MASTEC, INC.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income | $ | 36,062 |
| | $ | 43,107 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation | 53,089 |
| | 54,226 |
|
Amortization of intangible assets | 7,391 |
| | 4,805 |
|
Non-cash interest expense, net | 725 |
| | 453 |
|
Non-cash stock-based compensation expense | 4,049 |
| | 3,720 |
|
(Benefit from) provision for deferred income taxes | (12,614 | ) | | 899 |
|
Equity in earnings of unconsolidated affiliates | (7,834 | ) | | (6,260 | ) |
Gains on sales of assets, net | (2,407 | ) | | (2,052 | ) |
Other non-cash items, net | 734 |
| | (3,043 | ) |
Changes in assets and liabilities, net of acquisitions: | | | |
Accounts receivable, net of allowance | 48,337 |
| | (37,831 | ) |
Contract assets | 26,311 |
| | 6,376 |
|
Inventories | 5,932 |
| | 9,690 |
|
Other assets, current and long-term portion | 17,906 |
| | 2,398 |
|
Accounts payable and accrued expenses | 34,058 |
| | (134,491 | ) |
Contract liabilities | 2,603 |
| | 3,821 |
|
Other liabilities, current and long-term portion | (11,076 | ) | | 7,375 |
|
Net cash provided by (used in) operating activities | $ | 203,266 |
| | $ | (46,807 | ) |
Cash flows from investing activities: | | | |
Cash paid for acquisitions, net of cash acquired | — |
| | (93,684 | ) |
Capital expenditures | (60,594 | ) | | (34,396 | ) |
Proceeds from sale of property and equipment | 8,363 |
| | 8,654 |
|
Payments for other investments | (12,000 | ) | | (2,190 | ) |
Proceeds from other investments | 648 |
| | 10,413 |
|
Other investing activities, net | 4,843 |
| | — |
|
Net cash used in investing activities | $ | (58,740 | ) | | $ | (111,203 | ) |
Cash flows from financing activities: | | | |
Proceeds from credit facilities | 675,935 |
| | 866,397 |
|
Repayments of credit facilities | (671,780 | ) | | (670,794 | ) |
Repayments of other borrowings, net | — |
| | (6 | ) |
Payments of finance lease obligations | (30,856 | ) | | (17,239 | ) |
Proceeds from stock-based awards | 1,476 |
| | 1,079 |
|
Payments for stock-based awards | (572 | ) | | (12 | ) |
Repurchases of common stock | (119,427 | ) | | (5,652 | ) |
Net cash (used in) provided by financing activities | $ | (145,224 | ) | | $ | 173,773 |
|
Effect of currency translation on cash | 934 |
| | 9 |
|
Net increase in cash and cash equivalents | $ | 236 |
| | $ | 15,772 |
|
Cash and cash equivalents - beginning of period | $ | 71,427 |
| | $ | 27,422 |
|
Cash and cash equivalents - end of period | $ | 71,663 |
| | $ | 43,194 |
|
|
| | | | | | | |
Supplemental cash flow information: | | | |
Interest paid | $ | 21,479 |
| | $ | 26,220 |
|
Income tax (refunds) payments, net | $ | (287 | ) | | $ | 2,837 |
|
Supplemental disclosure of non-cash information: | | | |
Additions to property and equipment from finance leases | $ | 26,932 |
| | $ | 40,258 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MASTEC, INC.
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, utility and utilityother 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;generation, including from renewable sources; heavy civil; and industrial infrastructure. MasTec’s customers are primarily in these industries. MasTec reports its results under five5 reportable segments: (1) Communications; (2) Oil and Gas; (3) Electrical Transmission; (4) Power Generation and Industrial; and (5) Other.
Basis of Presentation
The accompanying condensed unaudited consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated balance sheet as of December 31, 20162019 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 20162019 contained in the Company’s 20162019 Annual Report on Form 10-K (the “2016“2019 Form 10-K”). In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included. CertainWhen necessary, certain prior year amounts have been reclassified to conform to the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these condensed unaudited consolidated financial statements are adequate to make the information not misleading.
Principles of Consolidation
The accompanying condensed unaudited consolidated financial statements include MasTec, Inc. and its subsidiaries and include the accounts of all majority owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that MasTec consolidates are reported as non-controlling interests within equity.equity, except for mandatorily redeemable non-controlling interests, which are recorded within liabilities. 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 forover 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, or, for investments in a net liability position, within other long-term liabilities. 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.
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 September 30, 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 accumulatedincluded 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 condensed unaudited consolidated financial statements, “$” means U.S. dollars unless otherwise noted.
Management Estimates
The preparation of consolidated financial statements in conformityaccordance 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, (whichwhich the Company defines as project revenue, less project costs of revenue, including project-related depreciation),depreciation, in particular, on construction contracts accounted for under the percentage-of-completioncost-to-cost method, for which the recorded amounts require estimates of costs to complete and the amount and probability of probablevariable consideration included in the contract price adjustments; allowances for doubtful accounts; estimatedtransaction price; fair valuesvalue estimates, including those related to acquisitions, valuations of goodwill and intangible assets;assets, acquisition-related contingent consideration and investments in equity investees;investments; allowances for credit losses; asset lives used in computing depreciation and amortization; fair values of financial instruments; accrued self-insured claims; share-based compensation;self-insurance liabilities; other accruals and allowances; accounting for income taxes; and the estimated impacteffects of litigation and other contingencies. While management believes that such estimates are reasonable when considered in conjunction with the Company’s consolidated financial position and results of operations taken as a whole, actual results could differ materially from those estimates.
Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue from contracts with customers under Accounting Standards Codification (“ASC”) Topic 606 (“Topic 606”). Under Topic 606, revenue is recognized when, or as, control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is derivedprimarily
recognized by the Company over time utilizing the cost-to-cost measure of progress, which best depicts the continuous transfer of control of goods or services to the customer, and correspondingly, when performance obligations are satisfied for the related contracts.
Contracts. The Company derives revenue primarily from construction projects performed underunder: (i) master and other service agreements, as well as fromwhich provide a menu of available services in a specific geographic territory that are utilized on an as-needed basis, and are typically priced using either a time and materials, or a fixed price per unit basis; and (ii) 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 undersystem, which are subject to multiple pricing options, including fixed price, 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.or cost plus a markup. Revenue derived from projects performed under master service and other service agreements totaled 32%42% and 38%41% of consolidated revenue for the three month periods ended September 30, 2017March 31, 2020 and 2016, respectively, and totaled 35% and 43% for the nine month periods ended September 30, 2017 and 2016,2019, respectively. The Company also performs services under
For certain master service and other service agreements on a fixed fee basis, under which MasTec furnishes specified units ofthe Company performs installation and maintenance services, primarily for install-to-the-home service for a fixed price per unit of service andproviders in its Communications segment, revenue is recognized asat a point in time. This is generally when the services are rendered. Revenue from fixed price contracts provideswork order has been fulfilled, which is typically the same day the work is initiated. Point in time revenue accounted for a fixed amountapproximately 6% of consolidated revenue for both the entire project, subject to certain additions for changed scope or specifications. Revenue from these contracts, as well as for certain projects pursuant to masterthree month periods ended March 31, 2020 and 2019. Substantially all of the Company’s other service agreements,revenue 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.over time.
The total contract transaction price and cost estimation processprocesses used for recognizing revenue recognizedover time under the percentage-of-completioncost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract revenuetransaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected contract settlementsvariable consideration are factors that influence estimates of the total contract value andtransaction price, total costs to complete those contracts and therefore, the Company’s profit recognition. Changes in these factors maycould result in revisions to costs and income and their effects are recognizedrevenue in the period in which the revisions are determined, which could materially affect the Company’s consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such changeslosses are recognized.determined. For both the ninethree month periods ended September 30, 2017March 31, 2020 and 2016,2019, 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, 20162019 and 2015. Provisions2018. Revenue recognized for losses on uncompleted contracts are madethe three month periods ended March 31, 2020 and 2019 as a result of changes in the periodtotal contract transaction price estimates, including from variable consideration, from performance obligations satisfied or partially satisfied in which such losses are determined to be probableprior periods totaled approximately $17.8 million and the amount$12.5 million, respectively.
The Company may incur certain costs that can be reasonably estimated.capitalized, such as initial set-up or mobilization costs. Such costs, which are amortized over the life of the respective projects, were not material in either of the three month periods ended March 31, 2020 or 2019.
Performance Obligations.A performance obligation is a contractual promise to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. The vast majority of fixed price contractsthe Company’s performance obligations are completed within one year.
TheRemaining performance obligations represent the amount of unearned transaction prices under contracts for which work is wholly or partially unperformed, including the Company’s share of unearned transaction prices from its proportionately consolidated non-controlled joint ventures. As of March 31, 2020, the amount of the Company’s remaining performance obligations was $5.7 billion. Based on current expectations, the Company expects to recognize approximately $4.5 billion of its remaining performance obligations as revenue during 2020, with the remainder to be recognized primarily in 2021.
Variable Consideration. Transaction prices for the Company’s contracts may incur costs subject toinclude variable consideration, which comprises items such as change orders, whether approved or unapproved byclaims and incentives. Management estimates variable consideration for a performance obligation utilizing estimation methods that it believes best predict the customer, and/or claims relatedamount of consideration to certain contracts. Management determineswhich the probability that such costsCompany will be recoveredentitled. Management’s estimates of variable consideration and the determination of whether to include estimated amounts in transaction prices are based uponlargely on 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 costcustomer and all other relevant information that is reasonably available at the time of contract performancethe estimate. To the extent unapproved change orders, claims and other variable consideration reflected in transaction prices are not resolved in the period incurred if it is not probable that the costs will be recovered, and defers costsCompany’s favor, or recognizes revenue up to the amountextent incentives reflected in transaction prices are not earned, there could be reductions in, or reversals of, the related cost if it is probable that the contract price will be adjusted and can be reliably estimated. previously recognized revenue.
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company hadincluded approximately $77$35 million and $17$27 million, respectively, of change orders and/or claims that had been included as contract price adjustments onin transaction prices for certain contracts that were in the process of being resolved in the normalordinary course of business, including through negotiation, arbitration and other proceedings. These contracttransaction price adjustments, whichwhen earned, are included within costs and earnings in excess of billingscontract assets or billed accounts receivable, net of allowance, as appropriate, represent management’s best estimate of contract revenue that has been earned and that management believes is probable of collection.appropriate. As of both September 30, 2017March 31, 2020 and December 31, 2016,2019, these change orders and/or claims were primarily related to contractscertain projects in the Company’s Oil and Gas segment. The Company actively engages in substantive meetings with its customers to complete the final approval process, and generally expects these processes to be completed within one year. The amountsAmounts ultimately realized upon final acceptanceagreement by its customers could be higher or lower than such estimated amounts.
Billings In Excess of Costs and Earnings (“BIEC”) on uncompleted contracts is classified within current liabilities. Costs and Earnings In Excess of Billings (“CIEB”), which is also referred to as work in process, is classified within current assets. Work in process on contracts is based on work performed but not yet billed to customers as per individual contract terms.
Recently Issued Accounting Pronouncements
There have been no changes inSee the expected dates of adoption or estimatedrecent accounting pronouncements discussion below for information pertaining to the effects on the Company’s consolidated financial statements of recently issuedadopted and other recent accounting pronouncements, as updated from those disclosedthe discussion in the Company’s 20162019 Form 10-K. See below for additional discussion of recently issued accounting pronouncements.
Accounting Pronouncements Not Yet Adopted in 2020
In August 2017,2018, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”)2017-12, Derivatives 2018-15, Intangibles-Goodwill and Hedging (Topic 815): Targeted Improvements toOther-Internal-Use Software (Subtopic 350-40)Customer’s Accounting for Hedging ActivitiesImplementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2017-12”2018-15”). to reduce diversity in practice in accounting for the costs of implementing cloud computing arrangements that are service contracts. ASU 2017-12 amends2018-15 aligns the hedge accounting modelrequirements for capitalizing implementation costs incurred in Topic 815a cloud computing arrangement that is a service contract with the requirements for internal-use software. Accounting for the service element of the cloud computing arrangement is not affected by the new guidance. Under ASU 2018-15, amortization expense, payments for and asset balances related 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 instrumentsuch capitalized implementation costs are to be presented inwithin the same income statement line items of the entity’s statements of operations, cash flows and balance sheets, respectively,
as the hedged item. The guidance also simplifies certain documentationrelated service fee activity and assessment requirements.balances would be presented. 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 on2018-15, which 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 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. ASU 2017-09 is effectiveadopted on a prospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company does not expectduring the adoptionfirst quarter of this ASU to have a material effect on its consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, Other Income- Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets(“ASU 2017-05”). ASU 2017-05 clarifies certain guidance under Subtopic 610-20 that was issued as part of the new revenue standard, including the recognition of gains and losses on the sale or transfer of nonfinancial assets to noncustomers, and clarifies accounting for contributions of nonfinancial assets to joint ventures, among other requirements. ASU 2017-05 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The core principle of this ASU is that a company will recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use judgment and make estimates when evaluating contract terms and other relevant facts and circumstances. Additionally, ASU 2014-09 requires enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, is effective using either the full retrospective or modified retrospective transition approach for fiscal years, and for interim periods within those years, beginning after December 15, 2017. In 2016, the FASB issued several accounting standards updates to clarify certain topics within ASU 2014-09. The Company will adopt ASU 2014-09, and its related clarifying ASUs, as of January 1, 2018.
The Company has substantially completed its assessment of the potential effects of these ASUs on its consolidated financial statements, business processes, systems and controls. The Company’s assessment 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 the new standard. Based on the Company’s review of various types of revenue arrangements, the Company expects to recognize revenue and earnings over time utilizing the cost-to-cost measure of progress for its fixed price contracts and certain master service and other service agreements, consistent with current practice. For these contracts, the cost-to-cost measure of progress best depicts the transfer of control of goods or services to the customer under the new standard. The Company has substantially completed its analysis of the information necessary to enable the preparation of the financial statements and related disclosures under the new standard. As part of this analysis, the Company evaluated its information technology capabilities and systems, and does not expect to incur significant information technology costs to modify systems currently in place. The Company will implement targeted changes to its internal reporting processes to facilitate gathering the data needed for reporting and disclosure under the new standard. The Company will also implement updates to its control processes and procedures, as necessary, based on changes resulting from the new standard. The Company does not expect any such updates to materially affect the Company’s internal controls over financial reporting.
The Company anticipates adopting the standard using the modified retrospective transition approach. Under this approach, the new standard would apply to all new contracts initiated on or after January 1, 2018. For existing contracts that have remaining obligations as of January 1, 2018, any difference between the recognition criteria in these ASUs and the Company’s current revenue recognition practices would be recognized using a cumulative effect adjustment to the opening balance of retained earnings. Any potential effect of adoption of these ASUs has not yet been quantified; however, based on the review of contracts across all of the Company’s business units to date, the adoption of these ASUs is not expected to have a material effect on the timing or amount of revenue recognized as compared to current practices. The Company is training its business units for the implementation of the new standard, and continues developing the disclosures required by the new standard. The Company is also reviewing certain contracts entered into by its business units subsequent to its initial assessment that are expected to have performance obligations remaining as of January 1, 2018 for any cumulative effect adjustments that may be required upon adoption.
Accounting Pronouncements Adopted as of January 1, 2017
The Company adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) effective January 1, 2017. Under ASU 2016-09, excess tax benefits (“windfalls”) or tax deficiencies (“shortfalls”) are recognized in the income statement, rather than as additional paid-in-capital as under the previous guidance, and are presented as operating cash flows,
rather than as a financing activity. This ASU also increased the amount of tax that can be withheld by an employer for employee tax withholdings without resulting in liability classification of an award. Payments to taxing authorities for such employee withholdings are presented as financing activities. ASU 2016-09 also allows companies to account for forfeitures of share-based payments as they occur or to estimate such amounts. The provisions of ASU 2016-09 that were applicable to the Company were adopted on a prospective basis; the retrospective requirement to classify payments to taxing authorities for employee withholdings as a financing activity was consistent with the Company’s existing methodology, therefore did not result in a change. The adoption of ASU 2016-09 is expected to result in volatility in income tax expense given that windfalls or shortfalls are recognized in income tax expense in the periods in which they occur. The other components of this ASU2020, did not have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13, which is intended to improve the effectiveness of fair value measurement disclosures, modifies the disclosure requirements for certain estimates and assumptions used in determining the fair value of assets and liabilities. ASU 2018-13, which the Company adopted during the first quarter of 2020, did not have a material effect on the Company’s consolidated financial statements. See Note 24 - Earnings Per Share,Fair Value of Financial Instruments for certain disclosure updates pertaining to the Company’s Level 3 financial instruments as a result of the adoption of ASU 2018-13.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This ASU, together with its related clarifying ASUs (collectively, “ASU 2016-13”), introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial assets, including financial assets arising from revenue transactions, such as accounts receivable and contract assets. The current expected credit loss methodology, which is based on historical experience, current conditions and reasonable and supportable forecasts, replaced the probable/incurred loss model for measuring and recognizing expected credit losses. The Company adopted this ASU in the first quarter of 2020 and incorporated this guidance into its methodology for estimating its accounts receivable allowances. The adoption of ASU 2016-13 did not have a material effect on the Company’s consolidated financial statements as credit losses are not expected to be significant based on historical trends, the financial condition of our customers and external factors. Management actively monitors the economic environment, including any potential effects from the COVID-19 pandemic, on the Company’s customers and/or its financial assets. For additional information about the Company’s accounts receivable and related allowances, see Note 95 - Stock-Based CompensationAccounts Receivable, Net of Allowance, and Other Employee Benefit PlansContract Assets and Note 12 - Income Taxes for additional information.Liabilities.
In March 2020, the FASB issued ASU 2020-04, Reference Reform Rate (Topic 848):Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) to provide temporary optional expedients and exceptions to the contract modifications, hedge relationships and other transactions affected by reference rate reform if certain criteria are met. This ASU, which was effective upon issuance and may be applied through December 31, 2022, is applicable to all contracts and hedging relationships that reference the London Interbank Offered Rate or any other reference rate expected to be discontinued. The Company is currently evaluating the impact of reference rate reform and the potential application of this guidance.
Note 2 – Earnings Per Share
Basic earnings or loss per share is computed by dividing net income or loss attributable to MasTec by the weighted average number of common shares outstanding for the period, which excludes non-participating unvested restricted share awards. Diluted earnings per share is computed by dividing net income attributable to MasTec by the weighted average number of fully diluted shares, as calculated under the treasury stock method, which includes the potential effect of dilutive common stock equivalents, such as issued but unvested restricted shares and/or outstanding but unexercised stock options. The Company has no remaining outstanding stock options; all options under the Company’s stock option grants were exercised in 2016.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. Previously, excess tax benefits or tax deficiencies were included within assumed proceeds. For both the three and nine month periods ended September 30, 2017, this resulted in the inclusion of approximately 0.3 million incremental shares in the Company’s total weighted average diluted shares outstanding.
The following table provides details underlying the Company’s earnings per share calculations for the periods indicated (in thousands):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2020 | | 2019 |
Net income attributable to MasTec: | | | |
Net income - basic and diluted (a) | $ | 36,230 |
| | $ | 43,112 |
|
Weighted average shares outstanding: | | | |
Weighted average shares outstanding - basic | 74,738 |
| | 74,991 |
|
Dilutive common stock equivalents | 675 |
| | 587 |
|
Weighted average shares outstanding - diluted | 75,413 |
| | 75,578 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30 | | For the Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income attributable to MasTec: | | | | | | | |
Net income - basic and diluted (a) | $ | 63,752 |
| | $ | 56,277 |
| | $ | 186,390 |
| | $ | 77,672 |
|
Weighted average shares outstanding: | | | | | | | |
Weighted average shares outstanding - basic | 80,953 |
| | 80,462 |
| | 80,859 |
| | 80,323 |
|
Dilutive common stock equivalents | 1,433 |
| | 1,083 |
| | 1,422 |
| | 918 |
|
Weighted average shares outstanding - diluted | 82,386 |
| | 81,545 |
| | 82,281 |
| | 81,241 |
|
| | | | | | | |
Additional information: | | | | | | | |
Weighted average anti-dilutive common stock equivalents (b) | — |
| | 1 |
| | 12 |
| | — |
|
| |
(a) | Calculated as total net income less amounts attributable to non-controlling interests. |
| |
(b) | Represents anti-dilutive common stock equivalents as calculated under the treasury stock method. |
The Company repurchased approximately 3.6 million shares of its common stock during the three month period ended March 31, 2020, as discussed in Note 11 - Equity. The effect of these repurchases on the Company’s first quarter 2020 weighted average shares outstanding was not significant due to the timing of the repurchases, which occurred in the latter part of the quarter. In future quarters, these share repurchases will be fully reflected in the total number of weighted average shares outstanding for the respective quarter to date periods.
Note 3 -– Goodwill and Other Intangible Assets
The following table provides details ofbalances for goodwill by reportable segment as of September 30, 2017March 31, 2020 (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Communications | | Oil and Gas | | Electrical Transmission | | Power Generation and Industrial | | Total Goodwill |
Goodwill, gross | $ | 541.8 |
| | $ | 489.3 |
| | $ | 149.9 |
| | $ | 152.8 |
| | $ | 1,333.8 |
|
Accumulated impairment loss | — |
| | (112.7 | ) | | — |
| | — |
| | (112.7 | ) |
Goodwill, net | $ | 541.8 |
| | $ | 376.6 |
| | $ | 149.9 |
| | $ | 152.8 |
| | $ | 1,221.1 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Communications | | Oil and Gas | | Electrical Transmission | | Power Generation and Industrial | | Total Goodwill |
Goodwill, gross | $ | 462.4 |
| | $ | 461.6 |
| | $ | 149.9 |
| | $ | 137.0 |
| | $ | 1,210.9 |
|
Accumulated impairment losses | — |
| | (75.4 | ) | | — |
| | — |
| | (75.4 | ) |
Goodwill, net | $ | 462.4 |
| | $ | 386.2 |
| | $ | 149.9 |
| | $ | 137.0 |
| | $ | 1,135.5 |
|
For the ninethree month period ended September 30, 2017, additions toMarch 31, 2020, goodwill included a net increase of $0.8 million from new business combinations totaled $135.3 million.measurement period adjustments. Currency translation effects related to goodwill and accumulated impairment losses for the three month period ended March 31, 2020 totaled approximately $9.8$9.9 million of losses and $8.8 million of gains, and $5.4 million of losses, respectively, for the nine month period ended September 30, 2017. For the nine month period ended September 30, 2016, additions to goodwill from accruals of acquisition-related contingent consideration totaled $5.8 million, and currency translation effects related to goodwill and accumulated impairment losses totaled $6.0 million of gains and $3.1 million of losses, respectively.
The following table provides a reconciliation of changes in other intangible assets, net, for the period indicated (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Other Intangible Assets |
| Non-Amortizing | | Amortizing | | |
| Trade Names | | Pre-Qualifications | | Customer Relationships and Backlog | | Other (a) | | Total |
Other intangible assets, gross, as of December 31, 2016 | $ | 34.5 |
| | $ | 74.6 |
| | $ | 195.1 |
| | $ | 19.1 |
| | $ | 323.3 |
|
Accumulated amortization | | | | | (131.9 | ) | | (11.7 | ) | | (143.6 | ) |
Other intangible assets, net, as of December 31, 2016 | $ | 34.5 |
| | $ | 74.6 |
| | $ | 63.2 |
| | $ | 7.4 |
| | $ | 179.7 |
|
Additions from new business combinations | — |
| | — |
| | 24.4 |
| | 2.4 |
| | 26.8 |
|
Amortization expense | | | | | (13.9 | ) | | (1.1 | ) | | (15.0 | ) |
Currency translation adjustments | — |
| | 3.4 |
| | 0.5 |
| | 0.1 |
| | 4.0 |
|
Other intangible assets, net, as of September 30, 2017 | $ | 34.5 |
| | $ | 78.0 |
| | $ | 74.2 |
| | $ | 8.8 |
| | $ | 195.5 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Other Intangible Assets |
| Non-Amortizing | | Amortizing | | |
| Trade Names | | Pre-Qualifications | | Customer Relationships and Backlog | | Pre-Qualifications | | Other (a) | | Total |
Other intangible assets, gross, as of December 31, 2019 | $ | 34.5 |
| | $ | 72.9 |
| | $ | 286.5 |
| | $ | — |
| | $ | 26.3 |
| | $ | 420.2 |
|
Accumulated amortization | | | | | (191.2 | ) | | — |
| | (17.5 | ) | | (208.7 | ) |
Other intangible assets, net, as of December 31, 2019 | $ | 34.5 |
| | $ | 72.9 |
| | $ | 95.3 |
| | $ | — |
| | $ | 8.8 |
| | $ | 211.5 |
|
Classification changes (b) | — |
| | (69.8 | ) | | — |
| | 69.8 |
| | — |
| | — |
|
Measurement period adjustments (c) | — |
| | — |
| | (0.2 | ) | | — |
| | — |
| | (0.2 | ) |
Currency translation adjustments | — |
| | (3.1 | ) | | — |
| | — |
| | — |
| | (3.1 | ) |
Amortization expense | | | | | (5.9 | ) | | (1.0 | ) | | (0.5 | ) | | (7.4 | ) |
Other intangible assets, net, as of March 31, 2020 | $ | 34.5 |
| | $ | — |
| | $ | 89.2 |
| | $ | 68.8 |
| | $ | 8.3 |
| | $ | 200.8 |
|
| |
(a) | Consists principally of trade names and non-compete agreements. |
| |
(b) | In connection with its first quarter assessment of goodwill and indefinite-lived intangible assets, management reassessed the indefinite life classification of its two pre-qualification intangible assets. Management determined that, based on changes in the assets’ characteristics, including current and expected changes in the customer mix of the associated reporting units, a finite life classification for these assets was more appropriate. As a result, in the first quarter of 2020, the Company changed the classification of these pre-qualification intangible assets from indefinite-lived to finite-lived and began amortizing them on an accelerated basis. As of March 31, 2020, the estimated remaining weighted average useful life of these assets was approximately 12 years. |
| |
(c) | Represents adjustments to preliminary estimates of fair value within the measurement period of up to one year from the date of acquisition. |
Amortization expense associated withof intangible assets for the three month periods ended September 30, 2017March 31, 2020 and 20162019 totaled $6.0 million and $5.2 million, respectively, and for the nine month periods ended September 30, 2017 and 2016, totaled $15.0$7.4 million and $15.7$4.8 million, respectively.
20172019 Acquisitions.During the nine month period ended September 30, 2017,2019, MasTec completed three6 acquisitions, 1 of which specializes in water infrastructure for pipeline companies and is included within the Company’s Oil and Gas segment, 4 of which are included within the Company’s Communications segment, including (i) a wireline/fiber deployment construction contractor and a telecommunications company specializing in a broad range of end-to-end wireless telecommunications solutions, and 1 of which is includedspecializes in construction projects in the Company’s Communications segment; (ii) a heavy civil construction services company, whichpower industry and is included in the Company’s Power Generation and Industrial segment and (iii) an oil and gas pipeline equipment company, which is included. For all but one of these acquisitions, the Company acquired all of the equity interests in the Company’s Oilrelated entities. For the telecommunications company specializing in wireless telecommunications solutions, the Company acquired 96% of the entity’s equity interests, with the obligation to acquire the balance over time.
The aggregate purchase price for these entities, as adjusted, was composed of approximately $175.1 million in cash, net of cash acquired, plus earn-out liabilities and Gas segment.a mandatorily redeemable non-controlling interest valued at approximately $22.2 million and $17.8 million, respectively. The Company refers to its traditional earn-out arrangements and the mandatorily redeemable non-controlling interest collectively as “Earn-outs,” which are generally payable annually and are recorded within other current and other long-term liabilities in the consolidated balance sheets. Earn-outs for the 2019 acquisitions have terms ranging from 3 to 5 years. As of March 31, 2020, the range of remaining potential undiscounted Earn-out liabilities for the 2019 acquisitions was estimated to be between $2 million and $71 million; however, there is no maximum payment amount. Determination of the estimated fair values of the net assets acquired and the estimated earn-outEarn-out liabilities for these acquisitions iswas preliminary as of September 30, 2017, andMarch 31, 2020; as a result, further adjustments to management’s preliminarythese estimates may occur.
The following table summarizes the estimated fair values of consideration paidPro Forma Financial Information and identifiable assets acquired and liabilities assumed as of the respective dates of acquisition (in millions).
|
| | | |
Acquisition consideration: | 2017 |
Cash | $ | 118.8 |
|
Fair value of contingent consideration (earn-out liability) | 89.6 |
|
Total consideration transferred | $ | 208.4 |
|
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 | 56.9 |
|
Amortizing intangible assets | 26.8 |
|
Other long-term assets | 0.5 |
|
Current liabilities, including current portion of capital lease obligations and long-term debt | (28.4 | ) |
Long-term debt, including capital lease obligations | (9.9 | ) |
Deferred income taxes | (15.5 | ) |
Total identifiable net assets | $ | 73.1 |
|
Goodwill | $ | 135.3 |
|
Total net assets acquired, including goodwill | $ | 208.4 |
|
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 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, their 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 September 30, 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.
Acquisition Results. For the three and nine month periods ended September 30, 2017,March 31, 2020 and 2019, unaudited supplemental pro forma revenue totaled approximately $1,955.8 million$1.4 billion and $5,077.4 million,$1.6 billion, respectively, and unaudited supplemental pro forma net income totaled approximately $64.4$37.3 million and $192.0$48.1 million, respectively. For the three and nine month periods ended September 30, 2016, pro forma revenue totaled approximately $1,634.5 million and $3,934.6 million, respectively, and pro forma net income totaled approximately $59.0 million and $81.5 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 effect of intercompany transactions. Additionally, the 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 three and nine month periods ended September 30, 2017, acquisition-related results included inMarch 31, 2020 and 2019, the Company’s consolidated results of operations included acquisition-related revenue of approximately $62.2$49.5 million and $96.1$39.7 million, respectively, and included acquisition-related net incomeloss of approximately $3.2$1.2 million and $4.7$6.1 million, respectively.respectively, based on the Company’s consolidated effective tax rates. 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
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, cash collateral deposited with insurance carriers, life insurance assets, cost and equity method investments, stock warrants, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, certain intangible assets and liabilities, including off-market contracts,mandatorily redeemable non-controlling interests and debt obligations.
Fair value is the price that would be received to sell an asset or the amount 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
Acquisition-Related Contingent Consideration and Other Liabilities
Acquisition-related contingent 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 amountsliabilities is composed of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair values. Management believes the carrying values of notes and other receivables, cash collateral deposited with insurance carriers, deferred compensation plan assets and liabilities and outstanding balances on its credit facilities approximate their fair values.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of September 30, 2017 and December 31, 2016, financial instruments required to be measured at fair value on a recurring basis consisted primarily of acquisition-related contingent consideration,Earn-outs, which representsrepresent the estimated fair value of future earn-outsamounts payable for acquisitionsbusinesses that are contingent upon the acquired business achieving certain levels of businesses (“ASC 805 contingent consideration”). ASC 805 contingent consideration is based on management estimates and entity-specific assumptions and is evaluated on an ongoing basis.earnings in the future. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the estimated fair value of the Company’s ASC 805 contingent considerationEarn-out liabilities totaled $104.9$176.0 million and $45.8$173.2 million, respectively, of which $18.9$52.9 million and $21.8$54.1 million, respectively, was included within other current liabilities. The fair valuevalues of the Company’s ASC 805 contingent consideration isEarn-out liabilities are estimated using income approaches such as discounted cash flows or option pricing models, and incorporatesboth of which incorporate significant inputs not observable in the market.market (Level 3 inputs), including management’s estimates and entity-specific assumptions, and are evaluated on an ongoing basis. Key assumptions include the discount rate, which ranged from 12.0% to 24.7%, with a weighted average rate of 14.0% based on relative fair value, as of March 31, 2020, and probability-weighted EBITDA projections.projections of earnings before interest, taxes, depreciation and amortization (“EBITDA”). Significant changes in any of these assumptions could result in a significantly higher or lower potential earn-out liability.Earn-out liabilities. As of September 30, 2017,March 31, 2020, the range of potential undiscounted earn-outEarn-out liabilities was estimated to be between $15$60 million and $170$256 million; however, there is no maximum payment amount.
ASC 805 contingent considerationEarn-out activity consists primarily of additions from new business combinations, payments of earn-out liabilities,combinations; changes in the expected fair value of future earn-out obligations,payment obligations; and payments. Measurement period adjustments for Earn-out liabilities, which are fair value adjustments relating to new information obtained about the facts and circumstances existing as of the date of acquisition for a period of up to one year, are recorded to goodwill. Other revisions to the expected fair values of the Company’s traditional earn-out liabilities denominated in foreign currencies, translation gains or losses. Fair value adjustments are recorded within otherreflected as income or expense, as appropriate, and, foreign currency translation activity isfor the mandatorily redeemable non-controlling interest, are recorded as interest expense, net. Earn-out payments, to the extent they relate to estimated liabilities as of the date of acquisition, are reflected within financing activities in the consolidated statements of cash flows. Payments in excess of acquisition date liabilities are classified within operating activities.
There were 0 additions to acquisition-related contingent consideration and other comprehensive income or loss, as appropriate. Forliabilities from new business combinations for the three month period ended March 31, 2020, and ninefor the three month periodsperiod ended September 30, 2017,March 31, 2019, additions from new business combinations totaled $64.6 million and $89.6 million, respectively. There were no payments of ASC 805 contingent consideration$15.2 million. Measurement period adjustments for the three month period ended September 30, 2017,March 31, 2020 totaled an increase of approximately $1.1 million and paymentsrelated to a business in the Company’s Communications segment. There were 0 measurement period adjustments for the three month period ended March 31, 2019. Fair value adjustments totaled $18.8a net increase of approximately $1.8 million for the ninethree month period ended September 30, 2017. ForMarch 31, 2020, and related to businesses in the Company’s Oil and Gas and Communications segments. Fair value adjustments, including those related to finalization of completed earn-out arrangements, totaled a net increase of approximately $7.2 million for the three month period ended March 31, 2019, and ninerelated to businesses in the Company’s Oil and Gas and Communications segments. There were 0 Earn-out payments in either of the three month periods ended September 30, 2016, payments totaled $5.3 million and $15.8 million, respectively. Foreign currency translation activity was de minimis for both the three and nine month periods ended September 30, 2017 and September 30, 2016. March 31, 2020 or 2019.
Equity Investments
The Company recognized reductions in the expected fair valueCompany’s equity investments as of future earn-out obligations totaling $3.0 million and $11.6 million for certain acquired businesses in the Communications and Electrical Transmission segments for the three and nine month periods ended September 30, 2017, respectively, and, during the first quarter of 2016, the Company recognized a net reduction in the expected fair value of future earn-out obligations of $2.3 million for certain ofMarch 31, 2020 include: (i) the Company’s western Canadian oil and gas businesses.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities recognized or disclosed at fair value on a non-recurring basis, for which remeasurement occurs in the event of an impairment or other measurement event, if applicable, include items such as cost and equity method investments, life insurance assets, long-lived assets, goodwill, other intangible assets and liabilities and debt.
As of both September 30, 2017 and December 31, 2016, the gross carrying amount of the Company’s 4.875% senior notes due 2023 (the “4.875% Senior Notes”) totaled $400 million. As of September 30, 2017 and December 31, 2016, the estimated fair value of the Company’s 4.875% Senior Notes, based on quoted market prices in active markets, a Level 1 input, totaled $407.0 million and $388.0 million, respectively.
Cost and Equity Investees. The Company’s cost and equity investees as of September 30, 2017 are primarily composed of: (i) the Company’s33% equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) the Company’s interests in a pre-acquisition, which are accounted for as equity method investment of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”); (iii)investments; (ii) a $15 million cost investment in Cross Country Infrastructure Services, Inc. (“CCI,” previously, Cross Country Pipeline Supply, Inc.CCI”); (iv)(iii) the Company’s interests in itscertain proportionately consolidated non-controlled contractual joint ventures; (v)(iv) the Company’s equity interests in American Virtual Cloud Technologies, Inc. (formerly Pensare Acquisition Corp. (“Pensare”)); and (vi)(v) certain other costequity investments.
Investment Arrangements. From time to time, the Company may participate in selected investment or strategic arrangements, including equity interests in various business entities and participation in contractual joint ventures, some of which may involve the extension of loans or other types of financing arrangements. As of March 31, 2020, the Company determined that certain of its investment arrangements were variable interest entities (“VIEs”). Except for one individually insignificant VIE, the Company does not have the power to direct the primary activities that most significantly impact the economic performance of its VIEs nor is it the primary beneficiary. Accordingly, except for the previously mentioned VIE, the Company’s VIEs are not consolidated.
Equity investments, other than those accounted for as equity method investments. See Note 15 - Related Party Transactions.
Theinvestments or those that are proportionately consolidated, are measured at fair value if their fair values are readily determinable. Equity investments that do not have readily determinable fair values are measured at cost, adjusted for changes from observable market transactions, less impairment (“adjusted cost basis”). As of March 31, 2020 and December 31, 2019, the aggregate carrying value of the Company’s equity investments totaled approximately $195 million and $196 million, respectively, including approximately $18 million of equity investments measured on an adjusted cost basis as of both March 31, 2020 and equity method investments are not readily observable. The Company is not awareDecember 31, 2019. There were 0 impairments of, events or material changes in, circumstances that would have a significant adverse effect on the carrying valuesfair value of its cost and/these investments during either of the three month periods ended March 31, 2020 or equity investments as of September 30, 2017 or December 31, 2016. Cumulative undistributed earnings from equity method investees totaled $10.6 million as of September 30, 2017.2019.
The Waha JVs.JVs. The Waha JVs own and operate two2 pipelines and a header system that transport natural gas to the Mexican border for export. These pipelines commenced operations in the first half of 2017. There were no equity or other contributions to these joint ventures for the three month period ended September 30, 2017, and for the nine month period ended September 30, 2017, equity and other contributions totaled $73.3 million. 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 September 30, 2017 and December 31, 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 $7.4$7.6 million and $15.1$6.3 million for the three and nine month periods ended September 30, 2017,March 31, 2020 and 2019, respectively. Equity inCumulative undistributed earnings from the Waha JVs, which represents cumulative equity in earnings for the nineWaha JVs less distributions of earnings, totaled $53.1 million as of March 31, 2020. Distributions of earnings from the Waha JVs, which are included within operating cash flows, totaled $2.6 million and $3.9 million for the three month periodperiods ended September 30, 2016 was de minimis.March 31, 2020 and 2019, respectively. The Company’s net investment in the Waha JVs, which differs from its proportionate share of the net assets of the Waha JVs due primarily to capitalized investment costs, totaled approximately $156 million and $174 million as of March 31, 2020 and December 31, 2019, respectively.
The Waha JVs are party to separate non-recourse financing facilities, each of which are secured by pledges of the equity interests in the respective entities, as well as a first lien security interest over virtually all of their assets. The Waha JVs are also party to certain interest rate swaps.swaps, which are 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 three month periodperiods ended September 30, 2017,March 31, 2020 and 2019, the Company’s proportionate share of unrecognized unrealized activity on these interest rate swaps was a gaintotaled losses of approximately $1.3$30.3 million, or $0.8$23.0 million, net of tax, and for the nine month period, this activity was a loss of approximately $2.1$7.2 million, or $1.3 million, net of tax. For the three and nine month periods ended September 30, 2016, the Company’s proportionate share of unrecognized unrealized activity on these interest rate swaps was a loss of approximately $0.6 million and $21.1 million, respectively, or $0.3 million and $12.9$5.5 million, net of tax, respectively.
Certain subsidiaries of MasTec have provided pipeline construction services to the Waha JVs. For the three and nine month periods ended September 30, 2017, revenue recognized in connection with work performed for the Waha JVs, including intercompany eliminations, totaled $3.6 million and $255.2 million, respectively, and for the three and nine month periods ended September 30, 2016, totaled $80.9 million and $142.8 million, respectively. As of September 30, 2017 and December 31, 2016, related receivables, including retainage, net of BIEC, totaled $52.2 million and $71.2 million, respectively. As of September 30, 2017 and December 31, 2016, the Company’s net investment in the Waha JVs represented an asset totaling approximately $115 million and $6 million, respectively. The Company’s net investment in the Waha JVs differs from its proportionate share of the net assets of the Waha JVs due to capitalized investment costs as well as the effect of intercompany eliminations.
Other investments. In connection with the 2014 acquisition of Pacer, the Company acquired equity interests in two joint ventures. There are no remaining amounts expected to be advanced in connection with these investments, and as of March 2016, all related project work had been completed. In the first quarter of 2016, revenue recognized by Pacer on behalf of these entities totaled $0.6 million. 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. In the first quarter of 2016, $3.6 million of income was recognized related to changes in expected recoveries from these investments. The Company received $12.1 million of proceeds from the receiver in the first quarter of 2017. The remaining investment, for which the Company now has minimal involvement, is reviewed regularly by corporate management for potential changes in expected recovery estimates, and, during the second quarter ofInvestments. During 2017, the Company recorded $5.8 million of expense related to changes in expected recovery amounts from this investment. The aggregate net carrying value of this investment, which represents expected recoveries under the receivership arrangement, totaled $14.8 million and $31.4 million as of September 30, 2017 and December 31, 2016, respectively, which amounts are included within other current assets.
During the third quarter of 2017, the Company paid approximately $2.0 million forpurchased 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.industry, and warrants to purchase an additional 2.0 million shares of Pensare common stock (the “initial warrants”), for $2.0 million. José R. Mas, MasTec’s Chief Executive Officer, was a director of Pensare through the end of March 2020. 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.exceptions. The initial warrants purchased by MasTec are exercisable at a purchase price of $11.50 per share beginning thirty days after the first date Pensare successfully completes a business combination. Both the warrants and shares expire and/or are effectively forfeitable ifcombination transaction. In April 2020, Pensare does not successfully completecompleted a business combination transaction with Stratos Management Systems, Inc. and its operating companies, which do business as Computex Technology Solutions (collectively, “Computex”), an information technology service provider, and in connection therewith, Pensare changed its name to American Virtual Cloud Technologies, Inc. (“AVCT”). In addition to other investors in a private placement conducted by February 1, 2019.AVCT contemporaneously with the completion of the business combination transaction in April 2020, MasTec invested $3.0 million in exchange for 3,000 units of AVCT securities, each of which consists of $1,000 in principal amount of AVCT Series A convertible debentures, convertible at $3.45 per share, subject to customary anti-dilution adjustments, and a warrant to purchase 100 shares of AVCT common stock at $0.01 per share (the “AVCT warrants”). The convertible debentures may be converted in whole or in part at any time from April 7, 2020 until full payment thereof, subject to mandatory conversion of the convertible debentures, pursuant to the terms thereof, and the AVCT warrants are exercisable at any time from April 7, 2020 through April 7, 2025. Due to the completion of the Computex business combination, the initial warrants will be exercisable beginning May 7, 2020, until the earlier to occur of April 7, 2025 and the liquidation of AVCT, subject to extension.
Prior to completion of the Computex acquisition, certain holders of AVCT’s redeemable common stock elected to redeem their shares, the effect of which, after giving effect to the additional investment described above, was to increase the Company’s beneficial ownership interest in AVCT common stock to approximately 21%. The Company does not have the ability to exert significant influence over the operating and financial policies of AVCT, therefore, the shares are measured on an adjusted cost basis. The initial warrants, which are derivative financial instruments, and the shares, for which are a cost method investment,the fair value was not readily determinable as of both March 31, 2020 and December 31, 2019 due to the nature of the restrictions, are included within other long-term assets in the Company’s consolidated financial statements as of September 30, 2017.statements. The fair value of the initial warrants asis determined based on observable and unobservable Level 3 inputs, approximated their cost basis asincluding market volatility and the rights and obligations of September 30, 2017. Thethe warrants. For both the three month periods ended March 31, 2020 and 2019, there were no material changes in the fair value of the shares is not readily determinable dueCompany’s investment in AVCT.
The Company has equity interests in 3 telecommunications entities that provide certain services to MasTec. Expense recognized in connection with these arrangements totaled $2.7 million for the naturethree month period ended March 31, 2020, and related amounts payable were $2.1 million as of March 31, 2020.
Summarized Financial Information of Equity Method Investments
The following presents summarized information for entities that comprise the Company’s significant equity method investments (in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2020 | | 2019 |
Revenue | $ | 39.4 |
| | $ | 37.3 |
|
Net income | $ | 23.0 |
| | $ | 19.2 |
|
Senior Notes
As of both March 31, 2020 and December 31, 2019, the gross carrying amount of the restrictions. José R. Mas, MasTec’s Chief Executive Officer, isCompany’s 4.875% senior notes due March 15, 2023 (the “4.875% Senior Notes”), which are measured at fair value on a directornon-recurring basis, totaled $400 million. As of Pensare.March 31, 2020 and December 31, 2019, the estimated fair value of the 4.875% Senior Notes, based on Level 1 inputs, totaled $372.0 million and $404.5 million, respectively.
Note 5 -– Accounts Receivable, Net of Allowance, and Contract Assets and Liabilities
The following table provides details of accounts receivable, net of allowance, and contract assets (together, “accounts receivable, net”) as of the dates indicated (in millions):
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Contract billings | $ | 806.0 |
| | $ | 860.4 |
|
Less allowance | (9.9 | ) | | (10.1 | ) |
Accounts receivable, net of allowance | $ | 796.1 |
| | $ | 850.3 |
|
| | | |
Retainage | 288.5 |
| | 345.2 |
|
Unbilled receivables | 709.4 |
| | 679.4 |
|
Contract assets | $ | 997.9 |
| | $ | 1,024.6 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Contract billings | $ | 626.7 |
| | $ | 564.2 |
|
Retainage | 287.6 |
| | 268.6 |
|
Costs and earnings in excess of billings | 629.5 |
| | 331.6 |
|
Accounts receivable, gross | $ | 1,543.8 |
| | $ | 1,164.4 |
|
Less allowance for doubtful accounts | (9.0 | ) | | (8.4 | ) |
Accounts receivable, net | $ | 1,534.8 |
| | $ | 1,156.0 |
|
Contract billings represent the amount of performance obligations that have been billed but not yet collected. Contract assets consist of unbilled receivables and retainage. Unbilled receivables represent the estimated value of unbilled work for projects with performance obligations recognized over time. Retainage whichrepresents a portion of the contract amount that has been billed, but is not duefor which the contract allows the customer to retain a portion of the billed amount until completionfinal contract settlement (generally, from 5% to 10% of performance and acceptance by customers, is expected to be collected within one year. Receivables expected to be collected beyond one year are recorded within other long-term assets. Provisions for doubtful accounts for each ofcontract billings). For the three month periodsperiod ended September 30, 2017 and 2016March 31, 2020, provisions for credit losses totaled $0.4$1.6 million and impairment losses on contract assets were not material.
Contract liabilities consist primarily of deferred revenue. Under certain contracts, the Company may be entitled to invoice the customer and receive payments in advance of performing the related contract work. In those instances, the Company recognizes a liability for advance billings in excess of revenue recognized, which is referred to as deferred revenue. Contract liabilities also include the nine month periods ended September 30, 2017 and 2016,amount of any accrued project losses. Total contract liabilities, including accrued project losses, totaled $1.1approximately $204.3 million and $2.0$206.2 million as of March 31, 2020 and December 31, 2019, respectively, of which deferred revenue comprised approximately $181.4 million and $184.1 million, respectively.
For the three month period ended March 31, 2020, the Company recognized revenue of approximately $105.6 million related to amounts that were included in deferred revenue as of December 31, 2019, resulting primarily from the advancement of physical progress on the related projects during the period.
The Company is party to non-recourse financing arrangements in the ordinary course of business, under which certain receivables are purchased bysettled with the customer’s bank in return for a nominal fee. TheseDiscount charges related to 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. The discount charge, which isare included within interest expense, net, totaled approximately $2.1$1.8 million and $0.8$2.9 million respectively, for the three month periods ended September 30, 2017March 31, 2020 and 2016, and totaled approximately $4.7 million and $1.7 million, respectively, for the nine month periods ended September 30, 2017 and 2016.2019, respectively.
Note 6 -– Property and Equipment, Net
The following table provides details of property and equipment, net, including property and equipment held under capitalfinance leases as of the dates indicated (in millions):
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Land | $ | 4.9 |
| | $ | 4.9 |
|
Buildings and leasehold improvements | 36.9 |
| | 35.8 |
|
Machinery and equipment | 1,670.3 |
| | 1,659.4 |
|
Office furniture and equipment | 205.9 |
| | 197.3 |
|
Construction in progress | 63.6 |
| | 26.1 |
|
Total property and equipment | $ | 1,981.6 |
| | $ | 1,923.5 |
|
Less accumulated depreciation and amortization | (1,044.3 | ) | | (1,017.7 | ) |
Property and equipment, net | $ | 937.3 |
| | $ | 905.8 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Land | $ | 4.6 |
| | $ | 4.6 |
|
Buildings and leasehold improvements | 25.7 |
| | 24.2 |
|
Machinery and equipment | 1,237.3 |
| | 997.8 |
|
Office furniture and equipment | 149.6 |
| | 146.1 |
|
Construction in progress | 8.9 |
| | 9.5 |
|
Total property and equipment | $ | 1,426.1 |
| | $ | 1,182.2 |
|
Less accumulated depreciation and amortization | (734.7 | ) | | (633.1 | ) |
Property and equipment, net | $ | 691.4 |
| | $ | 549.1 |
|
The gross amount of capitalized internal-use software, which is included within office furniture and equipment, totaled $108.7$144.8 million and $107.8$138.2 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Capitalized internal-use software, net of accumulated amortization, totaled $24.8$34.8 million and $30.9$31.5 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Depreciation and amortization expense associated with property and equipment, which includes amortization of capitalized internal-use software, totaled $53.1 million and $54.2 million, respectively, for the three month periods ended September 30, 2017March 31, 2020 and 20162019. Accrued capital expenditures totaled $44.1 million and $37.4 million, respectively, and totaled $123.4$10.7 million and $106.5$5.2 million foras of March 31, 2020 and December 31, 2019, respectively. The effects of accrued capital expenditures are excluded from the nine month periods ended September 30, 2017 and 2016, respectively.Company’s consolidated statements of cash flows given their non-cash nature.
Note 7 -– Debt
The following table provides details of the carrying values of debt as of the dates indicated (in millions):
|
| | | | | | | | | | |
Description | | Maturity Date | | March 31, 2020 | | December 31, 2019 |
Senior secured credit facility: | | September 19, 2024 | | | | |
Revolving loans | | $ | 332.7 |
| | $ | 339.2 |
|
Term loan | | 400.0 |
| | 400.0 |
|
4.875% Senior Notes | | March 15, 2023 | | 400.0 |
| | 400.0 |
|
Finance lease and other obligations | | 298.2 |
| | 305.6 |
|
Total debt obligations | | $ | 1,430.9 |
| | $ | 1,444.8 |
|
Less unamortized deferred financing costs | | (11.8 | ) | | (12.4 | ) |
Total debt, net of deferred financing costs | | $ | 1,419.1 |
| | $ | 1,432.4 |
|
Current portion of long-term debt | | 121.8 |
| | 118.4 |
|
Long-term debt | | $ | 1,297.3 |
| | $ | 1,314.0 |
|
|
| | | | | | | | | | |
Description | | Maturity Date | | September 30, 2017 | | December 31, 2016 |
Senior secured credit facility: | | February 22, 2022 | | | | |
Revolving loans | | $ | 300.6 |
| | $ | 279.9 |
|
Term loan | | 400.0 |
| | 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 | | 179.9 |
| | 98.6 |
|
Notes payable and other debt obligations | | Varies | | 12.1 |
| | 19.8 |
|
Total long-term debt obligations | | $ | 1,292.6 |
| | $ | 1,035.8 |
|
Less unamortized deferred financing costs | | (13.8 | ) | | (9.8 | ) |
Total debt, net of deferred financing costs | | $ | 1,278.8 |
| | $ | 1,026.0 |
|
Current portion of long-term debt | | 86.5 |
| | 64.6 |
|
Long-term debt | | $ | 1,192.3 |
| | $ | 961.4 |
|
Senior Secured Credit Facility
The Company has aCompany’s senior secured credit facility (the “Credit Facility”), which was amended and restated on February 22, 2017. The Company refers to its amended and restated credit facility as the “2017 Credit Facility,” and to its previous credit facility as the “2016 Credit Facility.” The 2017 Credit Facility increased the Company’s has aggregate borrowing commitments fromtotaling approximately $1.2$1.75 billion to $1.5 billion, which amount isas of March 31, 2020, composed of $1.1$1.35 billion of revolving commitments and a term loan in the aggregate principal amount of approximately $400 million. The amended and restated credit facility also extended the Credit Facility’s maturity date to February 22, 2022. As of September 30, 2017, term loans in the aggregate principal amount of $400 million were drawn under the 2017 Credit Facility. The term loan is subject to amortization in quarterly principal installments that commenceof $2.5 million commencing in December 2017, which as of September 30, 2017, amounted to $3.1 million,2020, which amount iswill increase to $5.0 million commencing in December 2021. Quarterly principal installments on the term loan are subject to adjustment, for additional term loans and, if applicable, for certain prepayments. As of December 31, 2016, term loans in the aggregate principal amount of $238 million were outstanding.
The 2017 Credit Facility also increased the amount the Company can borrow either in Canadian dollars and/or Mexican pesos up to an aggregate equivalent amount of $300 million. The maximum amount available for letters of credit under the 2017 Credit Facility is $650 million, of which up to $200 million can be denominated in either Canadian dollars and/or Mexican pesos. The Credit Facility also provides for swing line loans of up to $75 million, and, subject to certain conditions, the Company has the option to increase revolving commitments and/or establish additional term loan tranches up to an aggregate amount of $250 million. Subject to the terms and conditions described in the Credit Facility, these additional term loan tranches may rank equal or junior in respect of right of payment and/or collateral to the Credit Facility, and may have terms and pricing that differ from the 2017 Credit Facility. Borrowings under the Credit Facility are used for working capital requirements, capital expenditures and other corporate purposes, including investments in equity or other investees, potential acquisitions or other strategic arrangements, and the repurchase or prepayment of indebtedness.
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 September 30, 2017March 31, 2020 and December 31, 2016,2019, outstanding revolving loans, which included $171$125 million and $119$138 million, respectively, of borrowings denominated in foreign currencies, accrued interest at weighted average rates of approximately 2.96%2.47% and 3.71%3.50% per annum, respectively. The term loan accrued interest at a raterates of 2.86%2.24% and 2.77%3.05% as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. Letters of credit of approximately $189.1
$143.1 million and $314.3$98.0 million were issued as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. As of September 30, 2017both March 31, 2020 and December 31, 2016, letters2019, letter of credit fees accrued at 0.750% and 1.00%0.375% per annum respectively, for performance standby letters of credit and at 1.625% and 2.00%1.25% 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 September 30, 2017March 31, 2020 and December 31, 2016,2019, availability for revolving loans totaled $610.3$874.2 million and $405.9$912.8 million, respectively, or up to $460.9$506.9 million and $335.7$552.0 million, respectively, for new letters of credit. Revolving loan borrowing capacity included $129.4$175.2 million and $80.9$162.4 million of availability in either Canadian dollars or Mexican pesos as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. The unused facility fee as of September 30, 2017both March 31, 2020 and December 31, 20162019 accrued at a rate of 0.30% and 0.40%, respectively.0.20%.
The Credit Facility is guaranteed by certain subsidiaries of the Company (the “Guarantor Subsidiaries”) and the obligations under the Credit Facility are secured by substantially all of the Company’s and the Guarantor Subsidiaries’ respective assets, subject to certain exceptions. The Credit Facility requires that the Company maintain a Maximum Consolidated Leverage Ratio, as defined in the Credit Facility, of 3.50 (subject to the Acquisition Adjustment described below). The Credit Facility also requires that the Company maintain a Minimum Consolidated Interest Coverage Ratio, as defined in the Credit Facility, of 3.00. The Credit Facility provides that, for purposes of calculating the Consolidated Leverage Ratio, certain cash charges may be added back to the calculation of Consolidated EBITDA, as defined in the Credit Facility, and funded indebtedness excludes undrawn standby performance letters of credit. Additionally, notwithstanding the terms discussed above, subject to certain conditions, if a permitted acquisition or series of permitted acquisitions having consideration exceeding $50 million occurs during a fiscal quarter, the Consolidated Leverage Ratio may be temporarily increased to up to 3.75 during such fiscal quarter and the subsequent two fiscal quarters. Such right may be exercised no more than two times during the term of the Credit Facility. Subject to customary exceptions, the Credit Facility limits the borrowers’ and the Guarantor Subsidiaries’ ability to engage in certain activities, including acquisitions, mergers and consolidations, debt incurrence, investments, capital expenditures, asset sales, debt prepayments, lien incurrence and the making of distributions or repurchases of capital stock. However, distributions payable solely in capital stock are permitted. The Credit Facility provides for customary events of default and carries cross-default provisions with the Company’s other significant debt instruments, including the Company’s indemnity agreement with its surety provider, as well as customary remedies, including the acceleration of repayment of outstanding amounts and other remedies with respect to the collateral securing the Credit Facility obligations.
Other Credit Facilities. The Company has other credit facilities that support the working capital requirements of its foreign operations. Borrowings under theseoperations and certain letter of credit facilities, which have varying datesissuances. As of maturity and are generally renewed on an annual basis, are denominated in Canadian dollars. As September 30, 2017both March 31, 2020 and December 31, 2016, maximum borrowing capacity totaled Canadian $20.02019, there were 0 borrowings under the Company’s other credit facilities. Additionally, the Company has a credit facility under which it may issue up to $50.0 million and $40.0 million, respectively, or approximately $16.0 million and $29.8 million, respectively.of performance standby letters of credit. As of September 30, 2017March 31, 2020 and December 31, 2016, outstanding borrowings2019, letters of credit issued under this facility totaled approximately $5.4$18.1 million and $13.4$17.1 million, respectively, and accrued interestfees at a weighted average rate of approximately 4.0%0.50% and 3.6%,0.40% per annum, respectively. Outstanding borrowings that are not renewed are repaid with borrowings under the Company’s senior secured credit facility. Accordingly, the carrying amounts of the Company’s borrowings under its other credit facilities, which are included within notes payable and other debt obligations in the table above, are classified within long-term debt in the Company’s consolidated balance sheets. The Company’s other credit facilities are subject to customary provisions and covenants.
Debt Guarantees and Covenants
The 4.875% Senior Notes are senior unsecured unsubordinated obligations and rank equal in right of payment with existing and future unsubordinated debt, and rank senior in right of payment to existing and future subordinated debt and are fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by certain of the Company’s existing and future 100%-owned direct and indirect domestic subsidiaries that are each guarantors of the Company’s Credit Facility or other outstanding indebtedness. See Note 16 - Supplemental Guarantor Condensed Unaudited Consolidating Financial Information.
MasTec was in compliance with the provisions and covenants of its outstanding debt instruments as of September 30, 2017March 31, 2020 and December 31, 2016.2019.
Additional Information
As of September 30, 2017March 31, 2020 and December 31, 2016,2019, accrued interest payable, which is recorded within other accrued expenses in the consolidated balance sheets, totaled $4.1$2.8 million and $8.5$7.5 million, respectively. Additionally, in connection with the 2017 Credit Facility amendment, the Company paid approximately $6 million in financing costs for the nine month period ended September 30, 2017. For additional information pertaining to the Company’s debt instruments, including its 4.875% Senior Notes, see Note 7 - Debt in the Company’s 20162019 Form 10-K.
Note 8 -– Lease Obligations
Capital Leases
MasTec enters into agreements that provide lease financing for machinery and equipment. The gross amount of assets held under capital leases as of September 30, 2017 and December 31, 2016, which are included within property and equipment, net, totaled $404.1 million and $294.9 million, respectively. Assets held under capital leases, net of accumulated depreciation, totaled $269.6 million and $177.5 million as of September 30, 2017 and December 31, 2016, respectively.
Operating Leases
In the ordinary course of business, the Company enters into non-cancelable operating leasesagreements that provide financing for certainmachinery and equipment and for other of its facility, vehicle and equipment needs, including related party leases. See Note 15 - Related Party Transactions. RentAs of March 31, 2020, the Company’s leases have remaining lease terms of up to nine years. Lease agreements may contain renewal clauses, which, if elected, generally extend the term of the lease for one to five years for both equipment and relatedfacility leases. Certain lease agreements may also contain options to purchase the leased property and/or options to terminate the lease. In addition, lease agreements may include periodic adjustments to payment amounts for inflation or other variables, or may require payments for taxes, insurance, maintenance or other expenses, which are generally referred to as non-lease components. The Company’s lease agreements do not contain significant residual value guarantees or material restrictive covenants.
Finance Leases
The gross amount of assets held under finance leases as of March 31, 2020 and December 31, 2019 totaled $484.2 million and $463.5 million, respectively. Assets held under finance leases, net of accumulated depreciation, totaled $384.4 million and $375.9 million as of March 31, 2020 and December 31, 2019, respectively. Depreciation expense associated with finance leases totaled $15.8 million and $10.0 million for the three month periods ended March 31, 2020 and 2019, respectively.
Operating Leases
Operating lease additions for the three month period ended March 31, 2020 totaled $5.8 million and totaled $12.0 million for the three month period ended March 31, 2019, excluding the effect of adoption of ASU 2016-02, Leases (Topic 842), of approximately $230.0 million. For the three month periods ended March 31, 2020 and 2019, rent expense for operating leases that have non-cancelable terms in excess of one year totaled approximately $25.4$35.3 million and $25.9$27.9 million, for the three month periods ended September 30, 2017 and 2016, respectively, and totaled $77.6of which $2.9 million and $74.8$2.3 million, for the nine month periods ended September 30, 2017 and 2016, respectively.respectively, represented variable lease costs. The Company also incurred rent and related expense for facilities, vehicles and equipment having originalleases with terms of one year or less totaling approximately $159.4$77.5 million and $96.7$92.8 million for the three month periods ended September 30, 2017March 31, 2020 and 2016, respectively,2019, respectively. Rent expense for operating leases is generally consistent with the amount of the related payments, and totaling $347.8 millionis included within operating activities in the consolidated statements of cash flows.
Additional Lease Information
Future minimum lease commitments as of March 31, 2020 were as follows (in millions):
|
| | | | | | | |
| Finance Leases | | Operating Leases |
2020, remaining nine months | $ | 96.6 |
| | $ | 66.8 |
|
2021 | 115.0 |
| | 68.2 |
|
2022 | 74.6 |
| | 43.3 |
|
2023 | 26.9 |
| | 21.2 |
|
2024 | 3.0 |
| | 13.8 |
|
Thereafter | — |
| | 30.6 |
|
Total minimum lease payments | $ | 316.1 |
| | $ | 243.9 |
|
Less amounts representing interest | (17.9 | ) | | (20.4 | ) |
Total lease obligations, net of interest | $ | 298.2 |
| | $ | 223.5 |
|
Less current portion | 116.9 |
| | 80.1 |
|
Long-term portion of lease obligations, net of interest | $ | 181.3 |
| | $ | 143.4 |
|
As of March 31, 2020, finance leases had a weighted average remaining lease term of 2.7 years and $213.9 million for the nine month periods ended September 30, 2017a weighted average discount rate of 4.1%. Non-cancelable operating leases had a weighted average remaining lease term of 4.2 years and 2016, respectively.a weighted average discount rate of 4.1% as of March 31, 2020.
Note 9 – Stock-Based Compensation and Other Employee Benefit Plans
The Company has stock-based compensation plans, under which shares of the Company’s common stock are reserved for issuance. Under all stock-based compensation plans in effect as of September 30, 2017, including employee stock purchase plans,March 31, 2020, there were approximately 4.9 million
3,154,000 shares available for future grant. InNon-cash stock-based compensation expense under all plans totaled $4.0 million and $3.7 million for the three month periods ended March 2017,31, 2020 and 2019, respectively. Income tax benefits associated with stock-based compensation arrangements totaled $0.9 million and $3.2 million for the Company’s boardthree month periods ended March 31, 2020 and 2019, respectively, including net tax deficiencies related to the vesting of directors adopted the Amendedshare-based payment awards totaling $0.1 million and Restated 2013 Incentive Compensation Plan (the “Amended 2013 ICP”), which was effective as of January 1, 2017 and changed the amount ofnet tax the Company can withhold for employee tax withholdings on share-based awards, as provided under ASU 2016-09. The Company adopted ASU 2016-09 as of January 1, 2017, as discussed in Note 1 - Business, Basis of Presentation and Significant Accounting Policies.benefits totaling $2.3 million, respectively.
Restricted Shares
MasTec grants restricted stock awards and restricted stock units (together, “restricted shares”), to eligible participants, 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. TotalAs of March 31, 2020, total unearned compensation related to restricted shares as ofSeptember 30, 2017was approximately $15.8$41.1 million,, which is expected to be recognized over a weighted average period of approximately 1.12.4 years. The intrinsicThe fair value of restricted shares that vested, which is based on the market price on the date of vesting, totaled $0.1$5.6 million and $13.6 million for both the three month periods ended September 30, 2017March 31, 2020 and 2016, and totaled $11.9 million and $1.5 million for the nine month periods ended September 30, 2017 and 2016,2019, respectively.
|
| | | | | | |
Activity, restricted shares: (a) | Restricted Shares | | Per Share Weighted Average Grant Date Fair Value |
Non-vested restricted shares, as of December 31, 2019 | 1,221,593 |
| | $ | 45.36 |
|
Granted | 927,579 |
| | 27.04 |
|
Vested | (156,502 | ) | | 39.02 |
|
Canceled/forfeited | (230,500 | ) | | 60.04 |
|
Non-vested restricted shares, as of March 31, 2020 | 1,762,170 |
| | $ | 34.36 |
|
|
| | | | | | |
Activity, restricted shares: (a) | Restricted Shares | | Per Share Weighted Average Grant Date Fair Value |
Non-vested restricted shares, as of December 31, 2016 | 1,970,586 |
| | $ | 21.61 |
|
Granted | 193,348 |
| | 39.47 |
|
Vested | (304,211 | ) | | 40.72 |
|
Canceled/forfeited | (30,041 | ) | | 20.24 |
|
Non-vested restricted shares, as of September 30, 2017 | 1,829,682 |
| | $ | 20.34 |
|
| |
(a) | Includes 39,050 and 43,3002,300 restricted stock units as of September 30, 2017 and DecemberMarch 31, 2016, respectively. 2020. |
Stock Options
The Company previously granted options to purchase its common stock to employees and members of the Board of Directors and affiliates under various stock option plans. During 2016, all stock options that were outstanding under previous stock option grants were exercised. The intrinsic value of options exercised, which is based on the difference between the exercise price and the market share price of the Company’s common stock on the date of exercise, totaled $0.5 million and $1.8 million for the three and nine month periods ended September 30, 2016, respectively. Net of shares withheld in cashless option exercises, there were no proceeds from option exercises for the three month period ended September 30, 2016, and for the nine month period ended September 30, 2016, proceeds totaled $1.9 million.
Employee Stock Purchase Plans
The Company has certain employee stock purchase plans (collectively, “ESPPs”), under which shares of the Company'sCompany’s common stock are available for purchase by eligible employees. The following table provides details pertaining to the Company’s ESPPs for the periods indicated:
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2020 | | 2019 |
Cash proceeds (in millions) | $ | 1.5 |
| | $ | 1.2 |
|
Common shares issued | 53,399 |
| | 35,732 |
|
Weighted average price per share | $ | 27.82 |
| | $ | 34.48 |
|
Weighted average per share grant date fair value | $ | 7.95 |
| | $ | 8.76 |
|
|
| | | | | | | |
| For the Nine Months Ended September 30 |
| 2017 | | 2016 |
Cash proceeds (in millions) | $ | 2.4 |
| | $ | 2.0 |
|
Common shares issued | 68,789 |
| | 115,556 |
|
Weighted average price per share | $ | 34.72 |
| | $ | 16.88 |
|
Weighted average per share grant date fair value | $ | 9.00 |
| | $ | 4.58 |
|
Non-CashStock-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 Three Months Ended September 30 | | For the Nine Months Ended September 30 |
| 2017 | | 2016 | | 2017 | | 2016 |
Non-cash stock-based compensation expense | $ | 3.4 |
| | $ | 3.9 |
| | $ | 10.5 |
| | $ | 11.3 |
|
Income Tax Effects: | | | | | | | |
Income tax effect of non-cash stock-based compensation | $ | 1.3 |
| | $ | 1.7 |
| | $ | 3.8 |
| | $ | 5.6 |
|
Excess tax benefit from non-cash stock-based compensation (a) | $ | 0.0 |
| | $ | 0.3 |
| | $ | 0.1 |
| | $ | 1.4 |
|
| |
(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 ninemonth period ended September 30, 2017, the Company incurred a net tax deficiency of $0.1 million related to the vesting of share-based payment awards and excess tax benefits were de minimis. As discussed in Note 1 - Business, Basis of Presentation and Significant Accounting Policies, the Company adopted
|
ASU 2016-09 effective January 1, 2017 on a prospective basis. ASU 2016-09 changed the required presentation of excess tax benefits in the consolidated statement of cash flows from financing activities to operating activities. Excess tax benefits for the comparative prior year period are classified as cash flows from financing activities.
Note 10 – Other Retirement Plans
Multiemployer Plans. Certain of MasTec’s subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension and other multiemployer benefit plans and trusts (“MEPPs”), which are recorded as a component of employee wages and salaries within costs of revenue, excluding depreciation and amortization. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a “pay-as-you-go” basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they may participate, vary depending upon the location and number of ongoing projects at a given time and the need for union resources in connection with those projects. Total contributions to multiemployer plans and the related number of employees covered by these plans including with respect to the Company’s Canadian operations, for the periods indicated were as follows:
|
| | | | | | | | | | | | | | | | | |
| Multiemployer Plans |
| Covered Employees | | Contributions (in millions) |
| Low | | High | | Pension | | Other Multiemployer | | Total |
For the Three Months Ended March 31: | | | | | | | | | |
2020 | 1,119 |
| | 1,424 |
| | $ | 5.4 |
| | $ | 1.7 |
| | $ | 7.1 |
|
2019 | 1,626 |
| | 2,117 |
| | $ | 7.0 |
| | $ | 1.3 |
| | $ | 8.3 |
|
|
| | | | | | | | | | | | | | | | | |
| Multiemployer Plans |
| Covered Employees | | Contributions (in millions) |
| Low | | High | | Pension | | Other Multiemployer | | Total |
For the Three Months Ended September 30: | | | | | | | | | |
2017 | 3,669 |
| | 7,057 |
| | $ | 36.7 |
| | $ | 2.7 |
| | $ | 39.4 |
|
2016 | 4,170 |
| | 4,910 |
| | $ | 26.4 |
| | $ | 2.9 |
| | $ | 29.3 |
|
For the Nine Months Ended September 30: | | | | | | | | | |
2017 | 550 |
| | 7,057 |
| | $ | 68.1 |
| | $ | 8.0 |
| | $ | 76.1 |
|
2016 | 1,112 |
| | 4,910 |
| | $ | 43.4 |
| | $ | 7.6 |
| | $ | 51.0 |
|
The fluctuations in the average number of employees covered under multiemployer plans and related contributions in the table above arerelated primarily related to higher levelstiming of activity for the Company’s union resource-based project activityprojects, the majority of which are within the Company’sits oil and gas operations.
Note 11 – Equity
Share Activity
The Company’s share repurchase programs provide for the repurchase of shares of MasTec common stock 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 is determined based on market conditions, legal requirements, cash flow and liquidity needs and other factors. The Company’s share repurchase programs do not have an expiration date and 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 may use either authorized and unissued shares or treasury shares to meet share issuance requirements. Treasury stock is recorded at cost.
During the three month period ended March 31, 2020, the Company repurchased approximately 3.6 million shares of its common stock for an aggregate purchase price of $119.4 million. Of the 3.6 million repurchased shares, 0.6 million were repurchased for $28.8 million under a $150 million share repurchase program that was established in September 2018 and completed in the first quarter of 2020, and 3.0 million were repurchased for $90.6 million under the Company’s December 2018 $100 million share repurchase program. For the three month period ended March 31, 2019, share repurchases totaled approximately $0.6 million, which were completed under the Company’s September 2018 $150 million share repurchase program.
As of March 31, 2020, $159.4 million was available for future share repurchases under all of the Company’s open share repurchase programs, which included $9.4 million under the Company’s December 2018 share repurchase program and $150 million under a new share repurchase program that was authorized on March 19, 2020.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is composed of unrealizedUnrealized foreign currency translation gains and losses, which relate primarily to fluctuations in foreign currency exchange rates ofactivity, net, for the Company’s foreign subsidiaries with a functional currency other than the U.S. dollar, and unrealized gains and losses from certain investment activities. For both the three and nine month periods ended September 30, 2017March 31, 2020 and 2016, unrealized foreign currency activity related primarily2019 relates to the Company’s Canadian operations in Canada and unrealizedMexico. Unrealized investment activity, relatednet, for the three month periods ended March 31, 2020 and 2019 relates to unrealized losses on interest rate swaps associated with the Waha JVs.
Share Activity
No shares of the Company’s common stock have been repurchased under the Company’s 2016 share repurchase program.
Note 12 -– Income Taxes
In determining the quarterly provision for income taxes, management uses an estimated annual effective tax rate based on forecasted annual pre-tax income, permanent tax differences, statutory tax rates and tax planning opportunities in the various jurisdictions in which the Company operates.
The effect of significant discrete items is separately recognized in the quarter(s) in which they occur. For the three month periodperiods ended September 30, 2017,March 31, 2020 and 2019, the Company recognized certain tax credits based upon the results of a study that is currently underway, which amount was determined based on management’s estimates and currently available information. Further adjustments to the amount recognized may occur as the results of the study are finalized, which is expected to occur in the fourth quarter of 2017.
As discussed in Note 1 - Business, Basis of Presentation and Significant Accounting Policies, effective January 1, 2017, the Company adopted ASU 2016-09, which changed the recognition requirements for excess tax benefits (“windfalls”) or tax deficiencies (“shortfalls”) from share-based payment awards. ASU 2016-09 requires windfalls or shortfalls to be recognized within income tax expense in the interim periods in which they occur, rather than as additional paid-in capital. Given that windfalls or shortfalls are recognized in income tax expense in the periods in which they occur, they are not included when estimating annualCompany’s consolidated effective tax rates.rates were 1.2% and 21.8%, respectively. The tax effect related to the vesting of share-based payment awards did not have a significant effect on the Company’s consolidated effective tax rate for the three and nine month periodsperiod ended September 30, 2017.
AsMarch 31, 2020 included a benefit of September 30, 2017,approximately $9.6 million related to the Company had $274.5 millionrelease of long-term deferred tax liabilities. As of December 31, 2016, currentcertain valuation allowances on Canadian deferred tax assets that were no longer necessary. For the three month period ended March 31, 2019, the Company’s effective tax rate was favorably affected by the recognition of $2.3 million of excess tax benefits from the vesting of share-based awards and reduced foreign earnings.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net totaled $11.8 millionoperating loss utilization and long-term deferredcarryback periods, modifications to the net interest deduction limitations and technical corrections to tax liabilities, net, totaled $178.4 million. In addition, as of September 30, 2017 and December 31, 2016, accrueddepreciation methods for qualified improvement property (QIP). At this time, management does not believe that the CARES Act will have a material impact on the Company’s income and other taxes payable, which are included within other accrued expenses, totaled $19.8 million and $40.3 million, respectively.tax provision for 2020. The Company adopted Income Taxes (Topic 740): Balance Sheet Classificationwill continue to evaluate the impact of Deferred Taxes (“ASU 2015-17”), which changed the classification requirements for deferred tax assetsCARES Act on its financial position, results of operations and liabilities, effective January 1, 2017. ASU 2015-17 requires long-term classification of all deferred
tax assets and liabilities, rather than separately classifying deferred tax assets and liabilities based on their net current and non-current amounts, as was required under the previous guidance. The Company adopted ASU 2015-17 on a prospective basis, therefore prior periods were not adjusted to conform to the current period presentation. The adoption of ASU 2015-17 did not have had a material effect on the consolidated financial statements.cash flows.
Note 13 -– Segments and Related Information
Segment Discussion
MasTecThe Company manages its operations under five5 operating segments, which represent MasTec’s fiveits 5 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’sthe Company’s labor-based construction services. All five5 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. MasTecThe Company performs engineering, construction and maintenance services onfor 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 andpower facilities, including from renewable power facilities,sources, 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.
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.industry. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.
For the three and nine month periods ended September 30, 2017, Other segment EBITDA included project losses of $0.4 million and $7.4 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 both the three and nine month periods ended September 30, 2016, Other segment EBITDA included $5.1 million of project losses on this proportionately consolidated non-controlled Canadian joint venture. For the nine month period ended September 30, 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.
Summarized financial information for MasTec’s reportable segments is presented and reconciled to consolidated financial information for total MasTec in the following tables, (in millions):including a reconciliation of consolidated income before income taxes to EBITDA, all of which are presented in millions. The tables below may contain slight summation differences due to rounding.
| | | For the Three Months Ended September 30 | | For the Nine Months Ended September 30 | For the Three Months Ended March 31, |
Revenue: | 2017 | | 2016 | | 2017 | | 2016 | 2020 | | 2019 |
Communications (a) | $ | 610.5 |
| | $ | 624.3 |
| | $ | 1,762.2 |
| | $ | 1,728.0 |
| $ | 644.1 |
| | $ | 612.8 |
|
Oil and Gas | 1,161.0 |
| | 736.0 |
| | 2,757.2 |
| | 1,454.3 |
| 359.1 |
| | 621.3 |
|
Electrical Transmission | 81.8 |
| | 101.7 |
| | 277.3 |
| | 283.6 |
| 128.1 |
| | 94.9 |
|
Power Generation and Industrial | 96.9 |
| | 123.6 |
| | 204.1 |
| | 324.7 |
| 286.3 |
| | 189.4 |
|
Other | 10.6 |
| | 7.6 |
| | 14.2 |
| | 14.9 |
| 0.0 |
| | 0.0 |
|
Eliminations | (5.0 | ) | | (7.0 | ) | | (10.9 | ) | | (12.7 | ) | (1.0 | ) | | (0.1 | ) |
Consolidated revenue | $ | 1,955.8 |
| | $ | 1,586.2 |
| | $ | 5,004.1 |
| | $ | 3,792.8 |
| $ | 1,416.6 |
| | $ | 1,518.3 |
|
| |
(a) | Revenue generated primarily by utilities customers represented 13.0%15.2% and 11.1%15.6% of Communications segment revenue for the three month periods ended September 30, 2017March 31, 2020 and 2016, respectively, and represented 12.6% and 10.9% for the nine month periods ended September 30, 2017 and 2016,2019, respectively. |
| | | For the Three Months Ended September 30 | | For the Nine Months Ended September 30 | For the Three Months Ended March 31, |
EBITDA: | 2017 | | 2016 | | 2017 | | 2016 | 2020 | | 2019 |
Communications | $ | 65.3 |
| | $ | 62.8 |
| | $ | 173.2 |
| | $ | 190.9 |
| $ | 50.8 |
| | $ | 45.3 |
|
Oil and Gas | 108.1 |
| | 117.8 |
| | 356.1 |
| | 187.6 |
| 74.4 |
| | 107.4 |
|
Electrical Transmission | 4.5 |
| | (8.3 | ) | | 11.2 |
| | (42.0 | ) | 8.3 |
| | 3.8 |
|
Power Generation and Industrial | 9.3 |
| | 6.1 |
| | 14.8 |
| | 13.8 |
| 5.0 |
| | 3.2 |
|
Other | 10.1 |
| | (3.1 | ) | | 11.6 |
| | (2.6 | ) | 7.4 |
| | 6.2 |
|
Corporate | (22.0 | ) | | (24.3 | ) | | (69.2 | ) | | (55.1 | ) | (31.9 | ) | | (29.5 | ) |
Consolidated EBITDA | $ | 175.3 |
| | $ | 151.0 |
| | $ | 497.7 |
| | $ | 292.6 |
| $ | 114.0 |
| | $ | 136.4 |
|
|
| | | | | | | |
| For the Three Months Ended March 31, |
Depreciation and Amortization: | 2020 | | 2019 |
Communications | $ | 19.7 |
| | $ | 14.7 |
|
Oil and Gas | 28.1 |
| | 34.6 |
|
Electrical Transmission | 5.9 |
| | 4.5 |
|
Power Generation and Industrial | 4.0 |
| | 3.1 |
|
Other | 0.0 |
| | 0.0 |
|
Corporate | 2.8 |
| | 2.1 |
|
Consolidated depreciation and amortization | $ | 60.5 |
| | $ | 59.0 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30 | | For the Nine Months Ended September 30 |
Depreciation and Amortization: | 2017 | | 2016 | | 2017 | | 2016 |
Communications | $ | 13.8 |
| | $ | 12.5 |
| | $ | 39.4 |
| | $ | 37.2 |
|
Oil and Gas | 26.0 |
| | 20.7 |
| | 71.1 |
| | 58.2 |
|
Electrical Transmission | 5.8 |
| | 6.1 |
| | 17.3 |
| | 17.1 |
|
Power Generation and Industrial | 2.9 |
| | 1.6 |
| | 5.8 |
| | 4.6 |
|
Other | 0.0 |
| | 0.0 |
| | 0.1 |
| | 0.0 |
|
Corporate | 1.6 |
| | 1.7 |
| | 4.7 |
| | 5.1 |
|
Consolidated depreciation and amortization | $ | 50.1 |
| | $ | 42.6 |
| | $ | 138.4 |
| | $ | 122.2 |
|
The following table, which may contain slight summation differences due to rounding, presents a reconciliation of consolidated income before income taxes to EBITDA (in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
EBITDA Reconciliation: | 2020 | | 2019 |
Income before income taxes | $ | 36.5 |
| | $ | 55.1 |
|
Plus: | | | |
Interest expense, net | 17.0 |
| | 22.3 |
|
Depreciation | 53.1 |
| | 54.2 |
|
Amortization of intangible assets | 7.4 |
| | 4.8 |
|
Consolidated EBITDA | $ | 114.0 |
| | $ | 136.4 |
|
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended September 30 | | For the Nine Months Ended September 30 |
EBITDA Reconciliation: | 2017 | | 2016 | | 2017 | | 2016 |
Income before income taxes | $ | 107.6 |
| | $ | 95.3 |
| | $ | 314.3 |
| | $ | 132.4 |
|
Plus: | | | | | | | |
Interest expense, net | 17.6 |
| | 13.1 |
| | 45.0 |
| | 37.9 |
|
Depreciation and amortization | 50.1 |
| | 42.6 |
| | 138.4 |
| | 122.2 |
|
Consolidated EBITDA | $ | 175.3 |
| | $ | 151.0 |
| | $ | 497.7 |
| | $ | 292.6 |
|
Foreign Operations. Operations and Other. MasTec operates in North America, primarily in the United States and Canada, and, to a lesser extent, in Mexico.Mexico and the Caribbean. For both the three month periods ended March 31, 2020 and 2019, revenue of $1.4 billion was derived from U.S. operations. For the three month periods ended September 30, 2017March 31, 2020 and 2016,2019, revenue of $1.9 billion and $1.5 billion, respectively, was derived from U.S. operations, and revenue of $61.0$45.7 million and $73.8$78.9 million, respectively, was derived from foreign operations, the majority of which was from the Company’s Canadian operations. For the nine month periods ended September 30, 2017operations in its Oil and 2016, revenue of $4.8 billionGas segment, and, $3.6 billion, respectively, was derived from U.S. operations, and revenue of $160.7 million and $222.8 million, respectively, was derived from foreign operations, the majority of which wasto a lesser extent, from the Company’s Canadian operations. The majority of the Company’s foreignwireless operations during the three and nine month periods ended September 30, 2017 and 2016 were in the Company’s Oil and Gas segment.Mexico. Long-lived assets held in the U.S. included property and equipment, net, of $629.2$911.5 million and $475.3$874.7 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively, and, for the Company’s businesses in foreign countries, the majority of which are in Canada, totaled $62.2$25.8 million and $73.8$31.1 million, respectively. Intangible assets and goodwill, net, related to the Company’s U.S. operations totaled approximately $1.2 billion and $1.1$1.4 billion as of September 30, 2017both March 31, 2020 and December 31, 2016,2019, respectively, and for the Company’s businesses in foreign countries, the majority of which are in Canada, totaled approximately $114.3$51.4 million and $107.8$56.4 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. AmountsThe majority of the Company’s long-lived and intangible assets and goodwill in foreign countries relate to its Canadian operations. As of March 31, 2020 and December 31, 2019, amounts due from customers from which foreign revenue was derived accounted for approximately 6%4% and 8%5%, respectively, of the Company’s consolidated net accounts receivable position, as of September 30, 2017 and December 31, 2016, which represents accounts receivable, net, less BIEC.
deferred revenue. For the three month periods ended March 31, 2020 and 2019, revenue from governmental entities was approximately 2% and 1%, respectively, of total revenue, substantially all of which was derived from the Company’s U.S. operations.
Significant Customers
Revenue concentration information for significant customers as a percentageFor the three month periods ended March 31, 2020 and 2019, AT&T represented 24% and 23%, respectively, of the Company’s total consolidated revenue wasrevenue. 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 follows:well as construction/installation contracts for wireless, wireline/fiber and various install-to-the-home services. Revenue from AT&T is included within the Communications segment.
|
| | | | | | | |
| For the Three Months Ended September 30 | | For the Nine Months Ended September 30 |
Customer: | 2017 | | 2016 | | 2017 | | 2016 |
Energy Transfer affiliates (a) | 49% | | 35% | | 40% | | 26% |
AT&T (including DIRECTV®) (b) | 21% | | 30% | | 25% | | 34% |
| |
(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 their subsidiaries and affiliates, all of which are consolidated by Energy Transfer Equity, L.P. Revenue from Energy Transfer affiliates is included in the Oil and Gas segment. |
| |
(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. See Note 14 - Commitmentsbusiness, including project contract price and Contingencies in the Company’s 2016 Form 10-K for additional information.acquisition purchase price disputes. 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.
COVID-19 Pandemic
During March 2020, the World Health Organization declared a global pandemic related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The COVID-19 pandemic has significantly affected economic conditions in the United States and internationally as national, state and local governments reacted to the public health crisis by requiring mitigation measures that have disrupted business activities for an uncertain period of time. The effects of the COVID-19 pandemic could affect the Company’s future business activities and financial results, including from governmental permitting approval delays, reduced crew productivity, higher operating costs and lower levels of overhead cost absorption and/or delayed project start dates or project shutdowns that may be requested or mandated by governmental authorities or others.
The effects of the COVID-19 pandemic on the Company’s financial results for the three month period ended March 31, 2020 were limited. Most of the Company’s construction services are currently deemed essential under governmental mitigation orders and substantially all of its business segments continue to operate. Management’s top priority has been to take appropriate actions to protect the health and safety of its employees, customers and business partners, including adjusting its standard operating procedures to respond to evolving health guidelines. Management believes that it is taking appropriate steps to mitigate any potential impact to the Company; however, given the uncertainty regarding the potential effects of the COVID-19 pandemic, any future impacts cannot be quantified or predicted with specificity.
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 and surety bond providers and in support of performance under certain contracts as well as certain obligations associated with the Company’s costequity investments and equity investees,other strategic arrangements, 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 September 30, 2017March 31, 2020 and December 31, 2016,2019, there were $189.1$161.2 million and $314.3$115.1 million, respectively, of letters of credit issued under the Company’s Credit Facility.credit facilities. The Company is not aware of any material claims relating to its outstanding letters of credit as of September 30, 2017March 31, 2020 or December 31, 2016.2019.
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.its projects. 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 its subcontractors and vendors. If the Company fails to perform under a contract or to pay its 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 September 30, 2017March 31, 2020 and December 31, 2016,2019, outstanding performance and payment bonds totaled $119.2approximated $577.5 million and $72.9$551.4 million, respectively, and estimated costs to complete projects secured by these bonds totaled $51.3$162.8 million and $9.5$194.7 million as of September 30, 2017March 31, 2020 and December 31, 2016,2019, respectively. These amounts do not include performance and payment bonds associated with the Company’s equity investees.
Cost and Equity Investees and Other Entities. Investment Arrangements. The Company holds a 35% undivided interest in a proportionately consolidated non-controlled Canadian contractual joint venture that was underway when the Company acquired Pacer in 2014, whose sole activity involves the construction of a bridge, a business in which the Company does not otherwise engage. This joint venture, which is managed by a third party, and for which the Company has minimal direct construction involvement, automatically terminates upon completion of the project. The Company also holds undivided interests, ranging from 85% to 90%, in sevenmultiple proportionately consolidated non-controlled contractual joint ventures that provide infrastructure construction services for electrical transmission projects. Income and/or losses incurred by these joint ventures are generally shared proportionally by the respective joint venture members, with the members of the joint ventures jointly and severally liable for all of the obligations of the joint venture. The respective joint venture agreements provide that each joint venture partner indemnify the other party for any liabilities incurred by such joint venture in excess of its ratable portion of such liabilities. Thus, it is possible that the Company could be required to pay or perform obligations in excess of its share if the other joint venture partners fail or refuse to pay or perform their respective share of the obligations. As of September 30, 2017,March 31, 2020, the Company was not aware of circumstances that would reasonably lead to material future claims against it in connection with these arrangements. Included in the Company’s cash balances as of March 31, 2020 and December 31, 2019 are amounts held by entities that are proportionately consolidated totaling $9.1 million and $13.1 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 has other investment arrangements, as discussed in Note 4 - Fair Value of Financial Instruments and Note 15 - Related Party Transactions. From time to time, the Companyunder which it may incur costs or provide financing, performance, financial and/or other guarantees to or in connection with its investees.guarantees. See Note 4 - Fair Value of Financial Instruments regarding the Company’s other investment 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 September 30, 2017March 31, 2020 and December 31, 2016,2019, MasTec’s estimated liability for unpaid claims and associated expenses, including incurred but not reported losses related to these policies, totaled $98.5$125.3 million and $85.8$123.4 million, respectively, of which $67.5$85.8 million and $55.2$87.3 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 estimated liability for employee group medical claims totaled $2.6$4.7 million and $4.2 million as of both September 30, 2017March 31, 2020 and December 31, 2016.2019, respectively.
The Company is required to post collateral, generally in the form of letters of credit, surety bonds and provide cash collateral to certain of its insurance carriers and to provide surety bonds in certain states.carriers. Insurance-related letters of credit for the Company’s workers’ compensation, general liability and automobile liability policies amounted to $84.6 million and $85.1$64.0 million as of September 30, 2017both March 31, 2020 and December 31, 2016, respectively. In addition, cash collateral deposited with insurance carriers, which is included within other long-term assets, amounted to $1.5 million for these policies as of both September 30, 2017 and December 31, 2016.2019. Outstanding surety bonds related to workers’ compensation self-insurance programs amounted to $13.7 million and $13.5$38.5 million as of September 30, 2017both March 31, 2020 and December 31, 2016, respectively.2019.
Employment Agreements. The Company has employment agreements with certain executives and other employees, which provide for compensation and certain other benefits and for severance payments under certain circumstances. Certain employment agreements also contain clauses that become effective upon a change in control of the Company. Upon the occurrence of any of the defined events in the various employment agreements, the Company would be obligated to pay certain amounts to the relevant employees, which vary with the level of the employees’ respective responsibility.
Collective Bargaining Agreements and Multiemployer Plans. As discussed in Note 10 - Other Retirement Plans, certain of MasTec’s subsidiaries are party to various collective bargaining agreements with unions representing certain of their employees, which require the Company to
pay specified wages, provide certain benefits to their union employees and contribute certain amounts to multiemployer pension and other multiemployer benefits plans and trusts.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,MEPPs, subjects employers to substantial liabilities in the event of thean 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. As described in the Company’s 2016 Form 10-K, the Company, along with other members of the Pipe Line Contractors Association (the “PLCA”), voluntarily withdrew from the Central States Southeast and Southwest Areas Pension Fund (“Central States”) in November 2011, for which the Company established and paid a $6.4 million withdrawal liability. The Company is in arbitration to determine if there is any remaining amount owed on this withdrawal liability, and during the third quarter of 2017, the Company recognized $0.6 million of expense in connection with the expected settlement of this matter.
Other than the Company’s 2011 withdrawal from Central States and certain other underfunded plans, as described in the Company’s 2016 Form 10-K,March 31, 2020, the Company does not have plans to withdraw from, and is not aware of circumstances that would reasonably lead to material claims against it, in connection with these plans. However, therethe MEPPs in which it participates. There can be no assurance, however, that the Company will not be assessed liabilities in the future.
Based upon the information available to the Company from plan administrators as of September 30, 2017, several of the multiemployer pension plans in which it participates are underfunded and, as a result, the Company could be required to increase its contributions,future, including in the form of a surcharge on future benefit contributions.contributions or increased contributions on underfunded plans. The amount of additional funds the Company maycould be obligated to pay or 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 September 30, 2017March 31, 2020 and December 31, 2016,2019, 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 investees.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 warrantyWarranty claims are, andhave historically havenot been de minimis.material. However, if warranty claims occur, the Company could be required to repair or replace warrantied items, or, if customers elect to repair or replace the warrantied item using the services of another provider, the Company could be required to pay for the cost of the repair or replacement.
Concentrations of Risk. The Company had approximately 455295 customers for the ninethree month period ended September 30, 2017.March 31, 2020. As of September 30, 2017 and DecemberMarch 31, 2016, one customer2020, 2 customers each accounted for approximately 44%16% and 24%15%, respectively, of the Company’s consolidated net accounts receivable position, which represents accounts receivable, net, less BIEC.deferred revenue. As of September 30, 2017 and December 31, 2016, a separate customer2019, 3 customers each accounted for approximately 17%, 13% and 17%11%, respectively, of the Company’s consolidated net accounts receivable position. In addition, the Company derived 83% and 80%, respectively,62% of its revenue from its top ten10 customers for both the three month periods ended September 30, 2017March 31, 2020 and 2016, and derived 80% and 76% of its revenues, respectively, from its top ten customers for the nine month periods ended September 30, 2017 and 2016.2019.
Note 15 -– Related Party Transactions
For the three month periods ended September 30, 2017 and 2016, revenue recognized by the Company’s Pacer subsidiary for work performed for a contractual joint venture in which it holds a 35% undivided interest totaled $0.6 million and $0.2 million, respectively, and for the nine month periods ended September 30, 2017 and 2016, totaled $0.9 million and $0.8 million, respectively. As of September 30, 2017 and December 31, 2016, receivables from this contractual joint venture totaled $0.9 million and $0.7 million, respectively. Related performance guarantees, which are based on the original full contract value, as of both September 30, 2017 and December 31, 2016, totaled Canadian $132.1 million (or approximately $105.9 million and $98.3 million, respectively). In connection with this contractual joint venture, the Company provided project-related financing of $2.7 million and $5.9 million, respectively, for the three and nine month periods ended September 30, 2017, and $0.8 million and $5.6 million, respectively, for the three and nine month periods ended September 30, 2016. As of September 30, 2017, there were no additional amounts committed to this entity.
In connection with an April 2017 acquisition, the Company acquired a 40% interest in an entity, valued at $0.4 million, which is accounted for as an equity method investment. The Company has a subcontracting arrangement with this entity. For the nine month period ended September 30, 2017, the Company incurred $0.2 million of expenses under this subcontracting arrangement, and there were no amounts outstanding as of September 30, 2017. During the nine month period ended September 30, 2017, the Company advanced $0.3 million to this entity, net, of which $0.3 million was outstanding as of September 30, 2017. The acquired company had a vendor financing arrangement with an entity that was owned by a member of subsidiary management, which arrangement was completed in the third quarter of 2017. The payments made under this arrangement for the three and nine month periods ended September 30, 2017 totaled $1.4 million and $5.3 million, respectively, and no amounts were outstanding as of September 30, 2017.
MasTec purchases, rents and leases equipment and purchases various types of supplies and services used in its business, including ancillary construction services, project-related site restoration and marketing and business development activities from a number of different vendors on a non-exclusive basis, including CCI,and from time to time, rents equipment to, or performs construction services on behalf of, entities in which members of subsidiary management have ownership or commercial interests. For the Company hasthree month periods ended March 31, 2020 and 2019, such payments to related party entities totaled approximately $25.3 million and $28.5 million, respectively, and the related payables totaled approximately $6.4 million and $14.7 million as of March 31, 2020 and December 31, 2019, respectively. Revenue from such related party arrangements totaled approximately $1.0 million and $0.3 million for the three month periods ended March 31, 2020 and 2019, respectively. As of March 31, 2020, related amounts receivable, net, totaled approximately $0.1 million, and as of December 31, 2019 were de minimis.
In 2018, MasTec acquired a cost method investment.construction management firm specializing in steel building systems, of which 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, was a minority owner, for approximately $6.1 million in cash and an estimated earn-out liability of approximately $1.4 million, net, as adjusted. Amounts outstanding for advances made by the Company on behalf of this entity totaled approximately $0.7 million and $0.5 million, net as of March 31, 2020 and December 31, 2019, respectively, which are expected to be settled under customary terms associated with the related purchase agreement.
The Company rents and leases equipment and purchases equipment supplies and servicing from CCI, in which it has a 15% equity investment. Juan Carlos Mas serves as the chairman of CCI.CCI, and a member of management of a MasTec subsidiary and an entity that is owned by the Mas family are minority owners. For the three month periods ended September 30, 2017March 31, 2020 and 2016,2019, MasTec paid CCI approximately $22.9$0.3 million and $10.0$6.0 million, respectively, for equipment supplies, rentals, leases and servicing. For the nine month periods ended September 30, 2017 and 2016, MasTec paid CCI approximately $34.9 million and $13.7 million, respectively, net of rebates.rebates, respectively, related to this activity. As of September 30, 2017March 31, 2020 and December 31, 2016, related payables2019, amounts payable to CCI, net of rebates receivable, totaled approximately $6.1$1.4 million and $1.5$0.2 million, respectively.
MasTec has a subcontracting arrangement with an entity for the performance of construction services, the minority owners of which include an entity controlled by Jorge Mas and José R. Mas, along with two2 members of management of a MasTec subsidiary. For the three month periods ended September 30, 2017March 31, 2020 and 2016,2019, MasTec incurred $39.2subcontracting expenses of approximately $0.7 million and $5.6 million, respectively, of expenses under this subcontracting arrangement, and for the nine month periods ended September 30, 2017 and 2016, MasTec incurred $54.8 million and $8.8$1.6 million, respectively. During the third quarter of 2016, the Company sold equipment totaling $0.3 million to this entity. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, related amounts payable totaled $20.1approximately $0.6 million and $0.1$0.2 million, respectively.
MasTec has a leasing arrangement for an aircraft that is owned by an entity that Jorge Mas owns. For the three month periods ended March 31, 2020 and 2019, MasTec paid approximately $0.6 million and $0.7 million, respectively, related to this leasing arrangement.
MasTec performs construction services on behalf of a professional Miami soccer franchise (the “Franchise”) in which Jorge Mas and José R. Mas are minority owners. Services provided by MasTec include the construction of a soccer facility and stadium, including wireless infrastructure services. For the three month period ended March 31, 2020, MasTec charged approximately $4.0 million under these arrangements, of which $3.6 million was outstanding as of March 31, 2020. Payments for other expenses related to the Franchise totaled $0.2 million for the three month period ended March 31, 2020.
MasTec leases employees and provides satellite communications services to a customer in which Jorge Mas and José R. Mas own a majority interest. For both three month periods ended September 30, 2017 and 2016, MasTec charged approximately $0.2 million to this customer, and for both the nine month periods ended September 30, 2017 and 2016, charged $0.6 million. As of both September 30, 2017 and December 31, 2016, outstanding receivables from employee leasing arrangements with this customer totaled $0.2 million. The Company also provides satellite communication services to this customer. For both the three month periods ended September 30, 2017March 31, 2020 and 2016, revenue from satellite communication services provided to this customer totaled approximately $0.2 million, and for the nine month periods ended September 30, 2017 and 2016, satellite communication revenues totaled $0.6 million and $0.7 million, respectively. As of September 30, 2017 and December 31, 2016, receivables from this arrangement totaled2019, MasTec charged approximately $0.3 million and $0.4 million, respectively.respectively, to
MasTec has a leasing arrangement with an independent third party that leases an aircraft from a Company owned by Jorge Mas. For the three month periods ended September 30, 2017 and 2016, MasTec paid $0.5 million and $0.7 million, respectively, under
this leasing arrangement, and for the nine month periods ended September 30, 2017 and 2016, MasTec paid $1.5 million and $2.0 million, respectively.customer. As of both September 30, 2017March 31, 2020 and December 31, 2016,2019, outstanding receivables related amounts payable were de minimis.
For the three month periods ended September 30, 2017 and 2016, related party lease payments for operational facilities and equipment, which are primarily associated with members of subsidiary management,to these arrangements totaled approximately $11.3$0.9 million and $12.5 million, respectively, and for the nine month periods ended September 30, 2017 and 2016, related party lease payments totaled approximately $38.4 million and $31.6 million, respectively. Payables associated with related party leases totaled approximately $0.6 million and $0.3 million as of September 30, 2017 and December 31, 2016, respectively. Additionally, payments for various types of supplies and services, including ancillary construction services, project-related site restoration and marketing and business development activities associated with members of subsidiary management totaled approximately $26.4 million and $7.4 million for the three month periods ended September 30, 2017 and 2016, respectively, and totaled $41.0 million and $14.2 million for the nine month periods ended September 30, 2017 and 2016, respectively. As of September 30, 2017 and December 31, 2016, associated amounts payable totaled approximately $0.8 million, and $3.7 million, respectively. In addition, MasTec performs construction services for an entity associated with a member of subsidiary management. Revenue from this arrangement totaled $1.0 million for the three month period ended September 30, 2017, and related receivables totaled $0.5 million as of September 30, 2017. The oil and gas pipeline equipment company that was acquired by MasTec in the third quarter of 2017 was formerly owned by a member of subsidiary management. MasTec previously leased equipment from this company. The Company paid $40.6 million in cash and $57.3 million of contingent consideration in connection with this acquisition.
Non-controlling interests in entities consolidated by the Company represent ownership interests held by certain members of management of several of the Company’s subsidiaries, primarily in our Oil and Gas segment, and the Company has a subcontracting arrangement with one of these entities for the performance of ancillary oil and gas construction services, which transactions are eliminated in consolidation. The Company made distributions of earnings of $1.3 million in the first quarter of 2017 to holders of its non-controlling interests.
Split Dollar Agreements
MasTec has split dollar life insurance agreements with eachtrusts, of which Jorge Mas or José R. Mas and Jorge Mas. Inis a trustee. There were 0 payments made in connection with the split dollar agreement for José R. Mas, the Company made no paymentsthese agreements in either of the three month periods ended September 30, 2017 and 2016, and paid $0.7 million in each of the nine month periods ended September 30, 2017 and 2016. In connection with the split dollar agreement for Jorge Mas, the Company paid $0.6 million for both the three month periods ended September 30, 2017 and 2016, and paid $1.1 million for both the nine month periods ended September 30, 2017 and 2016.March 31, 2020 or 2019. As of September 30, 2017both March 31, 2020 and December 31, 2016,2019, life insurance assets associated with these agreements totaled $16.6 million and $14.8 million, respectively, which amount is included within other long-term assets.approximately $20.3 million.
Note 16 – Supplemental Guarantor Condensed Unaudited Consolidating Financial Information
The 4.875% Senior Notes are fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by certain of the Company’s existing and future 100%-owned direct and indirect domestic subsidiaries that are, as of March 31, 2020, each guarantors of the Credit Facility or other outstanding indebtedness (the “Guarantor Subsidiaries”). The Company’s subsidiaries organized outside of the United States and certain domestic subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) do not guarantee these notes. A Guarantor Subsidiary’s guarantee is subject to release in certain customary circumstances, including upon the sale of a majority of the capital stock or substantially all of the assets of such Guarantor Subsidiary; if the Guarantor Subsidiary’s guarantee under the Company’s Credit Facility and other indebtedness is released or discharged (other than due to payment under such guarantee); or when the requirements for legal defeasance are satisfied or the obligations are discharged in accordance with the related indentures.
The following supplemental financial information sets forth the condensed unaudited consolidating balance sheets and the condensed unaudited consolidating statements of operations and comprehensive income (loss) and cash flows for MasTec, Inc., the Guarantor Subsidiaries on a combined basis, the Non-Guarantor Subsidiaries on a combined basis and the eliminations necessary to arrive at the information for the Company as reported on a consolidated basis. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among MasTec, Inc., the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. Investments in subsidiaries are accounted for using the equity method for this presentation.
The tables below may contain slight summation differences due to rounding.
CONDENSED UNAUDITED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in(unaudited - in millions)
| | For the Three Months Ended September 30, 2017 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. | |
For the Three Months Ended March 31, 2020 | | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Revenue | $ | — |
| | $ | 1,860.3 |
| | $ | 130.3 |
| | $ | (34.8 | ) | | $ | 1,955.8 |
| $ | — |
| | $ | 1,312.3 |
| | $ | 111.8 |
| | $ | (7.5 | ) | | $ | 1,416.6 |
|
Costs of revenue, excluding depreciation and amortization | — |
| | 1,640.3 |
| | 120.7 |
| | (34.8 | ) | | 1,726.2 |
| — |
| | 1,138.8 |
| | 95.0 |
| | (7.5 | ) | | 1,226.3 |
|
Depreciation and amortization | — |
| | 41.1 |
| | 9.0 |
| | — |
| | 50.1 |
| — |
| | 54.2 |
| | 6.3 |
| | — |
| | 60.5 |
|
General and administrative expenses | 0.5 |
| | 61.7 |
| | 4.2 |
| | — |
| | 66.4 |
| 1.0 |
| | 73.9 |
| | 10.6 |
| | — |
| | 85.5 |
|
Interest expense (income), net | — |
| | 33.2 |
| | (15.6 | ) | | — |
| | 17.6 |
| |
Interest expense, net | | — |
| | 15.8 |
| | 1.2 |
| | — |
| | 17.0 |
|
Equity in earnings of unconsolidated affiliates | — |
| | — |
| | (7.4 | ) | | — |
| | (7.4 | ) | — |
| | (0.2 | ) | | (7.6 | ) | | — |
| | (7.8 | ) |
Other income, net | — |
| | (4.6 | ) | | (0.1 | ) | | — |
| | (4.7 | ) | — |
| | (1.1 | ) | | (0.2 | ) | | — |
| | (1.3 | ) |
(Loss) income before income taxes | $ | (0.5 | ) | | $ | 88.6 |
| | $ | 19.5 |
| | $ | — |
| | $ | 107.6 |
| $ | (1.0 | ) | | $ | 30.9 |
| | $ | 6.5 |
| | $ | — |
| | $ | 36.5 |
|
Benefit from (provision for) income taxes | 0.2 |
| | (33.8 | ) | | (9.9 | ) |
| — |
| | (43.4 | ) | 0.3 |
| | (10.0 | ) | | 9.3 |
|
| — |
| | (0.4 | ) |
Net (loss) income before equity in income from subsidiaries | $ | (0.3 | ) | | $ | 54.8 |
| | $ | 9.6 |
| | $ | — |
| | $ | 64.2 |
| $ | (0.7 | ) | | $ | 20.9 |
| | $ | 15.8 |
| | $ | — |
| | $ | 36.1 |
|
Equity in income from subsidiaries, net of tax | 64.1 |
| | — |
| | — |
| | (64.1 | ) | | — |
| 36.9 |
| | — |
| | — |
| | (36.9 | ) | | — |
|
Net income (loss) | $ | 63.8 |
| | $ | 54.8 |
| | $ | 9.6 |
| | $ | (64.1 | ) | | $ | 64.2 |
| $ | 36.2 |
| | $ | 20.9 |
| | $ | 15.8 |
| | $ | (36.9 | ) | | $ | 36.1 |
|
Net income attributable to non-controlling interests | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
| |
Net loss attributable to non-controlling interests | | — |
| | — |
| | (0.2 | ) | | — |
| | (0.2 | ) |
Net income (loss) attributable to MasTec, Inc. | $ | 63.8 |
| | $ | 54.8 |
| | $ | 9.2 |
| | $ | (64.1 | ) | | $ | 63.8 |
| $ | 36.2 |
| | $ | 20.9 |
| | $ | 16.0 |
| | $ | (36.9 | ) | | $ | 36.2 |
|
Comprehensive income (loss) | $ | 65.2 |
| | $ | 54.9 |
| | $ | 11.1 |
| | $ | (65.5 | ) | | $ | 65.7 |
| $ | 13.0 |
| | $ | 17.5 |
| | $ | (4.1 | ) | | $ | (13.6 | ) | | $ | 12.8 |
|
|
| | | | | | | | | | | | | | | | | | | |
For the Three Months Ended September 30, 2016 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Revenue | $ | — |
| | $ | 1,493.9 |
| | $ | 112.7 |
| | $ | (20.4 | ) | | $ | 1,586.2 |
|
Costs of revenue, excluding depreciation and amortization | — |
| | 1,282.3 |
| | 107.2 |
| | (20.4 | ) | | 1,369.0 |
|
Depreciation and amortization | — |
| | 33.7 |
| | 8.9 |
| | — |
| | 42.6 |
|
General and administrative expenses | 0.6 |
| | 60.6 |
| | 5.9 |
| | — |
| | 67.1 |
|
Interest expense (income), net | — |
| | 28.6 |
| | (15.5 | ) | | — |
| | 13.1 |
|
Equity in losses of unconsolidated affiliates | — |
| | — |
| | — |
| | — |
| | — |
|
Other (income) expense, net | — |
| | (3.4 | ) | | 2.3 |
| | — |
| | (1.0 | ) |
(Loss) income before income taxes | $ | (0.6 | ) | | $ | 92.1 |
| | $ | 3.9 |
| | $ | — |
| | $ | 95.3 |
|
Benefit from (provision for) income taxes | 0.2 |
| | (33.4 | ) | | (5.6 | ) | | — |
| | (38.8 | ) |
Net (loss) income before equity in income from subsidiaries | $ | (0.4 | ) | | $ | 58.7 |
| | $ | (1.7 | ) | | $ | — |
| | $ | 56.5 |
|
Equity in income from subsidiaries, net of tax | 56.7 |
| | — |
| | — |
| | (56.7 | ) | | — |
|
Net income (loss) | $ | 56.3 |
| | $ | 58.7 |
| | $ | (1.7 | ) | | $ | (56.7 | ) | | $ | 56.5 |
|
Net income attributable to non-controlling interests | — |
| | — |
| | 0.3 |
| | — |
| | 0.3 |
|
Net income (loss) attributable to MasTec, Inc. | $ | 56.3 |
| | $ | 58.7 |
| | $ | (2.0 | ) | | $ | (56.7 | ) | | $ | 56.3 |
|
Comprehensive income (loss) | $ | 54.5 |
| | $ | 58.7 |
| | $ | (3.6 | ) | | $ | (54.9 | ) | | $ | 54.7 |
|
|
| | | | | | | | | | | | | | | | | | | |
For the Three Months Ended March 31, 2019 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Revenue | $ | — |
| | $ | 1,402.4 |
| | $ | 139.1 |
| | $ | (23.2 | ) | | $ | 1,518.3 |
|
Costs of revenue, excluding depreciation and amortization | — |
| | 1,200.7 |
| | 134.5 |
| | (23.2 | ) | | 1,312.0 |
|
Depreciation and amortization | — |
| | 54.7 |
| | 4.3 |
| | — |
| | 59.0 |
|
General and administrative expenses | 0.8 |
| | 67.3 |
| | 4.5 |
| | — |
| | 72.6 |
|
Interest expense (income), net | — |
| | 37.7 |
| | (15.4 | ) | | — |
| | 22.3 |
|
Equity in losses (earnings) of unconsolidated affiliates | — |
| | 0.1 |
| | (6.3 | ) | | — |
| | (6.3 | ) |
Other expense (income), net | — |
| | 5.0 |
| | (1.5 | ) | | — |
| | 3.5 |
|
(Loss) income before income taxes | $ | (0.8 | ) | | $ | 36.9 |
| | $ | 19.0 |
| | $ | — |
| | $ | 55.1 |
|
Benefit from (provision for) income taxes | 0.3 |
| | (12.0 | ) | | (0.3 | ) | | — |
| | (12.0 | ) |
Net (loss) income before equity in income from subsidiaries | $ | (0.5 | ) | | $ | 24.9 |
| | $ | 18.7 |
| | $ | — |
| | $ | 43.1 |
|
Equity in income from subsidiaries, net of tax | 43.7 |
| | — |
| | — |
| | (43.7 | ) | | — |
|
Net income (loss) | $ | 43.2 |
| | $ | 24.9 |
| | $ | 18.7 |
| | $ | (43.7 | ) | | $ | 43.1 |
|
Net loss attributable to non-controlling interests | — |
| | — |
| | (0.0 | ) | | — |
| | (0.0 | ) |
Net income (loss) attributable to MasTec, Inc. | $ | 43.2 |
| | $ | 24.9 |
| | $ | 18.7 |
| | $ | (43.7 | ) | | $ | 43.1 |
|
Comprehensive income (loss) | $ | 37.5 |
| | $ | 24.9 |
| | $ | 13.2 |
| | $ | (38.1 | ) | | $ | 37.5 |
|
CONDENSED UNAUDITED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (inBALANCE SHEETS (unaudited - in millions)
|
| | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2017 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Revenue | $ | — |
| | $ | 4,763.4 |
| | $ | 347.4 |
| | $ | (106.7 | ) | | $ | 5,004.1 |
|
Costs of revenue, excluding depreciation and amortization | — |
| | 4,097.7 |
| | 332.6 |
| | (106.7 | ) | | 4,323.6 |
|
Depreciation and amortization | — |
| | 112.2 |
| | 26.2 |
| | — |
| | 138.4 |
|
General and administrative expenses | 1.7 |
| | 187.7 |
| | 12.6 |
| | — |
| | 202.0 |
|
Interest expense (income), net | — |
| | 91.5 |
| | (46.5 | ) | | — |
| | 45.0 |
|
Equity in earnings of unconsolidated affiliates | — |
| | — |
| | (15.1 | ) | | — |
| | (15.1 | ) |
Other (income) expense, net | — |
| | (9.9 | ) | | 5.8 |
| | — |
| | (4.1 | ) |
(Loss) income before income taxes | $ | (1.7 | ) | | $ | 284.2 |
| | $ | 31.8 |
| | $ | — |
| | $ | 314.3 |
|
Benefit from (provision for) income taxes | 0.6 |
| | (104.9 | ) | | (21.9 | ) | | — |
| | (126.2 | ) |
Net (loss) income before equity in income from subsidiaries | $ | (1.1 | ) | | $ | 179.3 |
| | $ | 9.9 |
| | $ | — |
| | $ | 188.2 |
|
Equity in income from subsidiaries, net of tax | 187.5 |
| | — |
| | — |
| | (187.5 | ) | | — |
|
Net income (loss) | $ | 186.4 |
| | $ | 179.3 |
| | $ | 9.9 |
| | $ | (187.5 | ) | | $ | 188.2 |
|
Net income attributable to non-controlling interests | — |
| | — |
| | 1.8 |
| | — |
| | 1.8 |
|
Net income (loss) attributable to MasTec, Inc. | $ | 186.4 |
| | $ | 179.3 |
| | $ | 8.1 |
| | $ | (187.5 | ) | | $ | 186.4 |
|
Comprehensive income (loss) | $ | 187.5 |
| | $ | 179.3 |
| | $ | 11.1 |
| | $ | (188.6 | ) | | $ | 189.3 |
|
|
| | | | | | | | | | | | | | | | | | | |
As of March 31, 2020 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Assets | | | | | | | | | |
Total current assets | $ | — |
| | $ | 1,871.6 |
| | $ | 236.5 |
| | $ | (28.3 | ) | | $ | 2,079.8 |
|
Property and equipment, net | — |
| | 898.8 |
| | 38.5 |
| | — |
| | 937.3 |
|
Operating lease assets | — |
| | 201.3 |
| | 9.3 |
| | — |
| | 210.6 |
|
Goodwill and other intangible assets, net | — |
| | 1,260.4 |
| | 161.5 |
| | — |
| | 1,421.9 |
|
Investments in and advances to consolidated affiliates, net | 1,667.2 |
| | 1,382.7 |
| | — |
| | (3,049.9 | ) | | — |
|
Other long-term assets | 18.3 |
| | 39.6 |
| | 186.0 |
| | — |
| | 243.9 |
|
Total assets | $ | 1,685.5 |
| | $ | 5,654.4 |
| | $ | 631.8 |
| | $ | (3,078.2 | ) | | $ | 4,893.5 |
|
Liabilities and equity | | | | | | | | | |
Total current liabilities | $ | — |
| | $ | 1,205.6 |
| | $ | 82.7 |
| | $ | (28.3 | ) | | $ | 1,260.0 |
|
Long-term debt, including finance leases | — |
| | 1,294.9 |
| | 2.4 |
| | — |
| | 1,297.3 |
|
Advances from consolidated affiliates, net | — |
| | — |
| | 199.3 |
| | (199.3 | ) | | — |
|
Long-term operating lease liabilities | — |
| | 131.7 |
| | 11.7 |
| | — |
| | 143.4 |
|
Other long-term liabilities | — |
| | 482.4 |
| | 20.5 |
| | — |
| | 502.9 |
|
Total liabilities | $ | — |
| | $ | 3,114.6 |
| | $ | 316.6 |
| | $ | (227.6 | ) | | $ | 3,203.7 |
|
Total equity | $ | 1,685.5 |
| | $ | 2,539.8 |
| | $ | 315.2 |
| | $ | (2,850.6 | ) | | $ | 1,689.8 |
|
Total liabilities and equity | $ | 1,685.5 |
| | $ | 5,654.4 |
| | $ | 631.8 |
| | $ | (3,078.2 | ) | | $ | 4,893.5 |
|
|
| | | | | | | | | | | | | | | | | | | |
As of December 31, 2019 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Assets | | | | | | | | | |
Total current assets | $ | — |
| | $ | 1,987.8 |
| | $ | 248.1 |
| | $ | (62.4 | ) | | $ | 2,173.6 |
|
Property and equipment, net | — |
| | 862.0 |
| | 43.9 |
| | — |
| | 905.8 |
|
Operating lease assets | — |
| | 214.7 |
| | 15.2 |
| | — |
| | 229.9 |
|
Goodwill and other intangible assets, net | — |
| | 1,265.6 |
| | 167.3 |
| | — |
| | 1,433.0 |
|
Investments in and advances to consolidated affiliates, net | 1,768.9 |
| | 1,233.5 |
| | — |
| | (3,002.4 | ) | | — |
|
Other long-term assets | 18.4 |
| | 42.6 |
| | 193.8 |
| | — |
| | 254.7 |
|
Total assets | $ | 1,787.3 |
| | $ | 5,606.2 |
| | $ | 668.3 |
| | $ | (3,064.8 | ) | | $ | 4,997.0 |
|
Liabilities and equity | | | | | | | | | |
Total current liabilities | $ | 0.1 |
| | $ | 1,141.6 |
| | $ | 139.8 |
| | $ | (62.4 | ) | | $ | 1,219.1 |
|
Long-term debt, including finance leases | — |
| | 1,310.9 |
| | 3.1 |
| | — |
| | 1,314.0 |
|
Advances from consolidated affiliates, net | — |
| | — |
| | 167.5 |
| | (167.5 | ) | | — |
|
Long-term operating lease liabilities | — |
| | 143.0 |
| | 11.6 |
| | — |
| | 154.6 |
|
Other long-term liabilities | — |
| | 493.1 |
| | 24.5 |
| | — |
| | 517.6 |
|
Total liabilities | $ | 0.1 |
| | $ | 3,088.6 |
| | $ | 346.5 |
| | $ | (229.9 | ) | | $ | 3,205.3 |
|
Total equity | $ | 1,787.2 |
| | $ | 2,517.6 |
| | $ | 321.8 |
| | $ | (2,834.9 | ) | | $ | 1,791.7 |
|
Total liabilities and equity | $ | 1,787.3 |
| | $ | 5,606.2 |
| | $ | 668.3 |
| | $ | (3,064.8 | ) | | $ | 4,997.0 |
|
|
| | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2016 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Revenue | $ | — |
| | $ | 3,521.5 |
| | $ | 302.2 |
| | $ | (30.9 | ) | | $ | 3,792.8 |
|
Costs of revenue, excluding depreciation and amortization | — |
| | 3,054.5 |
| | 298.0 |
| | (30.9 | ) | | 3,321.6 |
|
Depreciation and amortization | — |
| | 96.6 |
| | 25.6 |
| | — |
| | 122.2 |
|
General and administrative expenses | 1.7 |
| | 172.1 |
| | 21.2 |
| | — |
| | 195.0 |
|
Interest expense (income), net | — |
| | 83.8 |
| | (45.9 | ) | | — |
| | 37.9 |
|
Equity in earnings of unconsolidated affiliates | — |
| | — |
| | (3.5 | ) | | — |
| | (3.5 | ) |
Other income, net | — |
| | (12.7 | ) | | (0.1 | ) | | — |
| | (12.8 | ) |
(Loss) income before income taxes | $ | (1.7 | ) | | $ | 127.2 |
| | $ | 6.9 |
| | $ | — |
| | $ | 132.4 |
|
Benefit from (provision for) income taxes | 0.6 |
| | (47.3 | ) | | (7.6 | ) | | — |
| | (54.3 | ) |
Net (loss) income before equity in income from subsidiaries | $ | (1.1 | ) | | $ | 79.9 |
| | $ | (0.7 | ) | | $ | — |
| | $ | 78.1 |
|
Equity in income from subsidiaries, net of tax | 78.8 |
| | — |
| | — |
| | (78.8 | ) | | — |
|
Net income (loss) | $ | 77.7 |
| | $ | 79.9 |
| | $ | (0.7 | ) | | $ | (78.8 | ) | | $ | 78.1 |
|
Net income attributable to non-controlling interests | — |
| | — |
| | 0.4 |
| | — |
| | 0.4 |
|
Net income (loss) attributable to MasTec, Inc. | $ | 77.7 |
| | $ | 79.9 |
| | $ | (1.1 | ) | | $ | (78.8 | ) | | $ | 77.7 |
|
Comprehensive income (loss) | $ | 69.2 |
| | $ | 79.9 |
| | $ | (9.2 | ) | | $ | (70.3 | ) | | $ | 69.6 |
|
CONDENSED UNAUDITED CONSOLIDATING BALANCE SHEETS (in millions)
|
| | | | | | | | | | | | | | | | | | | |
As of September 30 2017 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Assets | | | | | | | | | |
Total current assets | $ | — |
| | $ | 1,576.0 |
| | $ | 259.8 |
| | $ | (88.1 | ) | | $ | 1,747.7 |
|
Property and equipment, net | — |
| | 600.8 |
| | 90.6 |
| | — |
| | 691.4 |
|
Goodwill and other intangible assets, net | — |
| | 1,187.9 |
| | 143.0 |
| | — |
| | 1,330.9 |
|
Investments in and advances to consolidated affiliates, net | 1,279.7 |
| | 848.0 |
| | 710.2 |
| | (2,837.9 | ) | | — |
|
Other long-term assets | 15.8 |
| | 25.7 |
| | 130.6 |
| | — |
| | 172.1 |
|
Total assets | $ | 1,295.5 |
| | $ | 4,238.4 |
| | $ | 1,334.2 |
| | $ | (2,926.0 | ) | | $ | 3,942.2 |
|
Liabilities and equity | | | | | | | | | |
Total current liabilities | $ | — |
| | $ | 982.5 |
| | $ | 107.7 |
| | $ | (88.1 | ) | | $ | 1,002.2 |
|
Long-term debt | — |
| | 1,181.1 |
| | 11.2 |
| | — |
| | 1,192.3 |
|
Other long-term liabilities | — |
| | 432.0 |
| | 12.7 |
| | — |
| | 444.7 |
|
Total liabilities | $ | — |
| | $ | 2,595.6 |
| | $ | 131.6 |
| | $ | (88.1 | ) | | $ | 2,639.1 |
|
Total equity | $ | 1,295.5 |
| | $ | 1,642.8 |
| | $ | 1,202.6 |
| | $ | (2,837.9 | ) | | $ | 1,303.0 |
|
Total liabilities and equity | $ | 1,295.5 |
| | $ | 4,238.4 |
| | $ | 1,334.2 |
| | $ | (2,926.0 | ) | | $ | 3,942.2 |
|
|
| | | | | | | | | | | | | | | | | | | |
As of December 31, 2016 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Assets | | | | | | | | | |
Total current assets | $ | — |
| | $ | 1,256.3 |
| | $ | 175.8 |
| | $ | (29.6 | ) | | $ | 1,402.5 |
|
Property and equipment, net | — |
| | 456.6 |
| | 92.5 |
| | — |
| | 549.1 |
|
Goodwill and other intangible assets, net | — |
| | 1,037.4 |
| | 138.2 |
| | — |
| | 1,175.6 |
|
Investments in and advances to consolidated affiliates, net | 1,083.9 |
| | 625.9 |
| | 861.2 |
| | (2,571.0 | ) | | — |
|
Other long-term assets | 12.6 |
| | 25.3 |
| | 18.0 |
| | — |
| | 55.9 |
|
Total assets | $ | 1,096.5 |
| | $ | 3,401.5 |
| | $ | 1,285.7 |
| | $ | (2,600.6 | ) | | $ | 3,183.1 |
|
Liabilities and equity | | | | | | | | | |
Total current liabilities | $ | — |
| | $ | 759.7 |
| | $ | 109.9 |
| | $ | (29.6 | ) | | $ | 840.0 |
|
Long-term debt | — |
| | 938.7 |
| | 22.7 |
| | — |
| | 961.4 |
|
Other long-term liabilities | — |
| | 256.2 |
| | 21.9 |
| | — |
| | 278.1 |
|
Total liabilities | $ | — |
| | $ | 1,954.6 |
| | $ | 154.5 |
| | $ | (29.6 | ) | | $ | 2,079.5 |
|
Total equity | $ | 1,096.5 |
| | $ | 1,446.9 |
| | $ | 1,131.2 |
| | $ | (2,571.0 | ) | | $ | 1,103.6 |
|
Total liabilities and equity | $ | 1,096.5 |
| | $ | 3,401.5 |
| | $ | 1,285.7 |
| | $ | (2,600.6 | ) | | $ | 3,183.1 |
|
CONDENSED UNAUDITED CONSOLIDATING STATEMENTS OF CASH FLOWS (in(unaudited - in millions)
| | For the Nine Months Ended September 30, 2017 | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. | |
Net cash provided by (used in) operating activities | $ | — |
| | $ | 222.0 |
| | $ | (43.4 | ) | | $ | — |
| | $ | 178.6 |
| |
For the Three Months Ended March 31, 2020 | | MasTec, Inc. | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated MasTec, Inc. |
Net cash provided by operating activities | | $ | — |
| | $ | 189.6 |
| | $ | 13.7 |
| | $ | — |
| | $ | 203.3 |
|
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | |
Cash paid for acquisitions, net of cash acquired | — |
| | (116.0 | ) | | — |
| | — |
| | (116.0 | ) | |
Capital expenditures | — |
| | (70.0 | ) | | (13.3 | ) | | — |
| | (83.3 | ) | — |
| | (59.3 | ) | | (1.2 | ) | | — |
| | (60.6 | ) |
Proceeds from sale of property and equipment | — |
| | 12.5 |
| | 1.1 |
| | — |
| | 13.6 |
| — |
| | 7.8 |
| | 0.6 |
| | — |
| | 8.4 |
|
Payments for other investments | — |
| | (3.8 | ) | | (73.3 | ) | | — |
| | (77.1 | ) | — |
| | — |
| | (12.0 | ) | | — |
| | (12.0 | ) |
Proceeds from other investments | — |
| | 1.2 |
| | 12.2 |
| | — |
| | 13.4 |
| — |
| | 0.6 |
| | — |
| | — |
| | 0.6 |
|
Other investing activities, net | | — |
| | 4.8 |
| | — |
| | — |
| | 4.8 |
|
Net cash used in investing activities | $ | — |
| | $ | (176.1 | ) | | $ | (73.3 | ) | | $ | — |
| | $ | (249.4 | ) | $ | — |
| | $ | (46.1 | ) | | $ | (12.6 | ) | | $ | — |
| | $ | (58.7 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | |
Proceeds from credit facilities | — |
| | 1,988.1 |
| | 14.3 |
| | — |
| | 2,002.4 |
| — |
| | 673.0 |
| | 3.0 |
| | — |
| | 675.9 |
|
Repayments of credit facilities | — |
| | (1,817.4 | ) | | (23.0 | ) | | — |
| | (1,840.4 | ) | — |
| | (668.8 | ) | | (2.9 | ) | | — |
| | (671.8 | ) |
Repayments of other borrowings and capital lease obligations | — |
| | (52.6 | ) | | (8.3 | ) | | — |
| | (60.8 | ) | |
Payments of acquisition-related contingent consideration | — |
| | (18.8 | ) | | — |
| | — |
| | (18.8 | ) | |
Distributions to non-controlling interests | — |
| | — |
| | (1.3 | ) | | — |
| | (1.3 | ) | |
Proceeds from stock-based awards, net | 0.9 |
| | — |
| | — |
| | — |
| | 0.9 |
| |
Other financing activities, net | — |
| | (6.3 | ) | | — |
| | — |
| | (6.3 | ) | |
Net financing activities and advances (to) from consolidated affiliates | (0.9 | ) | | (131.9 | ) | | 132.8 |
| | — |
| | — |
| |
Payments of finance lease obligations | | — |
| | (30.4 | ) | | (0.4 | ) | | — |
| | (30.9 | ) |
Repurchases of common stock | | (119.4 | ) | | — |
| | — |
| | — |
| | (119.4 | ) |
Proceeds from stock-based awards | | 1.5 |
| | — |
| | — |
| | — |
| | 1.5 |
|
Payments for stock-based awards | | (0.6 | ) | | — |
| | — |
| | — |
| | (0.6 | ) |
Net financing activities and advances from (to) consolidated affiliates | | 118.5 |
| | (119.2 | ) | | 0.6 |
| | — |
| | — |
|
Net cash (used in) provided by financing activities | $ | — |
| | $ | (38.9 | ) | | $ | 114.5 |
| | $ | — |
| | $ | 75.6 |
| $ | — |
| | $ | (145.4 | ) | | $ | 0.3 |
| | $ | — |
| | $ | (145.2 | ) |
Effect of currency translation on cash | — |
| | — |
| | 0.2 |
| | — |
| | 0.2 |
| — |
| | — |
| | 0.9 |
| | — |
| | 0.9 |
|
Net increase (decrease) in cash and cash equivalents | $ | — |
| | $ | 7.0 |
| | $ | (2.0 | ) | | $ | — |
| | $ | 5.1 |
| |
Net (decrease) increase in cash and cash equivalents | | $ | — |
| | $ | (1.9 | ) | | $ | 2.2 |
| | $ | — |
| | $ | 0.2 |
|
Cash and cash equivalents - beginning of period | $ | — |
| | $ | 28.3 |
| | $ | 10.5 |
| | $ | — |
| | $ | 38.8 |
| $ | — |
| | $ | 36.4 |
| | $ | 35.0 |
| | $ | — |
| | $ | 71.4 |
|
Cash and cash equivalents - end of period | $ | — |
| | $ | 35.3 |
| | $ | 8.5 |
| | $ | — |
| | $ | 43.8 |
| $ | — |
| | $ | 34.5 |
| | $ | 37.2 |
| | $ | — |
| | $ | 71.7 |
|
Our revenue and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer
Additionally, our industry can be highly cyclical. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can impactaffect demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations in project schedules or unanticipated changes in project schedules, in particular, in connection with large construction and installation projects, can create fluctuations in revenue, which may adversely affect us in a given period,quarter, even if not in total.for the full year. In addition, revenue from master service and other service agreements, while generally predictable, can be subject to volatility. The financial condition of our customers and their access to capital; variations in project margins; regional, national and global economic, political and market conditions; regulatory or environmental influences; and acquisitions, dispositions or strategic investments/other arrangements can also materially affect quarterly results in a given period. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. The effects of the COVID-19 pandemic could also result in greater seasonal and cyclical volatility than would otherwise exist under normal conditions.
This discussion and analysis of our financial condition and results of operations is based upon our condensed unaudited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the amounts reported in our condensed unaudited consolidated financial statements and the accompanying notes.
The following table, which may contain slight summation differences due to rounding, reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated (dollar amounts in millions). Our consolidated results of operations are not necessarily comparable from period to period due to the impacteffect of recent acquisitions and certain other items, which are described in the comparison of results section below.