restructuring Activities” within this Significant Accounting Policies section, for the three years in the period ended
December 31, 2017
, there were no material impairment charges associated with long-lived assets.
Goodwill and Indefinite-Lived Intangible Assets
The Company has goodwill and certain indefinite-lived intangible assets that have been recorded in connection with its acquisitions of businesses. Goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. The Company performs its annual impairment tests of goodwill and indefinite-lived intangible assets during the fourth quarter of each year, and on a quarterly basis, management monitors these assets for potential impairment triggers. Goodwill is required to be tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial information available; (ii) engage in business activities; and (iii) have a segment manager regularly review the component’s operating results. Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business based on the organizational structure of the combined entities. If two or more components are deemed economically similar, those components are aggregated into one reporting unit when performing the annual goodwill impairment review. Other than the Company’s Electrical Transmission operating segment, and, beginning in 2017,
one
reporting unit within the Company’s Power Generation and Industrial operating segment, each of the Company’s reporting units comprises
one
component. For each of the three years in the period ended
December 31, 2017
, the Company combined the components of its Electrical Transmission operating segment, and, for the year ended
December 31, 2017
, combined
two
components within the Power Generation and Industrial operating segment, into
one
reporting unit based on review of the components’ operations, which indicated economic similarities and shared operational, sales and general and administrative resources across those components.
For each of the three years in the period ended
December 31, 2017
, management performed a qualitative assessment for its goodwill and indefinite-lived intangible assets by examining relevant events and circumstances that could have an effect on their fair values, such as: macroeconomic conditions, industry and market conditions, entity-specific events, financial performance and other relevant factors or events that could affect earnings and cash flows.
2017 Assessment.
Based on the results of the qualitative assessments for the year ended
December 31, 2017
, quantitative testing was performed for the Company’s Electrical Transmission operating segment, for
one
reporting unit in the Company’s Power Generation and Industrial operating segment, and for
two
reporting units within the Oil and Gas operating segment due to a combination of lower than expected success rates on new project awards, certain market conditions, including market project deferrals, and reduced levels of operating productivity. For these reporting units, management performed a two-step quantitative goodwill impairment test.
Management estimated their respective fair values using a combination of market and income approaches. Under the market approach, fair values were estimated using published market multiples for comparable companies. Under the income approach, a discounted cash flow methodology was used, including: (i) management estimates, such as projections of revenue, operating costs and cash flows, taking into consideration historical and anticipated financial results; (ii) general economic and market conditions; and (iii) the impact of planned business and operational strategies. Estimated discount rates were determined using the Company’s average cost of capital at the time of the analysis, taking into consideration the risks inherent within each reporting unit individually, which are greater than the risks inherent in the Company
as a whole.
In 2017, significant assumptions used in testing the reporting units included terminal values based on a terminal growth rate of 3.5%, five to nine years of discounted cash flows prior to the terminal value, and discount rates ranging from 13.0% to 15.5%.
Management believes the assumptions used in its quantitative goodwill impairment tests are reflective of the risks inherent in the business models of its reporting units and within its industry.
Based on the results of the quantitative assessment, the estimated fair values of the Electrical Transmission operating segment and the reporting unit in the Power Generation and Industrial operating segment were determined to substantially exceed their carrying values. Additionally, the
two
reporting units in the Oil and Gas segment, which have approximately
$65 million
and
$15 million
of goodwill, had estimated fair values in excess of their carrying values by approximately
10%
and
19%
, respectively.
A 100 basis point increase in the discount rate would not have resulted in the reporting units’ carrying values exceeding their fair values.
Management also performed quantitative testing during 2017 for indefinite-lived pre-qualification intangible assets in the Oil and Gas and Electrical Transmission operating segments.
Management estimated the fair values of these intangible assets using a cost methodology, incorporating estimates of the opportunity cost associated with the assets’ loss based on discounted cash flows over a two to four-year period. The impairment tests incorporated estimated discount rates ranging from 13.0% to 14.0%.
Based on the results of this assessment, management determined that the estimated fair value of the indefinite-lived pre-qualification intangible asset in the Oil and Gas operating segment, which has a carrying value of approximately
$45 million
, exceeded its carrying value by approximately
19%
, and
a 100 basis point increase in the discount rate would not have resulted in this asset’s carrying value exceeding its fair value.
The estimated fair value of the indefinite-lived pre-qualification intangible asset in the Electrical Transmission operating segment was determined to substantially exceed its carrying value.
Management also performed quantitative testing during 2017 for an indefinite-lived trade name intangible asset in the Power Generation and Industrial operating segment.
Management estimated the fair value of the intangible asset using an income approach, incorporating estimates of discounted cash flows over a five-year period prior to the terminal value. The impairment test incorporated an estimated discount rate of 14%.
Based on the results of this assessment, management determined that the estimated fair value of the indefinite-lived trade name intangible asset in the Power Generation and Industrial operating segment substantially exceeded its carrying value.
2016 Assessment.
Based on the qualitative assessments for the year ended December 31, 2016, quantitative testing was performed for
two
reporting units within the Oil and Gas operating segment and for the Electrical Transmission operating segment. Management performed a two-step quantitative goodwill impairment test and estimated their respective fair values using a combination of market and income approaches. In 2016, significant assumptions used in testing the reporting units included terminal values based on terminal growth rates ranging from
3.0%
to
3.5%
,
nine
years of discounted cash flows prior to the terminal value, and discount rates ranging from
13.0%
to
14.5%
, which management believes were reflective of the risks inherent in the business models of its reporting units and within its industry.
In 2016, the estimated fair value of the Electrical Transmission operating segment exceeded its carrying value by approximately
5%
. A
100
basis point increase in the discount rate would have resulted in the Electrical Transmission operating segment carrying value exceeding fair value. As of
December 31, 2016
, the Electrical Transmission operating segment had approximately
$150 million
of goodwill. Additionally, as of
December 31, 2016
, for
one
of the reporting units in the Oil and Gas operating segment for which a quantitative impairment test was performed, the estimated fair value exceeded its carrying value by approximately
11%
, and a
100
basis point increase in the discount rate would not have resulted in the reporting unit’s carrying value exceeding its fair value. This reporting unit has approximately
$15 million
of goodwill. The estimated fair value of the other reporting unit in the Oil and Gas segment for which a quantitative impairment test was performed was determined to substantially exceed its carrying value.
Management also performed quantitative testing during 2016 for an indefinite-lived pre-qualification intangible asset in the Oil and Gas operating segment and for an indefinite-lived pre-qualification intangible asset in the Electrical Transmission operating segment. Management estimated fair values using a cost methodology, incorporating estimates of the opportunity cost associated with the assets’ loss based on discounted cash flows over a
two
to
three
-year period. The impairment tests incorporated estimated discount rates ranging from
13.0%
to
13.5%
. For the indefinite-lived pre-qualification intangible assets in the Oil and Gas and Electrical Transmission operating segments, the estimated fair values substantially exceeded their carrying values.
2015 Assessment.
Based on the qualitative assessments for the year ended December 31, 2015, quantitative testing was performed for
four
reporting units,
three
in the Oil and Gas operating segment and for the Electrical Transmission operating segment. Significant assumptions used in testing the reporting units included terminal values based on terminal growth rates ranging from
3.0%
to
3.5%
,
nine
years of discounted cash flows prior to the terminal value, and discount rates ranging from
12.0%
to
14.0%
.
In 2015, the estimated fair value of
one
reporting unit in the Oil and Gas operating segment was determined to be less than its carrying value and the second step of the goodwill impairment test was performed. The implied fair value of this reporting unit’s goodwill was compared with its carrying value and a pre-tax, non-cash impairment charge of
$68.5 million
was recorded for the difference. This reporting unit had
$11.2 million
of goodwill remaining at December 31, 2015.
In 2015, the estimated fair value of the Electrical Transmission operating segment exceeded its carrying value by approximately
5%
. A
100
basis point change in the discount rate would have resulted in the Electrical Transmission operating segment carrying value exceeding fair value. The estimated fair values of all other reporting units for which quantitative impairment tests were performed for the year ended December 31, 2015 were determined to substantially exceed their carrying values. A
100
basis point change in the discount rate would not have had a material impact on the results of these impairment tests as of the date the testing was performed.
Management also performed quantitative testing during 2015 for
two
indefinite-lived pre-qualification intangible assets within the Oil and Gas operating segment and
one
indefinite-lived pre-qualification intangible asset within the Electrical Transmission operating segment. Management estimated fair values using a cost methodology, incorporating estimates of the opportunity cost associated with the assets’ loss based on discounted cash flows over a
two
to
three
-year period. The impairment tests incorporated estimated discount rates ranging from
12.0%
to
14.0%
. For
one
of the indefinite-lived pre-qualification intangible assets within the Oil and Gas operating segment, the carrying value of the asset exceeded its estimated fair value and a pre-tax, non-cash impairment charge of
$10.1 million
was recorded for the difference. The adjusted carrying value of this pre-qualification asset was
approximately
$20.5 million
at December 31, 2015. For the other indefinite-lived pre-qualification assets for which quantitative testing was performed during 2015, the estimated fair values substantially exceeded their carrying values.
As of
December 31, 2017
and
2016
, management believes that its recorded balances of goodwill and indefinite-lived intangible assets are recoverable; however, significant changes in the assumptions or estimates used in the Company’s impairment analyses, such as a reduction in profitability and/or cash flows, could result in non-cash goodwill and indefinite-lived intangible asset impairment charges in future periods.
Valuation of Net Assets Acquired and Earn-Out Liabilities
The determination of the fair value of net assets acquired in a business combination requires estimates and judgments of future cash flow expectations for the acquired business and the related identifiable tangible and intangible assets. Fair values are calculated using expected cash flows and industry-standard valuation techniques. For current assets and current liabilities, book value is generally assumed to equal fair value. Goodwill is the amount by which consideration paid exceeds the fair value of acquired net assets. Acquisition costs, including acquisition integration costs, are expensed as incurred and are included within general and administrative expenses in the consolidated statements of operations.
Consideration paid generally consists of cash, common stock and potential future payments that are contingent upon the acquired business achieving certain levels of earnings in the future, also referred to as “acquisition-related contingent consideration” or “earn-out” payments. Earn-out liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded within other income or expense in the consolidated statements of operations. Fair value as of the date of acquisition is estimated based on projections of expected future cash flows of the acquired business. Subsequent to the date of acquisition, if future earn-out payments are expected to exceed earn-out payments estimated as of the date of acquisition, then a loss would be recognized in the period in which that expectation is considered probable. Conversely, if future earn-out payments are expected to be less than earn-out payments estimated as of the date of acquisition, a gain would be recognized in the period in which that expectation is considered probable. Acquisition-related contingent consideration is included within other current and other long-term liabilities, as appropriate, within the consolidated balance sheets.
Due to the time required to gather and analyze the necessary data for each acquisition, U.S. GAAP provides a “measurement period” of up to one year in which to finalize these fair value determinations. During the measurement period, preliminary fair value estimates may be revised if new information is obtained about the facts and circumstances existing as of the date of acquisition based on the final net assets and net working capital of the acquired business, as prescribed in the applicable purchase agreements. Such adjustments may result in the recognition of, or adjust the fair values of, acquisition-related assets and liabilities and/or consideration paid. For the year ended
December 31, 2017
, measurement period adjustments included certain adjustments to the preliminary estimates of intangible assets and acquisition-related contingent consideration, and resulted in a net increase of approximately
$2.7 million
in estimated goodwill for businesses acquired in 2017. Fair value adjustments resulting from circumstances that developed after the date of acquisition are reflected as income or expense, as appropriate, in the period the adjustment is considered probable.
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, equity investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration 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.
Deferred Financing Costs
Deferred financing costs relate to the Company’s debt instruments, the short and long-term portions of which are reflected as a deduction from the carrying amount of the related debt instrument, including the Company’s credit facility. Deferred financing costs are amortized over the terms of the related debt instruments using the effective interest method. For the year ended
December 31, 2017
,
deferred financing costs totaled
$6.3 million
. Deferred financing costs were de minimis in
2016
, and for the year ended
December 31, 2015
, totaled
$2.4 million
. Amortization expense associated with deferred financing costs, which is included within interest expense, net, totaled
$3.3 million
,
$3.2 million
and
$2.9 million
for the years ended
December 31, 2017
,
2016
and
2015
. Deferred financing costs, net of accumulated amortization, totaled
$13.0 million
and
$9.8 million
as of
December 31, 2017
and
2016
, respectively.
Self-Insurance
The Company is self-insured up to the amount of its deductible for its insurance policies. MasTec maintains insurance policies subject to per claim deductibles of
$1.5 million
for its workers’ compensation policy,
$3.0 million
for its general liability policy and
$3.0 million
for its automobile liability policy. The Company has excess umbrella coverage up to
$100.0 million
per claim and in the aggregate. Liabilities under these insurance programs are accrued based upon management’s estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported,
with assistance from third-party actuaries. MasTec also maintains an insurance policy with respect to employee group medical claims, which is subject to annual per employee maximum losses of
$0.5 million
. MasTec’s liability for employee group medical claims is based on statistical analysis of historical claims experience and specific knowledge of actual losses that have occurred. The Company is also required to post letters of credit and provide cash collateral to certain of its insurance carriers and to obtain surety bonds in certain states. Cash collateral deposited with insurance carriers is included in other long-term assets in the consolidated balance sheets.
The present value of the Company’s self-insurance liability is reflected in the consolidated balance sheets within current and other long-term liabilities, as appropriate. The determination of such claims and expenses and the appropriateness of the related liability is reviewed and updated quarterly, however, these insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the determination of the Company’s liability in proportion to other parties and the number of incidents not reported. Accruals are based upon known facts and historical trends. Although management believes its accruals are adequate, a change in experience or actuarial assumptions could materially affect the Company’s results of operations in a particular period.
Income Taxes
The Company records income taxes using the asset and liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequence of temporary differences between the financial statement and income tax basis of the Company’s assets and liabilities. Income taxes are estimated in each of the jurisdictions in which the Company operates. This process involves estimating the tax exposure, together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets as net long-term assets and/or liabilities, as appropriate. The recording of a deferred tax asset assumes the realization of such asset in the future. Otherwise, a valuation allowance is recorded to reduce the asset to its estimated net realizable value. If management determines that the Company may not be able to realize all or part of a deferred tax asset in the future, a valuation allowance for the deferred tax asset is charged to income tax expense in the period the determination is made. Management considers future pretax income and ongoing prudent and feasible tax planning strategies in assessing the estimated net realizable value of tax assets and the corresponding need for a valuation allowance.
The Company adopted Accounting Standards Update 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”) effective January 1, 2017, which changed the classification requirements for deferred tax assets and liabilities. 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 adoption of ASU 2015-17, which was adopted on a prospective basis, did not have a material effect on the Company’s consolidated financial statements.
In determining the provision for income taxes, management uses an effective tax rate based on annual pre-tax income, statutory tax rates, permanent tax differences and tax planning opportunities in the various jurisdictions in which the Company operates. Significant factors that affect the annual effective tax rate include management’s assessment of certain tax matters, the location and amount of taxable earnings, changes in certain non-deductible expenses and expected credits. In December 2017, the 2017 Tax Act was enacted, which includes broad tax reforms that are applicable to the Company. Under the provisions of the 2017 Tax Act, the U.S. corporate tax rate decreased from
35%
to
21%
effective January 1, 2018. As a result, the Company’s U.S. deferred income tax balances were required to be remeasured in
2017
. The Company completed an initial remeasurement of its deferred tax assets and liabilities as of
December 31, 2017
as a result of this new tax law, which resulted in a non-cash tax benefit of
$120.1 million
for the year ended
December 31, 2017
. The 2017 Tax Act significantly changes how the U.S. taxes corporations for years after 2017, and requires complex computations to be performed that were not previously required under U.S. tax law. The provisions of the 2017 Tax Act will require significant judgments and estimates to be made, and management’s interpretations of these provisions could differ from those of the U.S. Treasury Department or the IRS, which has yet to promulgate most regulations implementing the 2017 Tax Act. As management completes its analysis of the 2017 Tax Act, adjustments to the provisional amounts that have been recorded may be required, which could materially affect the Company’s provision for income taxes in the period of adjustment. As of
December 31, 2017
, the Company has
not
made a provision for U.S. income taxes on unremitted foreign earnings because such earnings are considered to be insignificant.
The Company and its subsidiaries file income tax returns in numerous tax jurisdictions, including U.S. federal, most U.S. states and certain foreign jurisdictions. Although management believes its calculations for tax returns are correct and the positions taken thereon are reasonable, the final outcome of income tax examinations could be materially different from the resolution management currently anticipates and the estimates that are reflected in the consolidated financial statements, which could materially affect the Company’s results of operations in a particular period. To the extent interest and penalties are assessed by taxing authorities, such amounts are accrued and included within income tax expense.
Stock-Based Compensation
The Company has certain stock-based compensation plans, under which restricted stock awards and restricted stock units (together “restricted shares”) are available for issuance to eligible employees and directors. Non-cash stock-based compensation expense is included within general and administrative expense in the consolidated statements of operations. Share-based payments, to the extent they are compensatory, are recognized based on their grant date fair values. Forfeitures are recorded as they occur. The Company records a deferred tax asset, or future tax benefit, based on the amount of share-based compensation recognized in the financial statements over the vesting period of share-based awards.
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, which changed the accounting for excess tax benefits and deficiencies, which represent the tax effect of differences between the fair value of a share-based award on the date of vesting and the date of grant. Under ASU 2016-09, excess tax benefits or tax deficiencies 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. Additionally, this ASU allowed companies to account for forfeitures of share-based payments as they occur, and 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 required to be presented as financing activities in the consolidated statements of cash flows. The provisions of ASU 2016-09 that were applicable to the Company were adopted on a prospective basis. The 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 excess tax benefits and deficiencies 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.
Grants of restricted shares are valued based on the closing market share price of MasTec’s common stock as reported on the New York Stock Exchange (the “market price”) on the date of grant. Compensation expense arising from restricted shares is recognized on a straight line basis over the vesting period. Grants of restricted shares have cliff vesting terms, which generally vest over a period of
3
years. Upon vesting of share-based awards, some of the underlying shares are generally sold to cover the required withholding taxes. However, some participants may choose the net share settlement method to cover withholding tax requirements, in which case shares are not issued, but are treated as common stock repurchases in the consolidated financial statements, as they reduce the number of shares that would have been issued upon vesting. The Company then pays the corresponding withholding taxes to the appropriate taxing authorities in cash on behalf of the recipient. In addition, shares have either been sold or withheld to cover withholding tax requirements and/or to cover the exercise price for past option exercises. Withheld shares, which are valued at the market price on the date of vesting or exercise, as applicable, are recorded as a reduction to additional paid-in capital and are reflected as a financing activity within the consolidated statements of cash flows. Shares withheld for employee taxes and the exercise price of options totaled approximately
138,519
,
44,988
, and
74,407
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. Total payments for employee tax obligations to taxing authorities for withheld shares were
$6.2 million
,
$0.6 million
and
$1.1 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
The Company has certain employee stock purchase plans under which shares of the Company’s common stock are available for purchase by eligible employees. These plans allow qualified employees to purchase MasTec, Inc. common stock at 85% of its fair market value at the lower of (i) the date of commencement of the offering period or (ii) the last day of the exercise period, as defined in the plan documents.
The fair value of purchases under the Company’s employee stock purchase plans is estimated using the Black-Scholes option-pricing valuation model.
The determination of fair value of stock-based awards using an option-pricing model is affected by the Company’s stock price as well as assumptions pertaining to several variables, including expected stock price volatility, the expected term of the award and the risk-free rate of interest. In the option-pricing model for the Company’s employee stock purchase plans, expected stock price volatility is based on historical volatility of the Company’s common stock. The expected term of the award is based on historical and expected exercise patterns and the risk-free rate of interest is based on U.S. Treasury yields. The Company has not paid dividends in the past, and does not anticipate paying dividends in the foreseeable future, and therefore uses an expected dividend yield of zero.
Collective Bargaining Agreements and Multiemployer Plans
Certain of MasTec’s subsidiaries, including certain subsidiaries in Canada, are party to various collective bargaining agreements with unions representing certain of their employees. These agreements require the subsidiaries party to the agreements to pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multiemployer pension and other multiemployer benefit plans and trusts (“MEPPs”). These contributions 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. The Pension Protection Act of 2006, as amended, (the “PPA”) requires pension plans that are underfunded to improve their funding ratios within prescribed intervals based on their level of underfunding, under which benefit reductions may apply and/or participating employers could be required to make additional contributions. In addition, if a multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service (the “IRS”) may impose on the employers contributing to such plan a non-deductible excise tax of 5% of the amount of the accumulated funding deficiency. Union payrolls cannot be determined for future periods because the number of union employees employed at any 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. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to the ones contained in the expiring agreements.
Under current law pertaining to employers that are contributors to U.S.-registered multiemployer defined benefit plans, a plan’s termination, an employer’s voluntary withdrawal from, or the mass withdrawal of contributing employers from, an underfunded multiemployer defined benefit plan requires participating employers to make payments to the plan for their proportionate share of the multiemployer plan’s unfunded vested liabilities. These liabilities include an allocable share of the unfunded vested benefits of the plan for all plan participants, not only for benefits payable to participants of the contributing employer. As a result, participating employers may bear a higher proportion of liability for unfunded vested benefits if the other participating employers cease to contribute to, or withdraw from, the plan. The allocable portion of liability to participating employers could be more disproportionate if employers that have withdrawn from the plan are insolvent, or if they otherwise fail to pay their proportionate share of the withdrawal liability. If the Company is subject to a withdrawal liability, the related withdrawal charge is recorded as a component of employee wages and salaries within costs of revenue, excluding depreciation and amortization, with any related liability recorded within other current and/or other long-term liabilities, as appropriate. The Company’s participation in the multiemployer pension plans is evaluated by management on an ongoing basis. See
Note 10
- Other Retirement Plans and
Note 14
- Commitments and Contingencies.
Restructuring Activities
From time to time, the Company may incur costs to streamline its business operations. These streamlining efforts, which are designed to improve profitability, could include eliminating service offerings that no longer fit into the Company’s business plan, certain integration activities for acquired businesses, reducing or eliminating services or operations that do not produce adequate revenue or margins, or reducing costs of business units that need margin improvements. The costs associated with these efforts, which we refer to as restructuring charges, include such items as employee separation costs, lease termination expenses and losses on disposal of excess fixed assets. When these efforts are related to circumstances that are significant, unique in nature and outside of the course of the Company’s normal and periodic business streamlining efforts, the related amount of restructuring charges included within the consolidated financial statements is aggregated and accompanied by a discussion of the nature of such restructuring activities.
Restructuring charges are included within the applicable line item(s) in the consolidated statement of operations based on the nature of the expense incurred. For the year ended
December 31, 2017
, restructuring charges were not material. For the year ended
December 31, 2016
, restructuring charges related to significant streamlining actions for the Company’s electrical transmission and certain of the Company’s western Canadian oil and gas operations consisted primarily of
$12.3 million
of employee separation and other restructuring-type costs, including lease termination expenses, which were included within general and administrative expenses, and
$2.9 million
of losses on the disposal of excess fixed assets, which were included within other expense. Liabilities associated with these restructuring activities totaled
$2.2 million
and
$5.7 million
as of
December 31, 2017
and
2016
, respectively, and were included within various current liability accounts. Assets classified as held-for-sale totaled
$1.1 million
as of
December 31, 2016
and were classified within other current assets.
Litigation and Contingencies
Accruals for litigation and contingencies are reflected in the consolidated financial statements based on management’s assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.
New Accounting Pronouncements
Accounting Pronouncements To Be Adopted in
2018
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In 2016 and 2017, the FASB issued several accounting standards updates to clarify certain topics within ASU 2014-09, and to update certain other topics within the Accounting Standards Codification (“ASC”) to conform with the new guidance in Topic 606.
The Company adopted ASU 2014-09, and its related ASUs, under the modified retrospective transition approach as of January 1, 2018, which applies to all new contracts initiated on or after January 1, 2018. For existing contracts that have not been substantially completed as of January 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s current revenue recognition practices will be recognized using a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2018.
The Company’s assessment of the effects of Topic 606 on its consolidated financial statements, financial statement disclosures, business processes, systems and controls included 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 Topic 606 as well as the information necessary to enable the preparation of the financial statements and related disclosures under the new standard, including its information technology capabilities and systems. Based on the Company’s review of its 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 Topic 606. Contracts recognized over time are typically comprised of a single performance obligation as the promise to transfer the individual goods or services is not distinct from other promises in the contract due to the significant integration services provided by the Company in connection with its contracts. For certain contracts governed by a master service or other service agreement, revenue will be recognized at the point in time when control has been transferred to the customer, which is generally when the work order has been fulfilled, as control is not continuously transferred to the customer as the services are provided.
Contract modifications are routine in the performance of the Company’s contracts and are typically evidenced by a change order. In most instances, change orders relate to adjustments to prices and the scope of services provided, which are not distinct from the scope of services in the original contract. Therefore, change orders will typically be accounted for on a cumulative catch-up basis under Topic 606, consistent with the Company’s current practice.
The Company’s future disclosures related to revenue recognition will include information about unsatisfied performance obligations and expectations of the timing of recognition for those obligations. The disclosure pertaining to unsatisfied performance obligations will be in addition to the Company’s existing unaudited backlog disclosure, which represents the amount of revenue the Company expects to recognize over the next
18
months. The future disclosure pertaining to unsatisfied performance obligations will include the full amount of any unsatisfied performance obligations, as compared with only the amount expected to be recognized over the next 18 months, and it will exclude estimates of future revenue under master service and other service agreements. Additionally, in the future, the Company’s disclosures will reflect the amount of contract assets and contract liabilities, as calculated on a by-contract basis.
Based on the Company’s evaluation of its systems and information technology capabilities, the Company does not expect to incur significant information technology costs to modify its systems to be able to achieve the preparation and disclosure requirements of the new standard, however, has implemented targeted changes to its internal reporting processes to facilitate gathering the data needed for the reporting and disclosure requirements. The Company also implemented a training program for its business units related to implementation of Topic 606 and continues to develop the required disclosures. The Company has also implemented updates to its control processes and procedures based on changes resulting from Topic 606.
The adoption of Topic 606 is not expected to have a material effect on the timing or amount of revenue recognized as compared to current practices, or to have a material effect on the Company’s internal controls over financial reporting. Based on review of existing contracts that have not been substantially completed as of January 1, 2018, the Company has estimated that the cumulative adjustment to beginning retained earnings resulting from the adoption of Topic 606 will not be material.
Other Accounting Pronouncements To Be Adopted in 2018
In January 2017, the FASB issued ASU
2017-04,
Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04 eliminates the second step in goodwill impairment testing, which requires that goodwill impairment losses be measured as the difference between the implied value of a reporting unit’s goodwill and its carrying amount. ASU 2017-04, which the Company early adopted as of January 1, 2018, is expected to reduce the cost and complexity of impairment testing by requiring goodwill impairment losses to be measured as the excess of the reporting unit’s carrying amount, including goodwill and related goodwill tax effects, over its fair value. Beginning in 2018, if the carrying value of a reporting unit’s goodwill exceeds its implied value, the resulting amount of goodwill impairment recorded in the Company’s consolidated financial statements could differ from the amount of goodwill impairment that would have been recorded prior to adoption of this ASU. Additionally, the FASB issued ASU
2017-01,
Business Combinations (Topic 805):
Clarifying the Definition of a Business
(“ASU 2017-01”) in January 2017. ASU 2017-01 changes the definition of a business for purposes of evaluating whether a transaction represents an acquisition (or disposal) of assets or a business. The revised definition of a business under ASU 2017-01 will reduce the number of transactions that are accounted for as business combinations. ASU 2017-01, which the Company adopted as of January 1, 2018, is not expected to have a material effect on the consolidated financial statements.
In May 2017, FASB issued ASU 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU 2017-09”). ASU 2017-09 clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. Limited and administrative modifications that do not change the value, vesting conditions, or classification of the award are exempt from following the modification guidance in Topic 718. This ASU, which the Company adopted as of January 1, 2018, is not expected to have a material effect on the consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16
, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
(“ASU 2016-16”), which eliminates the existing exception in U.S. GAAP prohibiting the recognition of the income tax consequences for intra-entity asset transfers. Under ASU 2016-16, entities will be required to recognize the income tax consequences of intra-entity asset transfers, other than for inventory, when the transfer occurs. ASU 2016-16, which the Company adopted as of January 1, 2018, will not have a material effect on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”) to reduce diversity in practice by providing guidance on the classification of certain cash receipts and payments in the statement of cash flows
. This ASU, which the Company adopted
as of January 1, 2018, is effective on a retrospective basis, and will result in the reclassification of certain types of activity in the consolidated statement of cash flows, as applicable to the prior year periods, beginning in 2018. For the year ended December 31, 2017, acquisition-related contingent consideration payments in excess of acquisition date liabilities totaling approximately
$12 million
will be reclassified from financing to operating cash flows. Proceeds from the settlement of insurance claims related to damaged property and equipment, which are required to be reclassified from operating to investing cash flows, were not material for the years ended December 31, 2017, 2016 or 2015. The other provisions of this ASU are not expected to have a material effect on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”), which provides guidance for the recognition, measurement, presentation and disclosure of financial assets and financial liabilities.
ASU 2016-01 requires equity investments with readily determinable fair values, except for those accounted for under the equity method of accounting or those that are consolidated, to be measured at fair value with changes in fair value recognized in net income. Equity investments that do not have readily determinable fair values are permitted to be remeasured upon the occurrence of an observable price change or upon identification of an impairment. ASU 2016-01 also requires enhanced disclosures for such investments and modifies certain other disclosure requirements. This ASU, which the Company adopted as of January 1, 2018, is effective on a modified retrospective basis, with exception for the amendments related to equity investments without readily determinable fair values, which is effective prospectively. The adoption of ASU 2016-01 may result in volatility in other income (expense), net, as a result of the remeasurement requirements for equity investments; however, the Company does not expect such changes to be material. The other components of this ASU are not expected to have a material effect on the Company’s consolidated financial statements.
Other Recent Accounting Pronouncements
In February 2018, the FASB issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic
220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(“ASU 2018-02”)
.
ASU 2018-02 permits entities to reclassify the tax effects related to the change in the federal tax rate as a result of the 2017 Tax Act from accumulated other comprehensive income to retained earnings. The guidance may be applied retrospectively or in the period of adoption. ASU 2018-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect of this ASU on its consolidated financial statements.
In August 2017, the FASB issued ASU
2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
(“ASU 2017-12”). ASU 2017-12 amends the hedge accounting model in Topic 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also simplifies certain documentation and assessment requirements. ASU 2017-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption and their effects should
be reflected as of the beginning of the fiscal year of adoption. The presentation and disclosure requirements are effective on a prospective basis. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Subtopic 842)
(“ASU 2016-02”). ASU 2016-02 provides revised guidance for lease accounting and related disclosure requirements, including a requirement for lessees to recognize lease assets and lease liabilities for certain operating leases. Under the previous guidance, lessees were not required to recognize assets and liabilities for operating leases on the balance sheet. ASU 2016-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Modified retrospective application is required for all relevant prior periods. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements, including the potential amount of incremental lease assets and liabilities that are expected to be recognized upon adoption.
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 or loss 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. 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, whereas under previous guidance, such amounts were included within assumed proceeds. For the year ended
December 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 Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Net income (loss) attributable to MasTec:
|
|
|
|
|
|
Net income (loss) - basic and diluted
(a)
|
$
|
347,213
|
|
|
$
|
131,263
|
|
|
$
|
(79,110
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
80,903
|
|
|
80,372
|
|
|
80,489
|
|
Dilutive common stock equivalents
|
1,422
|
|
|
1,022
|
|
|
—
|
|
Weighted average shares outstanding - diluted
|
82,325
|
|
|
81,394
|
|
|
80,489
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
Weighted average anti-dilutive common stock equivalents
(b)
|
—
|
|
|
31
|
|
|
564
|
|
|
|
(a)
|
Calculated as total net income (loss) less amounts attributable to non-controlling interests.
|
|
|
(b)
|
For the year ended December 31, 2016, represents anti-dilutive common stock equivalents as calculated under the treasury stock method, and, for the year ended December 31, 2015, represents anti-dilutive common stock equivalents due to the Company having reported a net loss.
|
Note 3
- Goodwill and Other Intangible Assets
The following table provides a reconciliation of changes in goodwill by reportable segment for the periods indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
Oil and Gas
|
|
Electrical Transmission
|
|
Power Generation and Industrial
|
|
Total Goodwill
|
Goodwill, gross, as of December 31, 2015
|
$
|
414.9
|
|
|
$
|
374.6
|
|
|
$
|
149.9
|
|
|
$
|
117.6
|
|
|
$
|
1,057.0
|
|
Accumulated impairment loss
(a)
|
—
|
|
|
(68.5
|
)
|
|
—
|
|
|
—
|
|
|
(68.5
|
)
|
Goodwill, net, as of December 31, 2015
|
$
|
414.9
|
|
|
$
|
306.1
|
|
|
$
|
149.9
|
|
|
$
|
117.6
|
|
|
$
|
988.5
|
|
Accruals of acquisition-related contingent consideration, net
(b)
|
5.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
Currency translation adjustments
|
—
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
Goodwill, net, as of December 31, 2016
|
$
|
420.7
|
|
|
$
|
307.7
|
|
|
$
|
149.9
|
|
|
$
|
117.6
|
|
|
$
|
995.9
|
|
Additions from new business combinations
|
45.7
|
|
|
74.1
|
|
|
—
|
|
|
18.2
|
|
|
138.0
|
|
Currency translation adjustments
|
—
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
Goodwill, net, as of December 31, 2017
|
$
|
466.4
|
|
|
$
|
385.6
|
|
|
$
|
149.9
|
|
|
$
|
135.8
|
|
|
$
|
1,137.7
|
|
Accumulated impairment loss
(a)
|
—
|
|
|
(74.8
|
)
|
|
—
|
|
|
—
|
|
|
(74.8
|
)
|
Goodwill, gross, as of December 31, 2017
|
$
|
466.4
|
|
|
$
|
460.4
|
|
|
$
|
149.9
|
|
|
$
|
135.8
|
|
|
$
|
1,212.5
|
|
|
|
(a)
|
Accumulated impairment losses include the effect of currency translation gains and/or losses.
|
|
|
(b)
|
Represents contingent consideration for acquisitions prior to January 1, 2009, which is accrued as incurred, in accordance with U.S. GAAP.
|
The following table provides a reconciliation of changes in other intangible assets for the periods 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, 2015
|
$
|
34.8
|
|
|
$
|
73.4
|
|
|
$
|
195.4
|
|
|
$
|
25.7
|
|
|
$
|
329.3
|
|
Accumulated amortization
|
|
|
|
|
(114.6
|
)
|
|
(15.3
|
)
|
|
(129.9
|
)
|
Other intangible assets, net, as of December 31, 2015
|
$
|
34.8
|
|
|
$
|
73.4
|
|
|
$
|
80.8
|
|
|
$
|
10.4
|
|
|
$
|
199.4
|
|
Amortization expense
|
|
|
|
|
(17.9
|
)
|
|
(3.4
|
)
|
|
(21.3
|
)
|
Currency translation adjustments
|
—
|
|
|
1.2
|
|
|
0.3
|
|
|
0.1
|
|
|
1.6
|
|
Other activity
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
Other intangible assets, net, as of December 31, 2016
|
$
|
34.5
|
|
|
$
|
74.6
|
|
|
$
|
63.2
|
|
|
$
|
7.4
|
|
|
$
|
179.7
|
|
Additions from new business combinations
|
—
|
|
|
—
|
|
|
26.3
|
|
|
2.5
|
|
|
28.8
|
|
Amortization expense
|
|
|
|
|
(19.3
|
)
|
|
(1.6
|
)
|
|
(20.9
|
)
|
Currency translation adjustments
|
—
|
|
|
3.0
|
|
|
0.4
|
|
|
0.1
|
|
|
3.5
|
|
Other intangible assets, net, as of December 31, 2017
|
$
|
34.5
|
|
|
$
|
77.6
|
|
|
$
|
70.6
|
|
|
$
|
8.4
|
|
|
$
|
191.1
|
|
Remaining weighted average amortization period (in years)
|
|
|
|
|
|
9
|
|
8
|
|
9
|
|
|
(a)
|
Consists principally of trade names and non-compete agreements.
|
Amortization expense associated with intangible assets for the years ended
December 31, 2017
,
2016
and
2015
totaled
$20.9 million
,
$21.3 million
and
$28.4 million
, respectively. Expected future amortization expense as of
December 31, 2017
is summarized in the following table (in millions):
|
|
|
|
|
|
Amortization
Expense
|
2018
|
$
|
19.5
|
|
2019
|
13.4
|
|
2020
|
11.0
|
|
2021
|
8.4
|
|
2022
|
6.9
|
|
Thereafter
|
19.8
|
|
Total
|
$
|
79.0
|
|
2017 Acquisitions.
During the year ended December 31, 2017, MasTec completed
three
acquisitions, which included all of the equity interests in: (i)
a wireline/fiber deployment construction contractor
, which is included in the Company’s Communications segment; (ii)
a heavy civil construction services company
, which is included in the Company’s Power Generation and Industrial segment, and (iii)
an oil and gas pipeline equipment company
, which is included in the Company’s Oil and Gas segment. Determination of the estimated fair values of the net assets acquired and the estimated earn-out liabilities for these acquisitions is preliminary as of
December 31, 2017
, and further adjustments to these estimates may occur.
The following table summarizes the estimated fair values of consideration paid and net assets acquired as of the respective dates of acquisition, as adjusted (in millions):
|
|
|
|
|
Acquisition consideration:
|
2017
|
Cash
|
$
|
117.9
|
|
Fair value of contingent consideration (earn-out liability)
|
93.5
|
|
Total consideration transferred
|
$
|
211.4
|
|
Identifiable assets acquired and liabilities assumed:
|
|
Current assets, primarily composed of accounts receivable and $2.8 million of cash acquired
|
$
|
42.7
|
|
Property and equipment
|
56.7
|
|
Amortizing intangible assets
|
28.8
|
|
Other long-term assets
|
0.5
|
|
Current liabilities, including current portion of capital lease obligations and long-term debt
|
(29.2
|
)
|
Long-term debt, including capital lease obligations
|
(9.9
|
)
|
Deferred income taxes
|
(16.2
|
)
|
Total identifiable net assets
|
$
|
73.4
|
|
Goodwill
|
$
|
138.0
|
|
Total net assets acquired, including goodwill
|
$
|
211.4
|
|
Amortizing intangible assets related to the 2017 acquisitions are primarily composed of customer relationships, backlog and other amortizing intangible assets, which had weighted average lives of approximately
11
years,
4
years and
7
years, respectively, and a weighted average life of
10
years in total, and will be amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed.
The goodwill balances for the respective acquisitions represent the estimated value of each acquired company’s geographic presence in key markets, its assembled workforce and management team industry-specific project management expertise, as well as synergies expected to be achieved from the combined operations of the acquired companies and MasTec.
Approximately
$75 million
of the acquired goodwill balance as of December 31, 2017 is expected to be tax deductible.
The contingent consideration included in the table above equals the acquired companies’ earnings before interest, taxes, depreciation and amortization (“EBITDA”) above certain thresholds, if applicable, for a period of five years, as set forth in the respective purchase agreements, which amounts are payable annually.
The fair values of the earn-out liabilities were estimated using income approaches such as discounted cash flows or option pricing models and incorporate significant inputs not observable in the market.
Key assumptions in the estimated valuations include the discount rate and probability-weighted EBITDA projections.
Significant changes in any of these assumptions could result in a significantly higher or lower potential earn-out liability. As of
December 31, 2017
, the range of potential undiscounted earn-out liabilities for the 2017 acquisitions was estimated to be between
$9 million
and
$185 million
; however,
there is no maximum payment amount
.
For the years ended
December 31, 2017
and
2016
, unaudited pro forma revenue totaled approximately
$6,680.2 million
and
$5,320.1 million
, respectively, and unaudited pro forma net income totaled approximately
$354.9 million
and
$140.0 million
, respectively.
The above indicated unaudited pro forma financial results, which represent the results of operations of the companies acquired as if the acquired companies had been consolidated as of January 1, 2016, are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods indicated, or of the results that may be achieved by the combined companies in the future. The unaudited supplemental pro forma financial results have been prepared by adjusting the historical results of MasTec to include the historical results of the acquired businesses described above, and then adjusted (i) to remove acquisition costs; (ii) to increase amortization expense resulting from the acquired intangible assets; (iii) to increase interest expense as a result of the cash consideration paid; (iv) to reduce interest
expense from debt repaid upon acquisition; and (iv) to eliminate the effects of intercompany transactions. These unaudited supplemental pro forma financial results do not include adjustments to reflect other cost savings or synergies that may have resulted from these acquisitions.
Future results may vary significantly due to future events and transactions, as well as other factors, many of which are beyond MasTec’s control.
For the years ended
December 31, 2017
, acquisition-related results included in the Company’s consolidated results of operations included revenue of approximately
$160.1 million
and net income of approximately
$10.2 million
, based on the consolidated effective tax rate including the effect of the 2017 Tax Act. These acquisition-related results do not include the effects of acquisition costs or interest expense associated with consideration paid for the related acquisitions.
Note 4
- Fair Value of Financial Instruments
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of
December 31, 2017
and
2016
, financial instruments required to be measured at fair value on a recurring basis consisted primarily of acquisition-related contingent consideration, or “earn-out” liabilities, which represents the estimated fair value of future amounts payable for acquisitions of businesses and other interests. Acquisition-related contingent consideration liabilities are based on management estimates and entity-specific assumptions, which are Level 3 inputs, and are evaluated on an ongoing basis. As of
December 31, 2017
and
2016
, the estimated fair value of the Company’s earn-out liabilities totaled
$117.2 million
and
$45.8 million
, respectively, of which
$22.6 million
and
$21.8 million
, respectively, was included within other current liabilities.
The fair value of the Company’s earn-out liabilities is estimated using income approaches such as discounted cash flows or option pricing models and incorporates significant inputs not observable in the market.
Key assumptions include the discount rate and probability-weighted EBITDA projections.
Significant changes in any of these assumptions could result in a significantly higher or lower potential earn-out liability. As of
December 31, 2017
, the range of potential undiscounted earn-out liabilities was estimated to be between
$22.0 million
and
$204.8 million
; however,
there is no maximum payment amount
.
Acquisition-related contingent consideration activity consists primarily of: additions from new business combinations and acquisitions of other interests; payments of acquisition-related contingent consideration; changes in the expected fair value of future earn-out obligations; and, for earn-out liabilities denominated in foreign currencies, translation gains or losses. Fair value adjustments for earn-out liabilities are recorded within other income or expense, as appropriate, and foreign currency translation activity is recorded within other comprehensive income or loss, as appropriate.
For the year ended
December 31, 2017
, additions from acquisitions of businesses and other interests totaled
$102.5 million
. Acquisition-related contingent consideration payments totaled approximately
$18.8 million
,
$15.8 million
and
$40.5 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. For the years ended
December 31, 2017
and
2016
, foreign currency translation activity was de minimis, and foreign currency translation gains totaled
$8.0 million
for the year ended
December 31, 2015
. In
2017
, the Company recognized a reduction in the estimated fair value of future earn-out obligations of
$12.3 million
for certain acquired businesses in the Communications and Electrical Transmission segments. In
2016
, the Company recognized a net increase in the estimated fair value of future earn-out obligations of
$2.7 million
for certain acquired businesses in the Oil and Gas segment, partially offset by a reduction for certain other acquired businesses in the Oil and Gas and Communications segments upon finalization of the related earn-out arrangements. In
2015
, the Company recognized a net reduction of
$39.2 million
for earn-out obligations in the Oil and Gas, Electrical Transmission and Communications segments, of which
$20.1 million
related to finalization of earn-out arrangements and adjustments to the expected future earn-out obligations of certain acquired businesses, and of which
$19.1 million
was offset with a corresponding receivable amount.
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 equity investments, life insurance assets, long-lived assets, goodwill, other intangible assets and debt.
As of both
December 31, 2017
and
2016
, the gross carrying amount of the Company’s
4.875%
Senior Notes totaled
$400 million
. As of
December 31, 2017
and
2016
,
the estimated fair value of the 4.875% Senior Notes, based on quoted market prices in active markets, a Level 1 input
, totaled
$410.0 million
and
$388.0 million
, respectively.
Cost and Equity Investees.
The Company’s cost and equity investees as of
December 31, 2017
include: (i) the Company’s
33%
equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) a
$15 million
cost investment in Cross Country Infrastructure Services, Inc. (“CCI,” previously, Cross Country Pipeline Supply, Inc.); (iii) the Company’s interests in its proportionately consolidated non-controlled contractual joint ventures; (iv) the Company’s equity interests in Pensare Acquisition Corp. (“Pensare”); and (v) certain other cost and equity method investments. See below and
Note 15
- Related Party Transactions.
The fair values of the Company’s cost and equity method investments are not readily observable. Equity investments are reviewed for impairment by assessing whether there has been a decline in the fair value of the investment below the carrying value, and whether that decline is considered to be other than temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain future earnings capacity are considered. 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 or equity method investments as of
December 31, 2017
or
2016
. Cumulative undistributed earnings from the Company’s significant equity method investees totaled
$16.9 million
as of
December 31, 2017
.
The Waha JVs.
The Waha JVs own and operate
two
pipelines and a header system that transport natural gas to the Mexican border for export. These pipelines, which interconnect with pipelines in Mexico, commenced operations in 2017. For the years ended
December 31, 2017
and
2016
, the Company made equity and other contributions to these joint ventures of approximately
$73 million
and
$27 million
, respectively, and for the year ended December 31, 2015, the Company made
no
net contributions. As collateral for its equity commitments in the Waha JVs, the Company has issued letters of credit (the “Equity LC Amount”), of which
$19 million
and
$91 million
, respectively, were outstanding as of
December 31, 2017
and
2016
.
Equity in earnings related to the Company’s proportionate share of income from the Waha JVs, which is included within the Company’s Other
segment, totaled approximately
$21.3 million
for the year ended
December 31, 2017
, and for the year ended
December 31, 2016
, was de minimis. For the year ended
December 31, 2015
, the Company’s proportionate share of losses totaled
$4.4 million
and related to the Waha JVs interest rate swaps. The Company’s net investment in the Waha JVs totaled approximately
$121 million
and
$6 million
as of
December 31, 2017
and
2016
, 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 effect of intercompany eliminations. Beginning in 2016, certain subsidiaries of MasTec provided pipeline construction services to the Waha JVs. For the years ended
December 31, 2017
and
2016
, revenue recognized in connection with work performed for the Waha JVs, including intercompany eliminations, totaled
$256.1 million
and
$245.0 million
, respectively. Related receivables, including retainage, net of BIEC, totaled
$2.8 million
and
$71.2 million
as of
December 31, 2017
and
2016
, respectively.
TPP and CTP are party to separate non-recourse financing facilities, which are each secured by pledges of the equity interests in the respective entities, as well as a first lien security interest over virtually all of TPP’s and CTP’s assets. The Waha JVs are also party to certain interest rate swaps, which, beginning in 2016, have been accounted for as qualifying cash flow hedges. The Company reflects its proportionate share of any unrealized fair market value gains or losses from fluctuations in interest rates associated with these swaps within other comprehensive income or loss, as appropriate. For the years ended
December 31, 2017
and
2016
, the Company’s proportionate share of unrecognized unrealized activity on these interest rate swaps were gains of approximately
$0.8 million
and
$6.4 million
, respectively, or
$0.5 million
and
$4.0 million
, respectively, net of tax. For the year ended December 31, 2015, the Company’s proportionate share of unrealized losses from these swaps totaling
$4.4 million
was included within equity in (earnings) losses of unconsolidated affiliates.
Other investments
. During the third quarter of 2017, the Company paid
$2.0 million
for approximately
4%
of the common stock of Pensare and warrants to purchase
2.0 million
shares of Pensare common stock, which is a special purpose acquisition company focusing on transactions in the telecommunications industry. The shares of common stock purchased by MasTec are not transferable or salable until
one year
after Pensare successfully completes a business combination transaction, with limited exceptions, as specified in the agreement. The warrants purchased by MasTec are exercisable at a purchase price of
$11.50
per share after Pensare successfully completes a business combination. Both the warrants and shares expire and/or are effectively forfeitable if Pensare does not successfully complete a business combination by February 1, 2019. The warrants, which are derivative financial instruments, and the shares, which are a cost method investment, are included within other long-term assets in the Company’s consolidated financial statements as of
December 31, 2017
. The fair value of the warrants, as determined based on Level 3 inputs, approximated their cost basis as of
December 31, 2017
. The fair value of the shares is not readily determinable due to the nature of the restrictions. José R. Mas, MasTec’s Chief Executive Officer, is a director of Pensare.
In connection with the 2014 acquisition of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”), the Company acquired equity interests in
two
joint ventures. As of March 2016,
all
related project work had been completed.
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 Company received
$22.5 million
of proceeds from the receiver in 2017. The remaining investment, for which the Company has minimal involvement, is reviewed regularly by corporate management for potential changes in expected recovery estimates. For the years ended
December 31, 2017
and
2016
, the Company recorded
$0.4 million
of expense and
$3.6 million
of income, respectively, related to changes in expected recovery amounts. The net carrying value, which is included within other current assets, totaled
$9.6 million
and
$31.4 million
as of
December 31, 2017
and
2016
, respectively. In 2016 and 2015, Pacer performed construction services on behalf of these entities and recognized revenue totaling
$0.6 million
and
$2.9 million
, respectively, for the years ended
December 31, 2016
and
2015
.
Summarized Financial Information of Equity Method Investments
The following presents summarized information for the Company’s significant equity method investments (in millions):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Current assets
|
$
|
136.8
|
|
|
$
|
89.5
|
|
Long-term assets
|
1,306.3
|
|
|
1,126.5
|
|
Total assets
|
$
|
1,443.1
|
|
|
$
|
1,216.0
|
|
|
|
|
|
Current liabilities
|
$
|
121.2
|
|
|
$
|
153.6
|
|
Long-term liabilities
|
976.5
|
|
|
986.0
|
|
Total liabilities
|
$
|
1,097.7
|
|
|
$
|
1,139.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Revenue
|
$
|
114.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss)
|
$
|
64.5
|
|
|
$
|
(0.2
|
)
|
|
$
|
(13.3
|
)
|
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):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Contract billings
|
$
|
683.9
|
|
|
$
|
564.2
|
|
Retainage
|
323.1
|
|
|
268.6
|
|
Costs and earnings in excess of billings
|
599.2
|
|
|
331.6
|
|
Accounts receivable, gross
|
$
|
1,606.2
|
|
|
$
|
1,164.4
|
|
Less allowance for doubtful accounts
|
(8.2
|
)
|
|
(8.4
|
)
|
Accounts receivable, net
|
$
|
1,598.0
|
|
|
$
|
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.
Activity in the allowance for doubtful accounts for the periods indicated is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
Allowance for doubtful accounts at beginning of year
|
$
|
8.4
|
|
|
$
|
7.7
|
|
Provision for doubtful accounts
|
2.6
|
|
|
2.9
|
|
Amounts charged against the allowance
|
(2.8
|
)
|
|
(2.2
|
)
|
Allowance for doubtful accounts at end of year
|
$
|
8.2
|
|
|
$
|
8.4
|
|
The Company is party to non-recourse financing arrangements in the ordinary course of business, under which certain receivables are settled with the customer’s bank in return for a nominal fee. These arrangements, under which amounts can vary based on levels of activity and changes in customer payment terms, improve the collection cycle time of the related receivables. Cash collected from this arrangement is reflected within cash provided by operating activities in the consolidated statements of cash flows. The discount charge, which is included within interest expense, net, totaled approximately
$6.0 million
,
$2.7 million
and
$1.6 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
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):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
Estimated Useful Lives
(in years)
|
Land
|
$
|
4.6
|
|
|
$
|
4.6
|
|
|
|
Buildings and leasehold improvements
|
26.7
|
|
|
24.2
|
|
|
3-40
|
Machinery and equipment
|
1,261.9
|
|
|
997.8
|
|
|
2-20
|
Office furniture and equipment
|
149.9
|
|
|
146.1
|
|
|
3-7
|
Construction in progress
|
12.5
|
|
|
9.5
|
|
|
|
Total property and equipment
|
$
|
1,455.6
|
|
|
$
|
1,182.2
|
|
|
|
Less accumulated depreciation and amortization
|
(749.1
|
)
|
|
(633.1
|
)
|
|
|
Property and equipment, net
|
$
|
706.5
|
|
|
$
|
549.1
|
|
|
|
The gross amount of capitalized internal-use software, which is included within office furniture and equipment, totaled
$109.9 million
and
$107.8 million
as of
December 31, 2017
and
2016
, respectively. Capitalized internal-use software, net of accumulated amortization, totaled
$23.5 million
and
$30.9 million
as of
December 31, 2017
and
2016
, respectively. Depreciation and amortization expense associated with property and equipment for the years ended
December 31, 2017
,
2016
and
2015
totaled
$167.2 million
,
$143.6 million
and
$141.3 million
, respectively.
Note 7
- Debt
The following table provides details of the carrying values of debt as of the dates indicated (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Description
|
|
Maturity Date
|
|
2017
|
|
2016
|
Senior secured credit facility:
|
|
February 22, 2022
|
|
|
|
|
Revolving loans
|
|
$
|
377.7
|
|
|
$
|
279.9
|
|
Term loan
|
|
396.9
|
|
|
237.5
|
|
4.875% Senior Notes
|
|
March 15, 2023
|
|
400.0
|
|
|
400.0
|
|
Capital lease obligations, weighted average interest rate of 3.5%
|
|
In installments through September 1, 2022
|
|
181.2
|
|
|
98.6
|
|
Other debt obligations
|
|
Varies
|
|
25.8
|
|
|
19.8
|
|
Total long-term debt obligations
|
|
$
|
1,381.6
|
|
|
$
|
1,035.8
|
|
Less unamortized deferred financing costs
|
|
(13.0
|
)
|
|
(9.8
|
)
|
Total debt, net of deferred financing costs
|
|
$
|
1,368.6
|
|
|
$
|
1,026.0
|
|
Current portion of long-term debt
|
|
87.9
|
|
|
64.6
|
|
Long-term debt
|
|
$
|
1,280.7
|
|
|
$
|
961.4
|
|
Senior Secured Credit Facility
The Company has a senior secured credit facility (the “Credit Facility”), which was last amended and restated in February 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 was initially composed of
$1.1 billion
of revolving commitments and a term loan in the aggregate principal amount of
$400 million
. The 2017 Credit Facility matures on
February 22, 2022
. Under the amended and restated Credit Facility, the term loan is subject to amortization in
quarterly
principal installments. The initial installment of
$3.1 million
was paid in December 2017. Beginning in March 2018, the quarterly installment will be
$5.0 million
. The quarterly principal installments are subject to adjustment for additional term loans and, if applicable, for certain prepayments.
The 2017 Credit Facility allows the Company to 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 equity investments, potential 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
December 31, 2017
and
2016
, outstanding revolving loans, which included
$117 million
and
$119 million
, respectively, of borrowings denominated in foreign currencies, accrued interest at weighted average rates of approximately
3.69%
and
3.71%
per annum, respectively. The term loan accrued interest at a rate of
3.07%
and
2.77%
as of
December 31, 2017
and
2016
, respectively. Letters of credit of approximately
$157.1 million
and
$314.3 million
were issued as of
December 31, 2017
and
2016
, respectively. As of
December 31, 2017
and
2016
, letters of credit fees accrued at
0.625%
and
1.00%
per annum, respectively, for performance standby letters of credit, and at
1.50%
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
December 31, 2017
and
2016
, availability for revolving loans totaled
$565.2 million
and
$405.9 million
, respectively, or up to
$492.9 million
and
$335.7 million
, respectively, for new letters of credit. Revolving loan borrowing capacity included
$183.4 million
and
$80.9 million
of availability in either Canadian dollars or Mexican pesos as of
December 31, 2017
and
2016
, respectively. The unused facility fee as of
December 31, 2017
and
2016
accrued at a rate of
0.25%
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. Under the Credit Facility, if the “Loan Party EBITDA,” as defined in the Credit Facility, as of the last four consecutive fiscal quarters does not represent at least 70% of the “Adjusted Consolidated EBITDA,” as defined in the Credit Facility, for such period, then the Company must designate additional subsidiaries as Guarantor Subsidiaries, and cause them to join the applicable guaranty and security agreements to the Credit Facility. Additionally, any domestic
subsidiary with consolidated EBITDA of at least 15% of the Adjusted Consolidated EBITDA must become a Guarantor Subsidiary and join the applicable guaranty and security agreements.
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 and is further reduced by unrestricted cash over certain thresholds. 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 of
December 31, 2017
and
2016
, maximum borrowing capacity totaled Canadian
$20.0 million
and
$40.0 million
, respectively, or approximately
$15.9 million
and
$29.8 million
, respectively. As of
December 31, 2017
and
2016
, outstanding borrowings totaled approximately
$10.4 million
and
$13.4 million
, respectively, and accrued interest at a weighted average rate of approximately
4.0%
and
3.6%
, respectively.
Outstanding borrowings that are not renewed are repaid with borrowings under the Credit Facility. Accordingly, the carrying amounts of the Company’s borrowings under its other credit facilities, which are included within 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.
4.875% Senior Notes
The Company has
$400 million
of
4.875%
Senior Notes due
March 15, 2023
, which were issued in 2013 in a registered public offering.
Interest on the 4.875% Senior Notes is payable on March 15 and September 15 of each year.
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 Credit Facility or other outstanding indebtedness.
See
Note 17
- Supplemental Guarantor Condensed Consolidating Financial Information. The 4.875% Senior Notes are effectively junior to MasTec’s secured debt, including the Credit Facility and the Term Loan, to the extent of the value of the assets securing that debt.
The Company has the option to redeem all or a portion of the 4.875% Senior Notes at any time on or after March 15, 2018 at the redemption prices set forth in the indenture that governs the 4.875% Senior Notes (the “4.875% Senior Notes Indenture”) plus accrued and unpaid interest, if any, to the redemption date.
At any time prior to March 15, 2018, the Company may redeem all or a part of the 4.875% Senior Notes at a redemption price equal to 100% of the principal amount of 4.875% Senior Notes redeemed plus an applicable premium, as defined in the 4.875% Senior Notes Indenture, together with accrued and unpaid interest, if any, to the redemption date.
The 4.875% Senior Notes Indenture, among other things, generally limits the ability of the Company and certain of its subsidiaries, subject to certain exceptions, to (i) incur additional debt and issue preferred stock, (ii) create liens, (iii) pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments, (iv) place limitations on distributions from certain subsidiaries, (v) issue guarantees, (vi) issue or sell the capital stock of certain subsidiaries, (vii) sell assets, (viii) enter into transactions with affiliates and (ix) effect mergers. The 4.875% Senior Notes Indenture provides for customary events of default, as well as customary remedies upon an event of default, as defined in the 4.875% Senior Notes Indenture, including acceleration of repayment of outstanding amounts.
Debt Covenants
MasTec was in compliance with the provisions and covenants of its outstanding debt instruments as of
December 31, 2017
and
2016
.
Contractual Maturities of Debt and Capital Lease Obligations
Contractual maturities of MasTec’s debt and capital lease obligations as of
December 31, 2017
were as follows (in millions):
|
|
|
|
|
2018
|
$
|
88.3
|
|
2019
|
65.5
|
|
2020
|
57.0
|
|
2021
|
46.4
|
|
2022
|
724.4
|
|
Thereafter
|
400.0
|
|
Total
|
$
|
1,381.6
|
|
As of
December 31, 2017
and
2016
, accrued interest payable, which is recorded within other accrued expenses in the consolidated balance sheets, totaled
$7.4 million
, and
$8.5 million
, respectively.
Note 8
- Lease Obligations
Capital Leases
MasTec enters into agreements that provide lease financing for machinery and equipment. Leases meeting certain criteria are capitalized, with the related asset recorded in property and equipment and a corresponding amount recorded within the Company’s debt obligations. Capital lease additions are reflected in the consolidated statements of cash flows within the supplemental disclosures of non-cash information. The gross amount of assets held under capital leases as of
December 31, 2017
and
2016
, which are included within property and equipment, net, totaled
$418.0 million
and
$294.9 million
, respectively. Assets held under capital leases, net of accumulated depreciation, totaled
$277.3 million
and
$177.5 million
as of
December 31, 2017
and
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. These leases allow the Company to conserve cash and provide flexibility in that the Company pays a monthly rental fee for the use of related facilities, vehicles and equipment rather than purchasing them. The terms of these agreements vary from lease to lease, including some with renewal options and escalation clauses. The Company may decide to cancel or terminate a lease before the end of its term, in which case the Company is typically liable for the remaining lease payments under the term of the lease. For operating leases with purchase options, the option to purchase equipment is at estimated fair market value. Rent and related expense for operating leases that have non-cancelable terms in excess of
one
year totaled approximately
$104.2 million
,
$100.5 million
and
$81.8 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. The Company also incurred rent and related expense for facilities, vehicles and equipment having original terms of
one
year or less totaling approximately
$461.0 million
,
$298.0 million
and
$196.2 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Future Lease Commitments
Future minimum lease commitments under capital leases and non-cancelable operating leases, including escalation clauses in effect as of
December 31, 2017
, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
Operating Leases
|
2018
|
$
|
69.5
|
|
|
$
|
90.7
|
|
2019
|
49.4
|
|
|
57.3
|
|
2020
|
39.4
|
|
|
33.9
|
|
2021
|
29.0
|
|
|
19.2
|
|
2022
|
9.1
|
|
|
12.3
|
|
Thereafter
|
—
|
|
|
30.3
|
|
Total minimum lease payments
|
$
|
196.4
|
|
|
$
|
243.7
|
|
Less amounts representing interest
|
(15.2
|
)
|
|
|
Total capital lease obligations, net of interest
|
$
|
181.2
|
|
|
|
Less current portion
|
(63.5
|
)
|
|
|
Long-term portion of capital lease obligations, net of interest
|
$
|
117.7
|
|
|
|
Note 9
– Stock-Based Compensation and Other Employee Benefit Plans
The Company’s stock-based compensation plans, under which shares of the Company’s common stock are reserved for issuance, include: the MasTec, Inc. 2013 Incentive Compensation Plan (as amended from time to time, the “2013 Incentive Plan”), the MasTec, Inc. Bargaining Units Employee Stock Purchase Plan (the “2013 Bargaining Units ESPP”) and the MasTec, Inc. 2011 Amended and Restated Employee Stock Purchase Plan (the “2011 ESPP,” and, together with the 2013 Bargaining Units ESPP, the “ESPPs”).
The 2013 Incentive Plan permits a total of approximately 7,391,000 shares of the Company’s common stock to be issued.
Under the Company’s ESPPs, shares of the Company’s common stock are available for purchase by eligible employees, which collectively permit the issuance of up to 3,000,000 new shares of MasTec, Inc. common stock.
Under all stock-based compensation plans in effect as of
December 31, 2017
, including employee stock purchase plans, there were approximately
4,811,000
shares available for future grant.
In 2017, the 2013 Incentive Compensation Plan was amended to revise the amount of tax the Company can withhold for employee tax withholdings on share-based awards, as provided under ASU 2016-09.
Restricted Shares
MasTec grants restricted stock awards and restricted stock units to eligible employees and directors, 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
December 31, 2017
was approximately
$20.4 million
, which is expected to be recognized over a weighted average period of approximately
1.5
years. The intrinsic value of restricted shares that vested, which is based on the market price on the date of vesting, totaled
$39.7 million
,
$3.5 million
and
$8.1 million
, respectively, for the years ended
December 31, 2017
,
2016
and
2015
.
|
|
|
|
|
|
|
|
Activity, restricted shares:
(a)
|
Restricted
Shares
|
|
Per Share
Weighted Average
Grant Date
Fair Value
|
Non-vested restricted shares, as of December 31, 2015
|
1,630,232
|
|
|
$
|
22.94
|
|
Granted
|
637,332
|
|
|
17.69
|
|
Vested
|
(188,386
|
)
|
|
20.42
|
|
Canceled/forfeited
|
(108,592
|
)
|
|
20.71
|
|
Non-vested restricted shares, as of December 31, 2016
|
1,970,586
|
|
|
$
|
21.61
|
|
Granted
|
429,061
|
|
|
40.46
|
|
Vested
|
(899,815
|
)
|
|
28.08
|
|
Canceled/forfeited
|
(51,241
|
)
|
|
18.22
|
|
Non-vested restricted shares, as of December 31, 2017
|
1,448,591
|
|
|
$
|
23.29
|
|
|
|
(a)
|
Includes
27,550
,
43,300
and
32,250
restricted stock units as of
December 31, 2017
,
2016
and
2015
, respectively.
|
Employee Stock Purchase Plans
The following table provides details pertaining to the Company’s ESPPs for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Cash proceeds
(in millions)
|
$
|
3.3
|
|
|
$
|
2.7
|
|
|
$
|
2.0
|
|
Common shares issued
|
92,145
|
|
|
144,183
|
|
|
134,389
|
|
Weighted average price per share
|
$
|
35.92
|
|
|
$
|
18.55
|
|
|
$
|
14.67
|
|
Weighted average per share grant date fair value
|
$
|
9.24
|
|
|
$
|
5.00
|
|
|
$
|
4.22
|
|
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
202,700
remaining stock options under the previous grants were exercised at a weighted average exercise price of
$13.06
. The intrinsic value of options exercised, which is the difference between the exercise price and the market share price of the Company’s common stock on the date of exercise, totaled
$1.8 million
and
$0.8 million
for the years ended
December 31, 2016
and
2015
, respectively. Proceeds from options exercised, net of shares withheld in cashless option exercises, totaled
$2.1 million
and
$0.5 million
for the years ended
December 31, 2016
and
2015
, respectively.
Non-Cash Stock-Based Compensation Expense
Details of non-cash stock-based compensation expense and related tax effects for the periods indicated were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Non-cash stock-based compensation expense
|
$
|
15.7
|
|
|
$
|
15.1
|
|
|
$
|
12.4
|
|
Income Tax Effects:
|
|
|
|
|
|
Income tax effect of non-cash stock-based compensation
|
$
|
11.2
|
|
|
$
|
5.6
|
|
|
$
|
4.2
|
|
Excess tax benefit from non-cash stock-based compensation
(a)
|
$
|
5.7
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
(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 year ended
December 31, 2017
, the Company recognized a tax benefit of
$5.4 million
, net of tax deficiencies, related to the vesting of share-based payment awards.
|
401(k) Plan.
MasTec has a 401(k) plan covering all eligible employees. Subject to certain dollar limits, eligible employees may contribute up to 75% of their pre-tax annual compensation to the 401(k) plan. The Company’s matching contribution is equal to 100% of the first 3% of the employee’s salary and 50% of the next 2% of the employee’s salary, up to a maximum 4% employer match. Discretionary matching contributions, which are payable 50% in shares of MasTec common stock and 50% in cash, are paid quarterly.
During the years ended
December 31, 2017
,
2016
and
2015
, matching contributions totaled approximately
$11.9 million
,
$11.1 million
and
$10.2 million
, respectively.
Deferred Compensation Plans.
MasTec offers a deferred compensation plan to its highly compensated employees. These employees are allowed to contribute a percentage of their pre-tax annual compensation to the deferred compensation plan. The Company also offers a deferred compensation plan to its Board of Directors, under which directors may elect to defer the receipt of compensation for their services.
Total deferred compensation plan assets, which are included within other long-term assets in the consolidated balance sheets, totaled
$9.4 million
and
$7.7 million
as of
December 31,
2017
and
2016
, respectively. Total deferred compensation plan liabilities, which are included within other long-term liabilities in the consolidated balance sheets, totaled
$9.7 million
and
$7.6 million
as of
December 31, 2017
and
2016
, respectively.
Note 10
– Other Retirement Plans
Multiemployer Plans.
As discussed in
Note 1
- Business, Basis of Presentation and Significant Accounting Policies,
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 MEPPs.
The PPA defines the funding rules for defined benefit pension plans and establishes funding classifications for U.S.-registered multiemployer pension plans. Under the PPA, plans are classified into one of the following five categories, based on multiple factors, also referred to as a plan’s “zone status”: Green (safe), Yellow (endangered), Orange (seriously endangered), and Red (critical or critical and declining). Factors included in the determination of a plan’s zone status include: funded percentage, cash flow position and whether the plan is projecting a minimum funding deficiency.
A multiemployer plan that is so underfunded as to be in “endangered,” “seriously endangered,” “critical,” or “critical and declining” status (as determined under the PPA) is required to adopt a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”), which, among other actions, could include decreased benefits and increased employer contributions, which could take the form of a surcharge on benefit contributions. These actions are intended to improve their funding status over a period of years. If a pension fund is in critical status, a participating employer must pay an automatic surcharge in addition to contributions otherwise required under the collective bargaining agreement (“CBA”). With some exceptions, the surcharge is equal to 5% of required contributions for the initial critical year and 10% for each succeeding plan year in which the plan remains in critical status. The surcharge ceases on the effective date of a CBA (or other agreement) that includes contribution and benefit terms consistent with the rehabilitation plan. Certain plans in which the Company participates are in “endangered,” “seriously endangered,” “critical,” or “critical and declining” status. The amount of additional funds, if any, that the Company may be obligated to contribute to these plans in the future cannot be estimated due to the uncertainty of the future levels of work that could be required of the union employees covered by these plans, as well as the required future contribution rates and possible surcharges applicable to these plans.
See
Note 14
- Commitments and Contingencies for additional information.
Details of significant multiemployer pension plans as of and for the periods indicated, based upon information available to the Company from plan administrators as well as publicly available information on the U.S. Department of Labor website, are provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
(in millions)
For the Years Ended December 31,
|
|
Pension Protection Act Zone Status
|
|
|
|
Multiemployer Pension Plan
|
Employer Identification Number
|
Plan Number
|
2017
|
|
2016
|
|
2015
|
Expiration Date of CBA
|
2017
|
As of
|
|
2016
|
As of
|
|
FIP/RP Status
|
Surcharge
|
Pipeline Industry Pension Fund
|
736146433
|
001
|
$
|
28.8
|
|
|
$
|
15.9
|
|
|
$
|
2.5
|
|
05/31/2020
|
Green
|
12/31/2016
|
(a)
|
Green
|
12/31/2015
|
(a)
|
NA
|
No
|
Central Pension Fund of the IUOE and Participating Employers
|
366052390
|
001
|
21.6
|
|
|
19.3
|
|
|
5.7
|
|
06/01/2020
|
Green
|
01/31/2017
|
|
Green
|
01/31/2016
|
|
NA
|
No
|
Teamsters National Pipe Line Pension Plan
|
461102851
|
001
|
7.6
|
|
|
3.6
|
|
|
1.4
|
|
05/31/2020
|
Green
|
12/31/2016
|
(a)
|
Green
|
12/31/2015
|
(a)
|
NA
|
No
|
Ohio Operating Engineers Pension Plan
|
316129968
|
001
|
4.9
|
|
|
—
|
|
|
—
|
|
06/01/2020
|
Green
|
07/31/2016
|
|
Green
|
07/31/2015
|
|
NA
|
No
|
Laborers' National Pension Fund
|
751280827
|
001
|
3.5
|
|
|
3.0
|
|
|
0.8
|
|
05/31/2020
|
Green
|
12/31/2016
|
|
Green
|
12/31/2015
|
|
NA
|
No
|
West Virginia Laborers' Pension Trust Fund
|
556026775
|
001
|
3.0
|
|
|
0.5
|
|
|
1.4
|
|
05/31/2020
|
Green
|
03/31/2017
|
|
Green
|
03/31/2016
|
(a)
|
NA
|
No
|
Laborers' District Council & Contractors Pension Fund of Ohio
|
316129964
|
001
|
2.5
|
|
|
0.5
|
|
|
0.2
|
|
05/31/2020
|
Green
|
12/31/2016
|
|
Green
|
12/31/2015
|
|
NA
|
No
|
International Union of Operating Engineers Local 132 Pension Fund
|
556015364
|
001
|
2.3
|
|
|
0.2
|
|
|
1.9
|
|
06/01/2020
|
Green
|
03/31/2017
|
|
Green
|
03/31/2016
|
(a)
|
NA
|
No
|
Operating Engineers Local 324 Pension Fund
|
381900637
|
001
|
2.1
|
|
|
—
|
|
|
—
|
|
06/01/2020
|
Red
|
04/30/2017
|
|
Red
|
04/30/2016
|
|
Implemented
|
No
|
Michigan Laborers' Pension Plan
|
386233976
|
001
|
2.0
|
|
|
1.1
|
|
|
0.8
|
|
05/31/2020
|
Yellow
|
08/31/2017
|
|
Yellow
|
08/31/2016
|
(b)
|
Implemented
|
No
|
National Electrical Benefit Fund
|
530181657
|
001
|
1.8
|
|
|
1.7
|
|
|
1.4
|
|
Varies through 09/06/2020
|
Green
|
12/31/2016
|
|
Green
|
12/31/2015
|
|
NA
|
No
|
Laborers' Local Union No. 158 Pension Plan
|
236580323
|
001
|
1.8
|
|
|
0.4
|
|
|
0.7
|
|
05/31/2020
|
Green
|
12/31/2016
|
|
Green
|
12/31/2015
|
(a)
|
NA
|
No
|
IBEW Local 1249 Pension Plan
|
156035161
|
001
|
1.5
|
|
|
1.1
|
|
|
1.0
|
|
05/02/2021
|
Yellow
|
12/31/2016
|
|
Yellow
|
12/31/2015
|
|
Implemented
|
No
|
Central Laborers' Pension Fund
|
376052379
|
001
|
0.5
|
|
|
2.6
|
|
|
—
|
|
05/31/2020
|
Yellow
|
12/31/2016
|
(b)
|
Red
|
12/31/2015
|
(b)
|
Implemented
|
No
|
Other funds
|
|
|
8.2
|
|
(c)
|
10.0
|
|
(c)
|
6.0
|
|
(c)
|
|
|
|
|
|
|
|
|
Total multiemployer pension plan contributions
|
|
|
$
|
92.1
|
|
|
$
|
59.9
|
|
|
$
|
23.8
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company’s contributions to this plan represent greater than 5% of the plan’s total contributions.
|
|
|
(b)
|
This plan has utilized extended amortization provisions, which provide plans with extensions of time to amortize pension funding shortfalls.
|
|
|
(c)
|
The
2017
,
2016
and
2015
contributions include approximately
$0.7 million
,
$0.9 million
and
$1.4 million
, respectively, for Canadian multiemployer pension plans. Canadian multiemployer pension plans are not subject to the provisions of ERISA or the funding rules under the PPA that apply to U.S. registered multiemployer pension plans. Contributions to Canadian multiemployer pension plans are based on fixed amounts per hour per employee for employees covered under these plans.
|
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)
|
For the Years Ended December 31:
|
Low
|
|
High
|
|
Pension
|
|
Other Multiemployer
|
|
Total
|
2017
|
550
|
|
|
7,057
|
|
|
$
|
92.1
|
|
|
$
|
10.3
|
|
|
$
|
102.4
|
|
2016
|
550
|
|
|
4,910
|
|
|
$
|
59.9
|
|
|
$
|
10.1
|
|
|
$
|
70.0
|
|
2015
|
590
|
|
|
2,463
|
|
|
$
|
23.8
|
|
|
$
|
9.0
|
|
|
$
|
32.8
|
|
The number of union employees employed at any given time varies depending upon the location and number of ongoing projects and the need for union resources in connection with those projects. The fluctuations in the number of employees covered under multiemployer plans and related contributions in the tables above are primarily related to higher levels of union resource-based project activity within the Company’s oil and gas operations.
Note 11
– Equity
Share Activity
In February 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. The Company repurchased
38.8 thousand
shares of the Company’s common stock for an aggregate purchase price of
$1.6 million
under this program during the year ended
December 31, 2017
, and
no
shares were repurchased during the year ended
December 31, 2016
. During the year ended
December 31, 2015
, the Company repurchased
5.2 million
shares of its common stock under a separate and completed share repurchase program that was established in 2014 for an aggregate purchase price of
$100 million
.
The Company may use either authorized and unissued shares or treasury shares to meet share issuance requirements, including those resulting from vesting of restricted shares and other share issuance requirements.
Comprehensive Income (Loss)
Comprehensive income (loss) is a measure of net income (loss) and other changes in equity that result from transactions other than those with shareholders. Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments, primarily from fluctuations in foreign currency exchange rates of the Company’s foreign subsidiaries with a functional currency other than the U.S. dollar, unrealized gains and losses from investment activities and net income (loss) attributable to non-controlling interests.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is composed of unrealized foreign currency gains and losses and unrealized gains and losses from certain investment activities. Unrealized foreign currency activity for the three years in the period ended
December 31, 2017
is primarily related to translation gains and losses resulting from the Company’s Canadian operations. Investment activity for the years ended
December 31, 2017
and
2016
relates to unrealized gains and losses on interest rate swaps associated with the Waha JVs.
Activity for the periods indicated was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
Foreign Currency
|
|
Other
|
|
Total
|
|
Foreign Currency
|
|
Other
|
|
Total
|
|
Foreign Currency
|
|
Other
|
|
Total
|
Balance as of January 1
|
|
$
|
(64,478
|
)
|
|
$
|
(1,336
|
)
|
|
$
|
(65,814
|
)
|
|
$
|
(67,063
|
)
|
|
$
|
(5,288
|
)
|
|
$
|
(72,351
|
)
|
|
$
|
(28,716
|
)
|
|
$
|
(5,288
|
)
|
|
$
|
(34,004
|
)
|
Unrealized gains (losses), net of tax
|
|
1,627
|
|
|
475
|
|
|
2,102
|
|
|
2,585
|
|
|
3,952
|
|
|
6,537
|
|
|
(38,347
|
)
|
|
—
|
|
|
(38,347
|
)
|
Balance as of December 31
|
|
$
|
(62,851
|
)
|
|
$
|
(861
|
)
|
|
$
|
(63,712
|
)
|
|
$
|
(64,478
|
)
|
|
$
|
(1,336
|
)
|
|
$
|
(65,814
|
)
|
|
$
|
(67,063
|
)
|
|
$
|
(5,288
|
)
|
|
$
|
(72,351
|
)
|
Note 12
- Income Taxes
The components of income (loss) before income taxes for the periods indicated were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
334.9
|
|
|
$
|
202.4
|
|
|
$
|
(26.5
|
)
|
Foreign
|
36.9
|
|
|
23.4
|
|
|
(41.2
|
)
|
Total
|
$
|
371.8
|
|
|
$
|
225.8
|
|
|
$
|
(67.7
|
)
|
The provision for income taxes for the periods indicated were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(6.0
|
)
|
|
$
|
85.8
|
|
|
$
|
(4.5
|
)
|
Foreign
|
11.5
|
|
|
3.0
|
|
|
9.4
|
|
State and local
|
(0.8
|
)
|
|
6.7
|
|
|
3.3
|
|
|
$
|
4.7
|
|
|
$
|
95.5
|
|
|
$
|
8.2
|
|
Deferred:
|
|
|
|
|
|
Federal
|
$
|
18.2
|
|
|
$
|
6.1
|
|
|
$
|
25.7
|
|
Foreign
|
(7.5
|
)
|
|
(6.8
|
)
|
|
(19.9
|
)
|
State and local
|
7.6
|
|
|
(3.0
|
)
|
|
(2.0
|
)
|
|
$
|
18.3
|
|
|
$
|
(3.7
|
)
|
|
$
|
3.8
|
|
Provision for income taxes
|
$
|
22.9
|
|
|
$
|
91.8
|
|
|
$
|
12.0
|
|
The tax effects of significant items comprising the Company’s net deferred tax liability as of the dates indicated were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
Accrued insurance
|
$
|
24.6
|
|
|
$
|
31.1
|
|
Operating loss carryforwards and tax credits
|
54.9
|
|
|
34.9
|
|
Unrealized gains and losses
|
11.4
|
|
|
26.3
|
|
Compensation and benefits
|
7.5
|
|
|
24.1
|
|
Bad debt
|
1.2
|
|
|
4.7
|
|
Other
|
7.9
|
|
|
12.4
|
|
Valuation allowance
|
(40.5
|
)
|
|
(21.4
|
)
|
Total deferred tax assets
|
$
|
67.0
|
|
|
$
|
112.1
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment
|
$
|
104.1
|
|
|
$
|
126.6
|
|
Goodwill
|
56.7
|
|
|
72.8
|
|
Other intangible assets
|
28.7
|
|
|
32.9
|
|
Gain on remeasurement of equity investee
|
6.9
|
|
|
10.9
|
|
Long-term contracts
|
11.3
|
|
|
20.2
|
|
Investments in unconsolidated entities
|
52.8
|
|
|
0.0
|
|
Other
|
11.0
|
|
|
15.3
|
|
Total deferred tax liabilities
|
$
|
271.5
|
|
|
$
|
278.7
|
|
Net deferred tax liabilities
|
$
|
(204.5
|
)
|
|
$
|
(166.6
|
)
|
As of
December 31, 2017
, the Company had
$204.5 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
. See
Note 1
- Business, Basis of Presentation and Significant Accounting Policies regarding the January 1, 2017 adoption of ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
.
In assessing the ability to realize the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible. Management considers the projected future taxable income and prudent and feasible tax planning strategies in making this assessment.
The Company’s valuation allowances as of
December 31, 2017
and
2016
are related primarily to foreign net operating losses and deferred tax assets. The Company’s state net operating loss carryforwards, which may be carried forward between
5
and
20
years depending on the jurisdiction, totaled approximately
$12.3 million
and
$9.0 million
as of
December 31, 2017
and
2016
, respectively. The Company’s foreign net operating loss carryforwards, which are primarily related to the Company’s Canadian operations, totaled approximately
$38.4 million
and
$22.7 million
as of
December 31, 2017
and
2016
, respectively. The Canadian net operating loss carryforwards, which make up the majority of the foreign net operating loss carryforwards, begin to expire in
2033
. The Company’s federal net operating loss carryforwards, which begin to expire in
2022
, totaled approximately
$0.2 million
and
$0.5 million
as of
December 31, 2017
and
2016
, respectively.
In December 2017, the 2017 Tax Act was enacted, which includes broad tax reform that is applicable to the Company. Under the provisions
of the 2017 Tax Act, the U.S. corporate tax rate decreased from
35%
to
21%
effective January 1, 2018. As a result, the Company’s U.S. deferred income tax balances were required to be remeasured in
2017
. The Company completed an initial remeasurement of its deferred tax assets and liabilities as of
December 31, 2017
as a result of this new tax law, which resulted in a non-cash tax benefit of
$120.1 million
for the year ended
December 31, 2017
. This initial remeasurement calculation contains estimates of the impact of the 2017 Tax Act as permitted under SAB 118. These amounts are considered provisional and may be affected by future guidance. The Company may identify additional remeasurement adjustments to its recorded deferred tax assets and liabilities. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.
As of
December 31, 2017
, the Company has not made a provision for U.S. income taxes on unremitted foreign earnings because such earnings, which generally become subject to U.S. taxation upon remittance of dividends and certain other circumstances, are considered to be insignificant and are intended to be indefinitely reinvested outside the United States. The Company expects that domestic cash resources will be sufficient to fund its domestic operations and cash commitments in the future.
A reconciliation of the U.S. statutory federal income tax rate related to pretax income to the effective tax rate for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
U.S. statutory federal rate applied to pretax income (loss)
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local income taxes, net of federal benefit
|
2.0
|
|
|
2.6
|
|
|
(1.0
|
)
|
Foreign tax rate differential
|
0.3
|
|
|
(0.1
|
)
|
|
(14.4
|
)
|
Non-deductible expenses
|
2.2
|
|
|
4.4
|
|
|
(13.5
|
)
|
Goodwill and intangible assets
|
(0.0
|
)
|
|
(0.7
|
)
|
|
(17.7
|
)
|
Change in tax rate
|
(32.3
|
)
|
|
(1.9
|
)
|
|
(3.6
|
)
|
Domestic production activities deduction
|
(0.2
|
)
|
|
(2.9
|
)
|
|
(1.0
|
)
|
Other
|
(0.7
|
)
|
|
(0.1
|
)
|
|
(1.4
|
)
|
Tax credits
|
(2.8
|
)
|
|
(0.0
|
)
|
|
(0.0
|
)
|
Valuation allowance for deferred tax assets
|
2.7
|
|
|
4.3
|
|
|
0.0
|
|
Effective income tax rate
|
6.2
|
%
|
|
40.6
|
%
|
|
(17.6
|
)%
|
An entity may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. In the ordinary course of business, there is inherent uncertainty in quantifying income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based on management's evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recognized the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the Company's financial statements.
A reconciliation of the beginning and ending amount of uncertain tax positions including interest and penalties is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions based on tax positions related to the current year
|
3.2
|
|
|
—
|
|
|
—
|
|
Additions for tax positions of prior years
|
4.9
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
8.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company classifies interest and penalties on uncertain tax positions as a component of income tax expense in the consolidated statements of operations, which amounts were de minimis in
2017
. If the Company were to recognize its gross unrecognized tax benefits as of
December 31, 2017
, approximately
$8.1 million
, including interest and penalties, would affect the Company’s effective tax rate.
The IRS has completed examinations of the Company’s federal income tax returns through the calendar year 2013 and has recently begun an examination of the Company’s 2015 federal income tax return. Certain state taxing authorities are examining various years. The final outcome of these examinations is not yet determinable. With few exceptions, as of
December 31, 2017
, the Company is no longer subject to state examinations by taxing authorities for years before
2014
.
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, infrastructure for 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 heavy civil and 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.
The accounting policies of the reportable segments are the same as those described in
Note 1
- Business, Basis of Presentation and Significant Accounting Policies.
Intercompany revenue and costs among the reportable segments are de minimis and accounted for as if the sales were to third parties because these items are based on negotiated fees between the segments involved. All intercompany transactions and balances are eliminated in consolidation. Intercompany revenue and costs between entities within a reportable segment are eliminated to arrive at segment totals. Eliminations between segments are separately presented.
Corporate results include amounts related to Corporate functions such as administrative costs, professional fees, acquisition-related transaction costs (exclusive of acquisition integration costs, which are included within the segment results of the acquired business), and other discrete items, such as goodwill and intangible asset impairment
.
Segment results include certain allocations of centralized costs such as general liability, medical and workers’ compensation insurance and certain information technology costs. Income tax expense is managed by Corporate on a consolidated basis and is not allocated to the reportable segments.
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 years ended
December 31, 2017
,
2016
and
2015
, Other segment EBITDA included project losses of
$7.9 million
,
$5.1 million
and
$16.3 million
, respectively, from 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 year ended
December 31, 2016
, EBITDA for the Oil and Gas and Electrical Transmission segments included first quarter project losses of
$13.5 million
and
$15.1 million
, respectively, and restructuring charges of
$6.3 million
and
$8.9 million
, respectively. For the year ended
December 31, 2015
, Communications segment EBITDA included
$17.8 million
of acquisition integration costs, Electrical Transmission segment EBITDA included a
$12.2 million
charge relating to a court mandated mediation settlement, and Power Generation and Industrial segment EBITDA included project losses of
$21.4 million
. In addition, for the year ended
December 31, 2015
, Corporate segment EBITDA included
$78.6 million
of goodwill and intangible asset impairment and
$16.5 million
of Audit Committee independent investigation costs.
Summarized financial information for MasTec’s reportable segments is presented and reconciled to consolidated financial information for total MasTec, including a reconciliation of consolidated income (loss) before income taxes to EBITDA, in the following tables (in millions). The tables below may contain slight summation differences due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
Revenue:
|
2017
|
|
2016
|
|
2015
|
Communications
(a)
|
$
|
2,424.4
|
|
|
$
|
2,323.6
|
|
|
$
|
1,973.2
|
|
Oil and Gas
|
3,497.2
|
|
|
2,024.4
|
|
|
1,495.1
|
|
Electrical Transmission
|
378.2
|
|
|
383.8
|
|
|
341.5
|
|
Power Generation and Industrial
|
299.9
|
|
|
405.7
|
|
|
381.6
|
|
Other
|
20.8
|
|
|
15.9
|
|
|
24.1
|
|
Eliminations
|
(13.5
|
)
|
|
(18.7
|
)
|
|
(7.2
|
)
|
Consolidated revenue
|
$
|
6,607.0
|
|
|
$
|
5,134.7
|
|
|
$
|
4,208.3
|
|
|
|
(a)
|
Revenue generated primarily by utilities customers represented
13.4%
,
11.1%
and
10.6%
of Communications segment revenue for the years ended December 31,
2017
,
2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
EBITDA:
|
2017
|
|
2016
|
|
2015
|
Communications
|
$
|
247.4
|
|
|
$
|
244.6
|
|
|
$
|
194.8
|
|
Oil and Gas
|
402.2
|
|
|
297.3
|
|
|
157.0
|
|
Electrical Transmission
|
17.6
|
|
|
(42.9
|
)
|
|
(71.3
|
)
|
Power Generation and Industrial
|
22.6
|
|
|
18.3
|
|
|
8.8
|
|
Other
|
19.8
|
|
|
(2.6
|
)
|
|
(18.8
|
)
|
Corporate
|
(88.7
|
)
|
|
(73.1
|
)
|
|
(120.5
|
)
|
Consolidated EBITDA
|
$
|
620.9
|
|
|
$
|
441.5
|
|
|
$
|
150.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
Depreciation and Amortization:
|
2017
|
|
2016
|
|
2015
|
Communications
|
$
|
53.2
|
|
|
$
|
50.3
|
|
|
$
|
50.6
|
|
Oil and Gas
|
96.7
|
|
|
78.4
|
|
|
84.5
|
|
Electrical Transmission
|
22.8
|
|
|
23.2
|
|
|
21.1
|
|
Power Generation and Industrial
|
9.1
|
|
|
6.2
|
|
|
6.6
|
|
Other
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Corporate
|
6.1
|
|
|
6.7
|
|
|
6.8
|
|
Consolidated depreciation and amortization
|
$
|
188.0
|
|
|
$
|
164.9
|
|
|
$
|
169.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
Assets:
|
2017
|
|
2016
|
|
2015
|
Communications
|
$
|
1,314.4
|
|
|
$
|
1,156.9
|
|
|
$
|
1,032.2
|
|
Oil and Gas
|
1,762.6
|
|
|
1,267.2
|
|
|
1,131.4
|
|
Electrical Transmission
|
471.4
|
|
|
419.1
|
|
|
409.1
|
|
Power Generation and Industrial
|
288.6
|
|
|
268.1
|
|
|
252.5
|
|
Other
|
153.2
|
|
|
27.7
|
|
|
34.3
|
|
Corporate
|
76.4
|
|
|
44.1
|
|
|
67.8
|
|
Consolidated segment assets
|
$
|
4,066.6
|
|
|
$
|
3,183.1
|
|
|
$
|
2,927.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
Capital Expenditures:
|
2017
|
|
2016
|
|
2015
|
Communications
|
$
|
40.5
|
|
|
$
|
28.5
|
|
|
$
|
25.8
|
|
Oil and Gas
|
57.7
|
|
|
64.0
|
|
|
38.1
|
|
Electrical Transmission
|
14.9
|
|
|
19.8
|
|
|
13.0
|
|
Power Generation and Industrial
|
5.4
|
|
|
3.4
|
|
|
3.5
|
|
Other
|
0.0
|
|
|
0.3
|
|
|
0.2
|
|
Corporate
|
4.9
|
|
|
1.1
|
|
|
3.8
|
|
Consolidated capital expenditures
|
$
|
123.4
|
|
|
$
|
117.1
|
|
|
$
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
EBITDA Reconciliation:
|
2017
|
|
2016
|
|
2015
|
Income (loss) before income taxes
|
$
|
371.8
|
|
|
$
|
225.8
|
|
|
$
|
(67.7
|
)
|
Plus:
|
|
|
|
|
|
Interest expense, net
|
61.0
|
|
|
50.7
|
|
|
48.1
|
|
Depreciation and amortization
|
188.0
|
|
|
164.9
|
|
|
169.7
|
|
Consolidated EBITDA
|
$
|
620.9
|
|
|
$
|
441.5
|
|
|
$
|
150.0
|
|
Foreign Operations.
MasTec operates in North America, primarily in the United States and Canada, and, to a lesser extent, in Mexico. For the years ended
December 31, 2017
,
2016
and
2015
, revenue of
$6.4 billion
,
$4.9 billion
and
$3.6 billion
, respectively, was derived from U.S. operations, and revenue of
$211.5 million
,
$279.7 million
and
$574.8 million
, respectively, was derived from foreign operations, the majority of which was from the Company’s Canadian operations in the Oil and Gas segment. Long-lived assets held in the U.S. included property and equipment, net, of
$649.5 million
,
$475.3 million
and
$464.6 million
as of
December 31, 2017
,
2016
and
2015
, respectively, and, for the Company’s businesses in foreign countries, the majority of which are in Canada, totaled
$57.0 million
,
$73.8 million
and
$94.1 million
, respectively. Intangible assets and goodwill, net, related to the Company’s U.S. operations totaled approximately
$1.2 billion
as of
December 31, 2017
and
$1.1 billion
as of both
December 31, 2016
and
2015
,
and, for the Company’s businesses in foreign countries, the majority of which are in Canada, totaled approximately
$112.8 million
,
$107.8 million
and
$107.3 million
, respectively. Amounts due from customers from which foreign revenue was derived accounted for approximately
5%
,
8%
and
17%
of the Company’s consolidated net accounts receivable position, which represents accounts receivable, net, less BIEC, as of
December 31, 2017
,
2016
and
2015
, respectively.
Significant Customers
Revenue concentration information for significant customers as a percentage of total consolidated revenue was as follows:
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Customer:
|
|
|
|
|
|
Energy Transfer affiliates
(a)
|
40%
|
|
27%
|
|
7%
|
AT&T (including DIRECTV
®
)
(b)
|
25%
|
|
34%
|
|
32%
|
|
|
(a)
|
The Company's relationship with Energy Transfer affiliates is based upon various construction contracts for pipeline activities with Energy Transfer Partners L.P., and its 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.
|
|
|
(b)
|
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.
|
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. 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 equity investments, 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
December 31, 2017
and
2016
, there were
$157.1 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
December 31, 2017
or
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
December 31, 2017
and
2016
, outstanding performance and payment bonds totaled
$119.7 million
and
$72.9 million
, respectively, and estimated costs to complete projects secured by these bonds totaled
$46.0 million
and
$9.5 million
, respectively. These amounts do not include performance and payment bonds associated with the Company’s equity investments.
Investment Arrangements.
From time to time, the Company may participate in selected investment or strategic arrangements to expand its operations, customer base or geographic reach, including arrangements that combine the Company’s skills and resources with those of others to allow for the performance of particular projects. The Company holds undivided interests, ranging from
85%
to
90%
, in several proportionately consolidated non-controlled contractual joint ventures that provide infrastructure construction services for electrical transmission projects. The Company also 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. 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
December 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 and
Note 15
- Related Party Transactions. The Company may incur costs or provide financing, performance, financial and/or other guarantees to or in connection with these arrangements.
Self-Insurance.
MasTec maintains insurance policies for workers’ compensation, general liability and automobile liability, which are subject to per claim deductibles. The Company is self-insured up to the amount of the deductible. The Company also maintains excess umbrella coverage. As of
December 31, 2017
and
2016
, MasTec’s liability for unpaid claims and associated expenses, including incurred but not reported losses related to these policies, totaled
$106.2 million
and
$85.8 million
, respectively, of which
$72.2 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
December 31, 2017
and
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
$88.9 million
and
$85.1 million
as of
December 31, 2017
and
2016
, respectively. In addition, cash collateral deposited with insurance carriers, which is included within other long-term assets, amounted to
$1.6 million
and
$1.5 million
for these policies as of
December 31, 2017
and
2016
, respectively. Outstanding surety bonds related to workers’ compensation self-insurance programs amounted to
$15.2 million
and
$13.5 million
as of
December 31, 2017
and
2016
, respectively.
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 1
- Business, Basis of Presentation and Significant Accounting Policies, 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 MEPPs. 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. In November 2014, the Company, along with other members of the Pipe Line Contractors Association (the “PLCA”), voluntarily terminated its participation in several MEPPs. Additionally, the Company, along with other members of the PLCA, voluntarily withdrew from the Central States Southeast and Southwest Areas Pension Fund (“Central States”) in 2011, for which the Company established and paid a
$6.4 million
withdrawal liability. During the year ended
December 31, 2017
, the Company recognized
$0.7 million
of expense in connection with the expected final settlement of this matter. 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 its participation in any other 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
December 31, 2017
, several of the MEPPs 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
December 31, 2017
and
2016
, the Company was not aware of any 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 investments.
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 is subject to certain risk factors, including, but not limited to: risks related to customer consolidation, rapid technological and regulatory changes; changes in customers’ capital spending plans; risks related to market conditions and/or economic downturns; competition; the ability to manage projects effectively and in accordance with management’s estimates; customer disputes related to the performance of services; the nature of its contracts, which do not obligate MasTec’s customers to undertake any infrastructure projects and may be canceled on short notice; seasonality, adverse weather conditions and fluctuations in operational factors; risks related to the Company’s acquisitions and investment arrangements, including acquisition integration and financing; recoverability of goodwill; governmental and/or regulatory changes or other factors affecting the industries in which the Company operates; potential exposure to environmental liabilities; collectibility of receivables; exposure from system or information technology interruptions; availability of qualified employees; the adequacy of our reserves; exposure to litigation; exposure related to foreign operations; and exposure to multiemployer pension plan liabilities. The Company grants credit, generally without collateral, to its customers. Consequently, the Company is subject to potential credit risk related to changes in business and economic factors. However, MasTec generally has
certain lien rights on that work and maintains a diverse customer base. The Company believes its billing and collection policies are adequate to minimize potential credit risk. MasTec’s customers include: public and private energy providers; pipeline operators; wireless and wireline/fiber service providers; broadband operators; install-to-the-home service providers; and government entities. The industries served by MasTec’s customers include, among others: communications; and utilities (including petroleum and natural gas pipeline infrastructure; electrical utility transmission and distribution; power generation; heavy civil and industrial infrastructure). The Company had approximately
500
customers for the year ended
December 31, 2017
. As of
December 31, 2017
and
2016
,
one
customer accounted for approximately
46%
and
24%
, respectively, of the Company’s consolidated net accounts receivable position, which represents accounts receivable, net, less BIEC. As of
December 31, 2017
and
2016
, a separate customer accounted for approximately
15%
and
17%
, respectively, of the Company’s consolidated net accounts receivable position. In addition, the Company derived
78%
,
76%
and
61%
, of its revenue from its top
ten
customers for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Note 15
- Related Party Transactions
In connection with a 2017 acquisition, the Company acquired a
40%
interest in an entity, which is valued at
$0.4 million
and is accounted for as an equity method investment. The Company has a subcontracting arrangement with this entity. For the year ended
December 31, 2017
, the Company incurred
$0.2 million
of expenses under this subcontracting arrangement, and there were
no
amounts outstanding as of December 31, 2017. For the year ended
December 31, 2017
, the Company advanced
$0.3 million
on behalf of this entity, net, which was outstanding as of
December 31, 2017
. The acquired business also had a vendor financing arrangement with an entity that was owned by a member of subsidiary management, which arrangement was completed in 2017. Payments made under this arrangement for the year ended
December 31, 2017
totaled
$5.3 million
, and
no
amounts were outstanding as of
December 31, 2017
.
MasTec purchases, rents and leases equipment used in its business from a number of different vendors on a non-exclusive basis, including CCI, 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 CCI, and a member of management of a MasTec subsidiary is a minority owner. For the years ended
December 31, 2017
and
2016
, MasTec paid CCI approximately
$54.9 million
and
$24.5 million
, net of rebates, for equipment supplies, rentals, leases and servicing, and for the year ended
December 31, 2015
, paid approximately
$10.6 million
. As of
December 31, 2017
and
2016
, related payables totaled approximately
$2.7 million
and
$1.5 million
, respectively.
MasTec entered into a subcontracting arrangement in 2016 with an entity for the performance of construction services, the minority owners of which include an entity controlled by Jorge Mas and José R. Mas, along with
two
members of management of a MasTec subsidiary. For the years ended
December 31, 2017
and
2016
, MasTec incurred
$78.0 million
and
$12.9 million
, respectively, of expenses under this subcontracting arrangement, and during
2016
, sold equipment totaling
$0.3 million
to this entity. As of
December 31, 2017
and
2016
, related amounts payable totaled
$2.0 million
and
$0.1 million
, respectively.
MasTec leases employees to a customer in which Jorge Mas and José R. Mas own a majority interest. For each of the years ended
December 31, 2017
,
2016
and
2015
, MasTec charged approximately
$0.8 million
to this customer. As of both
December 31, 2017
and
2016
, outstanding receivables from employee leasing arrangements with this customer totaled
$0.2 million
. MasTec also provides satellite communication services to this customer. For the year ended
December 31, 2017
, revenue from satellite communication services provided to this customer totaled approximately
$0.8 million
and for each of the years ended
December 31, 2016
and
2015
, totaled approximately
$0.9 million
. As of
December 31, 2017
and
2016
, receivables totaled approximately
$0.3 million
and
$0.4 million
, respectively.
MasTec leases a property located in Florida from Irma S. Mas, the mother of Jorge Mas and José R. Mas. For each of the years ended
December 31, 2017
,
2016
and
2015
, lease payments associated with this property totaled approximately
$48,000
.
MasTec entered into a leasing arrangement in 2015 with an independent third party that leases an aircraft from a Company owned by Jorge Mas. For the years ended
December 31, 2017
and
2016
, MasTec paid
$2.0 million
and
$2.6 million
, respectively, under this leasing arrangement. As of
December 31, 2017
and
2016
, related amounts payable were de minimis. Activity in 2015 was de minimis.
For the years ended
December 31, 2017
,
2016
and
2015
, related party lease payments to entities that are associated with members of subsidiary management for operational facilities and equipment totaled approximately
$46.8 million
,
$43.3 million
and
$22.1 million
, respectively. Payables associated with related party leases totaled approximately
$0.1 million
and
$0.3 million
as of
December 31, 2017
and
2016
, respectively. Additionally, payments to entities that are associated with members of subsidiary management for various types of supplies and services, including ancillary construction services, project-related site restoration and marketing and business development activities totaled approximately
$63.9 million
,
$27.7 million
and
$10.5 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. As of
December 31, 2017
and
2016
, related payables totaled approximately
$5.2 million
and
$3.7 million
, respectively. In addition, in
2017
, MasTec entered into an arrangement to perform construction services for an entity, of which a member of subsidiary management is a minority owner. Revenue from this arrangement totaled
$2.6 million
for the year ended
December 31, 2017
, and related receivables totaled
$0.6 million
as of
December 31, 2017
. In 2017, MasTec acquired an oil and gas pipeline equipment company that was formerly owned by a member of subsidiary management for
$40.6 million
in cash and an estimated earn-out liability of
$57.2 million
. MasTec previously leased equipment from this company. In February 2018, MasTec acquired a construction management firm specializing in steel building systems, of which Juan Carlos Mas was a minority owner, for approximately
$5 million
in cash plus contingent earn-out consideration.
For the years ended
December 31, 2017
,
2016
and
2015
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
$1.5 million
,
$1.0 million
and
$2.1 million
, respectively. As of
December 31, 2017
and
2016
, receivables, net of BIEC, from this contractual joint venture totaled
$0.8 million
and
$0.7 million
, respectively. Related performance guarantees, which are based on the original full contract value, as of both
December 31, 2017
and
2016
totaled Canadian
$132.1 million
(or approximately
$105.1 million
and
$98.3 million
, respectively), which was approximately
90%
complete as of
December 31, 2017
. In connection with this contractual joint venture, the Company provided project-related financing of
$7.2 million
and
$6.8 million
, respectively, for the years ended
December 31, 2017
and
2016
. As of
December 31, 2017
, there were
no
material amounts committed to this entity.
Non-controlling interests in entities consolidated by the Company represent ownership interests held by members of management of certain of the Company’s subsidiaries, primarily in the Company’s Oil and Gas segment. During the years ended
December 31, 2017
and
2016
, the Company had a subcontracting arrangement with
one
of these entities for the performance of ancillary oil and gas construction services, which transactions were eliminated in consolidation. In October 2017, the Company acquired the remaining non-controlling interests of
one
of these entities for
$21.4 million
in cash and an earn-out liability of
$9.0 million
. During the year ended
December 31, 2017
, the Company made distributions of earnings of
$1.3 million
to holders of these non-controlling interests, and a remaining distribution of
$0.6 million
will be made to the former holders in the first quarter of 2018. Cash paid to acquire the remaining interests of this entity is included within payments to non-controlling interests in the consolidated statements of cash flows, and the earn-out liability is reflected within other current and other long-term liabilities, as appropriate, in the consolidated balance sheets.
Split Dollar Agreements
As of
December 31, 2017
, MasTec had a split dollar agreement with Jorge Mas, and José R. Mas and Juan Carlos Mas, as trustees of the Jorge Mas Irrevocable Trust, dated June 1, 2012 (the “Jorge Mas trust”), under which MasTec was the sole owner of the policies subject to the agreement. The Company made the premium payments under each of the policies. Upon the death of Jorge Mas or the survivor of Jorge Mas and his wife under the applicable policy, MasTec was entitled to receive a portion of the death benefit under the policy equal to the greater of (i) premiums paid by the Company on the policy and (ii) the then cash value of the policy (excluding surrender charges or other similar charges or reductions) immediately before the triggering death. The balance of the death benefit was payable to the Jorge Mas trust or other beneficiary designated by the trustees. In the event of the Company’s bankruptcy or dissolution, the Jorge Mas trust had the assignable option to purchase the policies subject to the split dollar agreement from the Company. The purchase price for each policy was the greater of either the total premiums paid by the Company for the policy, or the then cash value of the policy, excluding surrender charges or other similar charges or reductions. The total maximum face amount of the insurance policies subject to the split dollar agreement was capped at
$200 million
. The Company was designated as the named fiduciary under the split dollar agreement, and the policy could not have been surrendered without the express written consent of the Jorge Mas trust.
In addition, as of
December 31, 2017
, MasTec had a split dollar agreement with José R. Mas, and Jorge Mas, Juan Carlos Mas and Patricia Mas, as trustees of the José Ramon Mas Irrevocable Trust, dated December 7, 2012 (the “José R. Mas trust”), under which MasTec was the sole owner of each of the policies subject to the agreement. The Company made the premium payments under each of the policies. Upon the death of José R. Mas or the survivor of José R. Mas and his wife under the applicable policy, MasTec was entitled to receive a portion of the death benefit under the policy equal to the greater of (i) premiums paid by the Company on the policy and (ii) the then cash value of the policy (excluding surrender charges or other similar charges or reductions) immediately before the triggering death. The balance of the death benefit was payable to the José R. Mas trust or other beneficiary designated by the trustees. In the event of the Company’s bankruptcy or dissolution, the José R. Mas trust had the assignable option to purchase the policies subject to the split dollar agreement from the Company. The purchase price for each policy was the greater of either the total premiums paid by the Company for the policy, or the then cash value of the policy, excluding surrender charges or other similar charges or reductions. The total maximum face amount of the insurance policies subject to the split dollar agreement was capped at
$75 million
. The Company was designated as the named fiduciary under the split dollar agreement, and the policy could not have been surrendered without the express written consent of the José R. Mas trust.
In connection with the split dollar agreement for Jorge Mas, the Company paid approximately
$1.1 million
in each of the years ended
December 31, 2017
,
2016
and
2015
. In connection with the split dollar agreement for José R. Mas, the Company paid approximately
$0.7 million
in each of the years ended
December 31, 2017
,
2016
and
2015
. As of
December 31, 2017
and
2016
, life insurance assets associated with these agreements, which amounts are included within other long-term assets, totaled
$16.6 million
and
$14.8 million
, respectively.
In February 2018, Jorge Mas, the Company and José R. Mas and Juan Carlos Mas, as trustees of the Jorge Mas trust, entered into an amended and restated split dollar life insurance agreement that replaces the prior split dollar agreement with Jorge Mas. Additionally, in February 2018, José R. Mas, the Company and Jorge Mas, Juan Carlos Mas and Patricia Mas, as trustees of the José R. Mas trust, entered into an amended and restated split dollar life insurance agreement that replaces the prior split dollar life insurance agreement with José R. Mas. Details of the amended and restated split dollar life insurance agreements with each of Jorge and José R. Mas (each a “Covered Executive”) are summarized below.
The Company is the sole owner of each of the policies subject to the applicable amended and restated split dollar agreement. The Company makes the premium payments under each of the policies. Upon the death of the applicable Covered Executive or the survivor thereof and his wife under the applicable policy, the Company is entitled to receive a portion of the death benefit under the policy equal to the greater of (i) premiums paid by the Company on the policy and (ii) the then cash value of the policy (excluding surrender charges or other similar charges or reductions) immediately before the triggering death. The balance of the death benefit is payable to the Jorge Mas trust or the José R. Mas trust, as applicable, or other beneficiary designated by the applicable trustees. In the event of (i) the Company’s bankruptcy or dissolution that does not qualify as a “change in control” of the Company, (ii) the death of the applicable Covered Executive, (iii) the death of the wife of the Covered Executive, or (iv) a “change in control” of the Company, the applicable trust shall have the assignable option to purchase the policies subject to the applicable split dollar agreement from the Company. The purchase price for each policy shall be the greatest of (i) the total premiums paid by the Company for the policy, (ii) the then cash value of the policy, excluding surrender charges or other similar charges or reductions, or (iii) only in the case of any purchase that is not as a result of the first to occur of an event described in the foregoing clauses (ii) and (iv), the fair market value of the policy. The purchase price for each policy shall be payable in cash or a promissory note, if and to the extent that the Company determines that payment with a promissory note could not violate applicable law. In the event of a “change in control” of the Company, the Company shall make all the then unpaid premium payments under the policies subject to the split dollar agreements and any other payments to the insurer necessary to cause the policies subject to the split dollar agreements to be fully paid. In addition, if any policies subject to the split dollar agreements are purchased from the Company, the Company shall make all the then unpaid premium payments under the purchased policies and any other payments to the insurer necessary to cause the purchased policies to be fully paid. The total maximum face amount of the insurance policies subject to the split dollar agreements is capped at
$200 million
in the case of Jorge Mas and
$75 million
in the case of Jose R. Mas. The Company is designated as the named fiduciary under each split dollar agreement, and the policies subject to the split dollar agreement may not be surrendered without the express written consent of the applicable trust.
Note 16
– Quarterly Information (Unaudited)
The following table presents selected unaudited quarterly operating results for the years ended
December 31, 2017
and
2016
(in millions, except per share data). The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly the quarterly results when read in conjunction with the consolidated financial statements and notes thereto. The sum of the individual quarterly amounts to the full year amounts as disclosed below may contain slight summation differences due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 2017 Quarters Ended
|
|
For the 2016 Quarters Ended
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
Revenue
|
$
|
1,158.2
|
|
|
$
|
1,890.2
|
|
|
$
|
1,955.8
|
|
|
$
|
1,602.9
|
|
|
$
|
974.2
|
|
|
$
|
1,232.4
|
|
|
$
|
1,586.2
|
|
|
$
|
1,341.9
|
|
Costs of revenue, excluding depreciation and amortization
|
$
|
971.1
|
|
|
$
|
1,626.3
|
|
|
$
|
1,726.2
|
|
|
$
|
1,421.7
|
|
|
$
|
884.4
|
|
|
$
|
1,068.2
|
|
|
$
|
1,369.0
|
|
|
$
|
1,120.6
|
|
Net income (loss)
|
$
|
40.6
|
|
|
$
|
83.3
|
|
|
$
|
64.2
|
|
|
$
|
160.7
|
|
|
$
|
(2.9
|
)
|
|
$
|
24.4
|
|
|
$
|
56.5
|
|
|
$
|
55.9
|
|
Net income (loss) attributable to MasTec, Inc.
|
$
|
41.0
|
|
|
$
|
81.7
|
|
|
$
|
63.8
|
|
|
$
|
160.8
|
|
|
$
|
(2.7
|
)
|
|
$
|
24.1
|
|
|
$
|
56.3
|
|
|
$
|
53.6
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.51
|
|
|
$
|
1.01
|
|
|
$
|
0.79
|
|
|
$
|
1.98
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.30
|
|
|
$
|
0.70
|
|
|
$
|
0.67
|
|
Diluted
|
$
|
0.50
|
|
|
$
|
0.99
|
|
|
$
|
0.77
|
|
|
$
|
1.95
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.30
|
|
|
$
|
0.69
|
|
|
$
|
0.66
|
|
Certain transactions affecting comparisons of the Company’s quarterly results, which may not represent the amounts recognized for the full year for such transactions, include the following:
|
|
(i)
|
Project losses on a proportionately consolidated non-controlled Canadian joint venture, pretax, totaling
$7.0 million
in the first quarter of 2017, respectively, and totaling
$5.1 million
in the third quarter of 2016;
|
|
|
(ii)
|
Excess tax benefits from share-based compensation of
$5.6 million
in the fourth quarter of 2017;
|
|
|
(iii)
|
An income tax benefit of
$120.1 million
from tax reform legislation in the fourth quarter of 2017;
|
|
|
(iv)
|
Restructuring charges, pretax, totaling
$4.1 million
,
$5.1 million
,
$4.7 million
and
$1.4 million
in the first, second, third, and fourth quarters of 2016, respectively.
|
Note 17
– Supplemental Guarantor Condensed 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, as of
December 31, 2017
, 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 consolidating balance sheets and the condensed 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 CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Revenue
|
$
|
—
|
|
|
$
|
6,222.3
|
|
|
$
|
457.0
|
|
|
$
|
(72.3
|
)
|
|
$
|
6,607.0
|
|
Costs of revenue, excluding depreciation and amortization
|
—
|
|
|
5,378.6
|
|
|
439.0
|
|
|
(72.3
|
)
|
|
5,745.3
|
|
Depreciation and amortization
|
—
|
|
|
159.1
|
|
|
28.9
|
|
|
—
|
|
|
188.0
|
|
General and administrative expenses
|
2.3
|
|
|
256.3
|
|
|
16.5
|
|
|
—
|
|
|
275.1
|
|
Interest expense (income), net
|
—
|
|
|
123.6
|
|
|
(62.6
|
)
|
|
—
|
|
|
61.0
|
|
Equity in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(21.3
|
)
|
|
—
|
|
|
(21.3
|
)
|
Other income, net
|
—
|
|
|
(13.0
|
)
|
|
—
|
|
|
—
|
|
|
(13.0
|
)
|
(Loss) income before income taxes
|
$
|
(2.3
|
)
|
|
$
|
317.7
|
|
|
$
|
56.5
|
|
|
$
|
—
|
|
|
$
|
371.8
|
|
Benefit from (provision for) income taxes
|
0.2
|
|
|
(18.1
|
)
|
|
(5.0
|
)
|
|
—
|
|
|
(22.9
|
)
|
Net (loss) income before equity in income from subsidiaries
|
$
|
(2.1
|
)
|
|
$
|
299.6
|
|
|
$
|
51.5
|
|
|
$
|
—
|
|
|
$
|
348.9
|
|
Equity in income from subsidiaries, net of tax
|
349.3
|
|
|
—
|
|
|
—
|
|
|
(349.3
|
)
|
|
—
|
|
Net income (loss)
|
$
|
347.2
|
|
|
$
|
299.6
|
|
|
$
|
51.5
|
|
|
$
|
(349.3
|
)
|
|
$
|
348.9
|
|
Net income (loss) attributable to non-controlling interests
|
—
|
|
|
2.4
|
|
|
(0.7
|
)
|
|
—
|
|
|
1.7
|
|
Net income (loss) attributable to MasTec, Inc.
|
$
|
347.2
|
|
|
$
|
297.2
|
|
|
$
|
52.2
|
|
|
$
|
(349.3
|
)
|
|
$
|
347.2
|
|
Comprehensive income (loss)
|
$
|
349.3
|
|
|
$
|
299.6
|
|
|
$
|
53.6
|
|
|
$
|
(351.4
|
)
|
|
$
|
351.0
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Revenue
|
$
|
—
|
|
|
$
|
4,790.9
|
|
|
$
|
353.8
|
|
|
$
|
(10.0
|
)
|
|
$
|
5,134.7
|
|
Costs of revenue, excluding depreciation and amortization
|
—
|
|
|
4,101.2
|
|
|
350.9
|
|
|
(10.0
|
)
|
|
4,442.1
|
|
Depreciation and amortization
|
—
|
|
|
134.2
|
|
|
30.7
|
|
|
—
|
|
|
164.9
|
|
General and administrative expenses
|
2.4
|
|
|
234.4
|
|
|
24.6
|
|
|
—
|
|
|
261.4
|
|
Interest expense (income), net
|
—
|
|
|
112.0
|
|
|
(61.3
|
)
|
|
—
|
|
|
50.7
|
|
Equity in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
—
|
|
|
(3.5
|
)
|
Other income, net
|
—
|
|
|
—
|
|
|
(6.8
|
)
|
|
—
|
|
|
(6.8
|
)
|
(Loss) income before income taxes
|
$
|
(2.4
|
)
|
|
$
|
209.1
|
|
|
$
|
19.2
|
|
|
$
|
—
|
|
|
$
|
225.8
|
|
Benefit from (provision for) income taxes
|
0.9
|
|
|
(72.6
|
)
|
|
(20.1
|
)
|
|
—
|
|
|
(91.8
|
)
|
Net (loss) income before equity in income from subsidiaries
|
$
|
(1.5
|
)
|
|
$
|
136.5
|
|
|
$
|
(0.9
|
)
|
|
$
|
—
|
|
|
$
|
134.0
|
|
Equity in income from subsidiaries, net of tax
|
132.8
|
|
|
—
|
|
|
—
|
|
|
(132.8
|
)
|
|
—
|
|
Net income (loss)
|
$
|
131.3
|
|
|
$
|
136.5
|
|
|
$
|
(0.9
|
)
|
|
$
|
(132.8
|
)
|
|
$
|
134.0
|
|
Net income (loss) attributable to non-controlling interests
|
—
|
|
|
3.3
|
|
|
(0.5
|
)
|
|
—
|
|
|
2.8
|
|
Net income (loss) attributable to MasTec, Inc.
|
$
|
131.3
|
|
|
$
|
133.2
|
|
|
$
|
(0.4
|
)
|
|
$
|
(132.8
|
)
|
|
$
|
131.3
|
|
Comprehensive income (loss)
|
$
|
137.8
|
|
|
$
|
136.5
|
|
|
$
|
5.6
|
|
|
$
|
(139.3
|
)
|
|
$
|
140.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Revenue
|
$
|
—
|
|
|
$
|
3,527.0
|
|
|
$
|
689.7
|
|
|
$
|
(8.4
|
)
|
|
$
|
4,208.3
|
|
Costs of revenue, excluding depreciation and amortization
|
—
|
|
|
3,073.6
|
|
|
656.1
|
|
|
(8.4
|
)
|
|
3,721.3
|
|
Depreciation and amortization
|
—
|
|
|
130.6
|
|
|
39.1
|
|
|
—
|
|
|
169.7
|
|
Goodwill and intangible asset impairment
|
—
|
|
|
—
|
|
|
78.6
|
|
|
—
|
|
|
78.6
|
|
General and administrative expenses
|
2.1
|
|
|
235.4
|
|
|
28.4
|
|
|
—
|
|
|
265.9
|
|
Interest expense (income), net
|
—
|
|
|
111.0
|
|
|
(62.9
|
)
|
|
—
|
|
|
48.1
|
|
Equity in losses of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
|
8.0
|
|
Other income, net
|
—
|
|
|
(6.2
|
)
|
|
(9.3
|
)
|
|
—
|
|
|
(15.5
|
)
|
Loss before income taxes
|
$
|
(2.1
|
)
|
|
$
|
(17.4
|
)
|
|
$
|
(48.3
|
)
|
|
$
|
—
|
|
|
$
|
(67.7
|
)
|
Benefit from (provision for) income taxes
|
1.1
|
|
|
9.3
|
|
|
(22.3
|
)
|
|
—
|
|
|
(12.0
|
)
|
Net loss before equity in losses from subsidiaries
|
$
|
(1.0
|
)
|
|
$
|
(8.1
|
)
|
|
$
|
(70.6
|
)
|
|
$
|
—
|
|
|
$
|
(79.7
|
)
|
Equity in losses from subsidiaries, net of tax
|
(78.1
|
)
|
|
—
|
|
|
—
|
|
|
78.1
|
|
|
—
|
|
Net (loss) income
|
$
|
(79.1
|
)
|
|
$
|
(8.1
|
)
|
|
$
|
(70.6
|
)
|
|
$
|
78.1
|
|
|
$
|
(79.7
|
)
|
Net loss attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
(0.6
|
)
|
Net (loss) income attributable to MasTec, Inc.
|
$
|
(79.1
|
)
|
|
$
|
(8.1
|
)
|
|
$
|
(70.0
|
)
|
|
$
|
78.1
|
|
|
$
|
(79.1
|
)
|
Comprehensive (loss) income
|
$
|
(117.5
|
)
|
|
$
|
(8.1
|
)
|
|
$
|
(109.0
|
)
|
|
$
|
116.5
|
|
|
$
|
(118.1
|
)
|
CONDENSED CONSOLIDATING BALANCE SHEETS (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Assets
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
—
|
|
|
$
|
1,536.6
|
|
|
$
|
332.9
|
|
|
$
|
(17.1
|
)
|
|
$
|
1,852.4
|
|
Property and equipment, net
|
—
|
|
|
638.7
|
|
|
67.8
|
|
|
—
|
|
|
706.5
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
1,187.9
|
|
|
141.0
|
|
|
—
|
|
|
1,328.9
|
|
Investments in and advances to consolidated affiliates, net
|
1,415.0
|
|
|
847.7
|
|
|
746.6
|
|
|
(3,009.3
|
)
|
|
—
|
|
Other long-term assets
|
15.8
|
|
|
23.4
|
|
|
139.6
|
|
|
—
|
|
|
178.8
|
|
Total assets
|
$
|
1,430.8
|
|
|
$
|
4,234.3
|
|
|
$
|
1,427.9
|
|
|
$
|
(3,026.4
|
)
|
|
$
|
4,066.6
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
—
|
|
|
$
|
778.6
|
|
|
$
|
202.3
|
|
|
$
|
(17.1
|
)
|
|
$
|
963.8
|
|
Long-term debt
|
—
|
|
|
1,269.4
|
|
|
11.3
|
|
|
—
|
|
|
1,280.7
|
|
Other long-term liabilities
|
—
|
|
|
379.9
|
|
|
8.8
|
|
|
—
|
|
|
388.7
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
2,427.9
|
|
|
$
|
222.4
|
|
|
$
|
(17.1
|
)
|
|
$
|
2,633.2
|
|
Total equity
|
$
|
1,430.8
|
|
|
$
|
1,806.4
|
|
|
$
|
1,205.5
|
|
|
$
|
(3,009.3
|
)
|
|
$
|
1,433.4
|
|
Total liabilities and equity
|
$
|
1,430.8
|
|
|
$
|
4,234.3
|
|
|
$
|
1,427.9
|
|
|
$
|
(3,026.4
|
)
|
|
$
|
4,066.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Assets
|
|
|
|
|
|
|
|
|
|
Total current assets
|
$
|
—
|
|
|
$
|
1,257.2
|
|
|
$
|
155.5
|
|
|
$
|
(10.2
|
)
|
|
$
|
1,402.5
|
|
Property and equipment, net
|
—
|
|
|
463.7
|
|
|
85.4
|
|
|
—
|
|
|
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
|
|
|
617.4
|
|
|
867.7
|
|
|
(2,569.0
|
)
|
|
—
|
|
Other long-term assets
|
12.6
|
|
|
25.2
|
|
|
18.1
|
|
|
—
|
|
|
55.9
|
|
Total assets
|
$
|
1,096.5
|
|
|
$
|
3,400.9
|
|
|
$
|
1,264.9
|
|
|
$
|
(2,579.2
|
)
|
|
$
|
3,183.1
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
$
|
—
|
|
|
$
|
742.8
|
|
|
$
|
107.4
|
|
|
$
|
(10.2
|
)
|
|
$
|
840.0
|
|
Long-term debt
|
—
|
|
|
941.7
|
|
|
19.7
|
|
|
—
|
|
|
961.4
|
|
Other long-term liabilities
|
—
|
|
|
258.1
|
|
|
20.0
|
|
|
—
|
|
|
278.1
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
1,942.6
|
|
|
$
|
147.1
|
|
|
$
|
(10.2
|
)
|
|
$
|
2,079.5
|
|
Total equity
|
$
|
1,096.5
|
|
|
$
|
1,458.3
|
|
|
$
|
1,117.8
|
|
|
$
|
(2,569.0
|
)
|
|
$
|
1,103.6
|
|
Total liabilities and equity
|
$
|
1,096.5
|
|
|
$
|
3,400.9
|
|
|
$
|
1,264.9
|
|
|
$
|
(2,579.2
|
)
|
|
$
|
3,183.1
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
155.1
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
156.3
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
—
|
|
|
(116.0
|
)
|
|
—
|
|
|
—
|
|
|
(116.0
|
)
|
Capital expenditures
|
—
|
|
|
(120.1
|
)
|
|
(3.3
|
)
|
|
—
|
|
|
(123.4
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
|
18.2
|
|
|
1.8
|
|
|
—
|
|
|
20.0
|
|
Payments for other investments
|
—
|
|
|
(3.8
|
)
|
|
(73.3
|
)
|
|
—
|
|
|
(77.1
|
)
|
Proceeds from other investments
|
—
|
|
|
1.2
|
|
|
22.6
|
|
|
—
|
|
|
23.8
|
|
Net cash used in investing activities
|
$
|
—
|
|
|
$
|
(220.5
|
)
|
|
$
|
(52.2
|
)
|
|
$
|
—
|
|
|
$
|
(272.7
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facilities
|
—
|
|
|
2,674.4
|
|
|
24.6
|
|
|
—
|
|
|
2,699.0
|
|
Repayments of credit facilities
|
—
|
|
|
(2,428.9
|
)
|
|
(28.4
|
)
|
|
—
|
|
|
(2,457.3
|
)
|
Repayments of other borrowings and capital lease obligations, net
|
—
|
|
|
(61.5
|
)
|
|
(9.6
|
)
|
|
—
|
|
|
(71.1
|
)
|
Payments of acquisition-related contingent consideration
|
—
|
|
|
(18.8
|
)
|
|
—
|
|
|
—
|
|
|
(18.8
|
)
|
Payments to non-controlling interests, including acquisition of interests and distributions
|
—
|
|
|
(22.7
|
)
|
|
—
|
|
|
—
|
|
|
(22.7
|
)
|
Payments for stock-based awards, net
|
(3.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
Repurchase of common stock
|
(1.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
Other financing activities, net
|
—
|
|
|
(6.3
|
)
|
|
—
|
|
|
—
|
|
|
(6.3
|
)
|
Net financing activities and advances from (to) consolidated affiliates
|
4.7
|
|
|
(89.6
|
)
|
|
84.9
|
|
|
—
|
|
|
—
|
|
Net cash provided by financing activities
|
$
|
—
|
|
|
$
|
46.6
|
|
|
$
|
71.5
|
|
|
$
|
—
|
|
|
$
|
118.2
|
|
Effect of currency translation on cash
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Net (decrease) increase in cash and cash equivalents
|
$
|
—
|
|
|
$
|
(18.8
|
)
|
|
$
|
20.4
|
|
|
$
|
—
|
|
|
$
|
1.6
|
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
28.9
|
|
|
9.9
|
|
|
—
|
|
|
38.8
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
10.1
|
|
|
$
|
30.3
|
|
|
$
|
—
|
|
|
$
|
40.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Net cash provided by operating activities
|
$
|
—
|
|
|
$
|
130.5
|
|
|
$
|
75.1
|
|
|
$
|
—
|
|
|
$
|
205.6
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
—
|
|
|
(4.1
|
)
|
|
—
|
|
|
—
|
|
|
(4.1
|
)
|
Capital expenditures
|
—
|
|
|
(112.6
|
)
|
|
(4.5
|
)
|
|
—
|
|
|
(117.1
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
|
7.6
|
|
|
3.6
|
|
|
—
|
|
|
11.2
|
|
Payments for other investments
|
—
|
|
|
(3.9
|
)
|
|
(28.2
|
)
|
|
—
|
|
|
(32.2
|
)
|
Proceeds from other investments
|
—
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
Net cash used in investing activities
|
$
|
—
|
|
|
$
|
(113.0
|
)
|
|
$
|
(28.0
|
)
|
|
$
|
—
|
|
|
$
|
(141.0
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facilities
|
—
|
|
|
1,553.4
|
|
|
128.0
|
|
|
—
|
|
|
1,681.4
|
|
Repayments of credit facilities
|
—
|
|
|
(1,496.6
|
)
|
|
(130.5
|
)
|
|
—
|
|
|
(1,627.1
|
)
|
Repayments of other borrowings and capital lease obligations, net
|
—
|
|
|
(50.4
|
)
|
|
(18.3
|
)
|
|
—
|
|
|
(68.7
|
)
|
Payments of acquisition-related contingent consideration
|
—
|
|
|
(16.6
|
)
|
|
(3.2
|
)
|
|
—
|
|
|
(19.8
|
)
|
Proceeds from stock-based awards, net
|
4.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.2
|
|
Other financing activities, net
|
0.1
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Net financing activities and advances (to) from consolidated affiliates
|
(4.3
|
)
|
|
16.4
|
|
|
(12.1
|
)
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
$
|
—
|
|
|
$
|
6.6
|
|
|
$
|
(36.1
|
)
|
|
$
|
—
|
|
|
$
|
(29.5
|
)
|
Effect of currency translation on cash
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
|
—
|
|
|
(1.3
|
)
|
Net increase in cash and cash equivalents
|
$
|
—
|
|
|
$
|
24.1
|
|
|
$
|
9.7
|
|
|
$
|
—
|
|
|
$
|
33.8
|
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
4.8
|
|
|
0.2
|
|
|
—
|
|
|
5.0
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
28.9
|
|
|
$
|
9.9
|
|
|
$
|
—
|
|
|
$
|
38.8
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
MasTec, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
MasTec, Inc.
|
Net cash provided by operating activities
|
$
|
0.9
|
|
|
$
|
358.5
|
|
|
$
|
8.0
|
|
|
$
|
—
|
|
|
$
|
367.4
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Capital expenditures
|
—
|
|
|
(71.9
|
)
|
|
(12.5
|
)
|
|
—
|
|
|
(84.4
|
)
|
Proceeds from sale of property and equipment
|
—
|
|
|
10.5
|
|
|
3.4
|
|
|
—
|
|
|
13.9
|
|
Payments for other investments
|
(1.9
|
)
|
|
—
|
|
|
(125.6
|
)
|
|
—
|
|
|
(127.5
|
)
|
Proceeds from other investments
|
—
|
|
|
—
|
|
|
69.4
|
|
|
—
|
|
|
69.4
|
|
Net cash used in investing activities
|
$
|
(1.9
|
)
|
|
$
|
(61.5
|
)
|
|
$
|
(65.3
|
)
|
|
$
|
—
|
|
|
$
|
(128.7
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from credit facilities
|
—
|
|
|
1,097.3
|
|
|
605.1
|
|
|
—
|
|
|
1,702.4
|
|
Repayments of credit facilities
|
—
|
|
|
(1,154.3
|
)
|
|
(587.8
|
)
|
|
—
|
|
|
(1,742.1
|
)
|
Repayments of other borrowings and capital lease obligations, net
|
—
|
|
|
(54.3
|
)
|
|
(16.6
|
)
|
|
—
|
|
|
(70.9
|
)
|
Repurchase of common stock
|
(100.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100.0
|
)
|
Payments of acquisition-related contingent consideration
|
—
|
|
|
(37.3
|
)
|
|
(10.2
|
)
|
|
—
|
|
|
(47.5
|
)
|
Proceeds from (payments for) stock-based awards, net
|
2.7
|
|
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
1.6
|
|
Other financing activities, net
|
—
|
|
|
(2.4
|
)
|
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
Net financing activities and advances from (to) consolidated affiliates
|
98.3
|
|
|
(158.6
|
)
|
|
60.3
|
|
|
—
|
|
|
—
|
|
Net cash provided by (used in) financing activities
|
$
|
1.0
|
|
|
$
|
(310.7
|
)
|
|
$
|
50.8
|
|
|
$
|
—
|
|
|
$
|
(258.9
|
)
|
Effect of currency translation on cash
|
—
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
Net decrease in cash and cash equivalents
|
$
|
—
|
|
|
$
|
(13.7
|
)
|
|
$
|
(5.4
|
)
|
|
$
|
—
|
|
|
$
|
(19.1
|
)
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
18.5
|
|
|
5.6
|
|
|
—
|
|
|
24.1
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
4.8
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
5.0
|
|