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Acquisitions | 9 Months Ended
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Sep. 30, 2015
Business Combinations [Abstract] |
Acquisitions | Note 3 – Acquisitions The Company acquired several businesses during 2014, as discussed below and in Note 4 - Acquisitions in the notes to the Company’s audited consolidated financial statements included in its 2014 Form 10-K. As of September 30, 2015, determination of the fair values of the net assets acquired, including the estimated values of contingent earn-out obligations and the estimated useful lives of acquired assets for the WesTower acquisition, as discussed below, were provisional and remained preliminary. Management continues to assess the valuation of these items and any ultimate purchase price adjustments that may result based on the final net assets and net working capital, as prescribed in the purchase agreement. During the measurement period, as defined under U.S. GAAP, the Company will revise its preliminary estimates of the fair values of net assets acquired if new information is obtained about the facts and circumstances existing as of the date of acquisition or for purchase price adjustments. Such adjustments may result in the recognition of, or adjust the fair values of, acquired assets and assumed liabilities, and are presented as if the adjustments had been taken into account as of the date of acquisition, which would result in the revision of comparative prior period financial information. All changes that do not qualify as measurement period adjustments are included in current period results. As discussed under “New Accounting Pronouncements” in Note 1 - Business, Basis of Presentation and Significant Accounting Policies, ASU 2015-16 eliminates the requirement to retrospectively account for measurement period adjustments. The Company is currently evaluating the expected timing of application, and related impact of, adoption of this ASU on potential future measurement period adjustments. 2014 Acquisitions WesTower Effective October 1, 2014, MasTec acquired all of the issued and outstanding equity interests of WesTower Communications Inc. (“WesTower”). WesTower is a telecommunications services firm focusing on construction and maintenance of communications infrastructure related to wireless networks throughout the United States. WesTower, which provides services to a number of major wireless carriers throughout the Eastern, Central and Western United States, is expected to expand the Company’s geographical presence, market penetration and skilled employee base within its existing wireless operations. WesTower is reported within the Company’s Communications segment. The following table summarizes the preliminary estimated fair values of consideration paid and identifiable assets acquired and liabilities assumed as of the date of acquisition (in millions):
Acquisition consideration: | October 1, 2014
Cash | $ | 198.0 |
Identifiable assets acquired and liabilities assumed: |
Accounts receivable | $ | 180.6 |
Other current assets, including $18.0 million of cash acquired | 50.3 |
Property, equipment and other long-term assets, including deferred tax asset | 18.0 |
Finite-lived intangible assets | 42.6 |
Billings in excess of costs and earnings | (33.3 | )
Other current liabilities, including current portion of capital lease obligations | (89.8 | )
Long-term liabilities, including capital lease obligations | (21.1 | )
Total identifiable net assets | $ | 147.3 |
Goodwill | $ | 50.7 |
Total net assets acquired, including goodwill | $ | 198.0 |
The fair values and weighted average useful lives of WesTower’s acquired finite-lived intangible assets as of the date of acquisition were assigned as follows:
| Fair Value (in millions) |  | Weighted Average Useful Life (in years)
Finite-lived intangible assets: |
Backlog | $ | 4.7 |  |  | 5
Trade name | 1.1 |  |  | 4
Non-compete agreements | 0.3 |  |  | 4
Customer relationships | 36.5 |  |  | 18
Total acquired finite-lived intangible assets | $ | 42.6 |  |  | 16
Finite-lived intangible assets are amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed. Goodwill arising from the acquisition represents the estimated value of WesTower’s geographic presence in key high growth markets, its assembled workforce and synergies expected to be achieved from the combined operations of WesTower and MasTec. The goodwill balance is not tax deductible. In connection with the WesTower acquisition, the Company incurred acquisition integration costs of approximately $1.2 million and $17.8 million for the three and nine month periods ended September 30, 2015, respectively, which were included within general and administrative expenses within the condensed unaudited consolidated statements of operations. These acquisition integration costs consisted primarily of employee termination costs, including employee compensation relating to the elimination of certain positions, which were determined to be redundant, and other integration-type costs, including facility consolidation expenses, system migration expenses and training costs. As of September 30, 2015, the Company had substantially completed the integration of WesTower. As of September 30, 2015 and December 31, 2014, $1.7 million and $3.5 million, respectively, was included within current liabilities relating to acquisition integration costs. Liabilities assumed in connection with the WesTower acquisition also include the estimated value of certain off-market contracts, which are recognized in revenue over the terms of the related contracts. Pacer Effective June 1, 2014, MasTec acquired all of the issued and outstanding equity interests of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”). Pacer is a western Canadian civil construction services company, headquartered in Calgary, Alberta, Canada. Pacer’s services include infrastructure construction primarily in support of oil and gas production, processing, mining and transportation. Pacer, a leading contractor in the Canadian oil sands market, is expected to enhance MasTec’s ability to develop energy infrastructure in western Canada and take advantage of associated opportunities in North America over the coming years. Pacer is primarily reported within the Company’s Oil and Gas segment. The following table summarizes the estimated fair values of consideration paid and identifiable assets acquired and liabilities assumed, as adjusted, as of the date of acquisition (in millions):
Acquisition consideration: | June 1, 2014
Cash | $ | 126.5 |
Fair value of contingent consideration (earn-out liability) | 24.3 |
Total consideration transferred | $ | 150.8 |
Identifiable assets acquired and liabilities assumed: |
Current assets, including $3.4 million of cash acquired | $ | 114.0 |
Property and equipment | 81.2 |
Pre-qualifications | 38.7 |
Finite-lived intangible assets | 19.4 |
Current liabilities, including current portion of capital lease obligations and long-term debt | (71.8 | )
Net equity method investment obligations | (31.0 | )
Long-term debt, including capital lease obligations | (69.6 | )
Deferred income taxes | (30.5 | )
Total identifiable net assets | $ | 50.4 |
Goodwill | $ | 100.4 |
Total net assets acquired, including goodwill | $ | 150.8 |
The values of certain of the assets acquired and liabilities assumed include the proportionate values of Pacer’s undivided interest in an unincorporated contractual joint venture, which is involved in a civil construction project and is accounted for on a proportional basis. Pacer’s undivided interest in this contractual joint venture automatically terminates upon completion of the project, which is not controlled by Pacer and is managed by a third party. This project, which was approximately 65% complete as of September 30, 2015, incurred losses for the three and nine month periods ended September 30, 2015 due to delayed receipt of a key material. Pacer’s proportionate share of these losses totaling $2.8 million and $8.3 million for the three and nine month periods ended September 30, 2015, respectively, are included in the Other segment. Pacer has minimal direct work involvement in this project. For the three and nine month periods ended September 30, 2015, revenue recognized by Pacer in connection with work performed for this contractual joint venture totaled $0.3 million and $1.8 million, respectively. As of September 30, 2015 and December 31, 2014, receivables from this contractual joint venture, including acquired receivables, totaled $1.1 million and $1.8 million, respectively. Performance guarantees associated with this contractual joint venture as of both September 30, 2015 and December 31, 2014 totaled Canadian $132.1 million (or approximately $99.2 million and $113.6 million, respectively), based on the full contract value of the project, for which Pacer is obligated on a joint and several basis with its other joint venture partner. In addition, from time to time, the Company may provide financing to this contractual joint venture. For the nine month period ended September 30, 2015, Pacer provided $8.2 million of financing to this contractual joint venture under financing arrangements. As of both September 30, 2015 and December 31, 2014, there were no additional amounts committed by Pacer to this contractual joint venture under such financing arrangements. The equity method investment obligations identified in the table above represent investments in entities that provide civil construction services. As a result of the ongoing review of the acquired net assets of Pacer, the Company determined that the initial fair value assigned to these investments was in excess of their fair value and that it would cease participation in the operations of these equity method investments in 2015 upon completion of the existing projects. Subsequent to the acquisition date, the Company recorded a $49 million reduction to the acquisition date value of Pacer’s equity method investments to reflect their expected fair values as determined based on their expected net cash outflows, including the wind-down of its investments. For the three and nine month periods ended September 30, 2015, revenue recognized by the Company on behalf of these entities totaled $1.6 million and $3.1 million, respectively, of which $1.6 million was outstanding as of September 30, 2015. There are performance guarantees associated with these entities of a gross amount of approximately $30.7 million and $61.2 million as of September 30, 2015 and December 31, 2014, respectively, based on the full contract value of certain projects, for which Pacer is obligated on a joint and several basis with the other shareholders. As of September 30, 2015, all construction projects associated with these equity method investees were substantially complete. As of September 30, 2015 and December 31, 2014, excluding the receivership arrangements discussed below, there were approximately $2.2 million and $3.0 million, respectively, of other financial guarantees associated with these investments, for which Pacer is obligated on a joint and several basis, the durations of which correspond to those of the guaranteed transactions or borrowings. The Company believes these obligations and guarantees represent variable interests; however, Pacer does not have the power to control the primary activities of, nor is it the primary beneficiary of, these investments. In addition, from time to time, the Company may provide financing to its equity method investees. Pacer provided $10.2 million of such financing to its equity investees during the nine month period ended September 30, 2015, $8.6 million of which was reflected within Pacer’s net equity method investment obligations as of the date of acquisition. As of both September 30, 2015 and December 31, 2014, there were no additional amounts committed by Pacer to these entities under such financing arrangements. In March 2015, as part of the initiative to wind down operations of one of its equity method investees, Pacer became the secured creditor thereof by purchasing the outstanding revolving credit facility of this investee for approximately $20.8 million in order to satisfy its obligations pursuant to a financial guarantee to the investee’s lender. This payment is included within Pacer’s net equity method investment obligations as of the date of acquisition in the table above, and as of December 31, 2014, approximately $22.6 million was included within other current liabilities in the Company’s consolidated balance sheet related to this financial guarantee. Subsequent to Pacer’s purchase of the outstanding credit facility, a receivership order was granted to assist with the orderly wind-down of the investee’s operations. As part of the receivership proceedings, Pacer committed to provide the receiver financing of up to Canadian $78.0 million (or approximately $58.6 million as of September 30, 2015), and through September 30, 2015, approximately $38.3 million of this financing commitment had been paid. During the third quarter of 2015, the receiver repaid the Company approximately $12.8 million of the $38.3 million advanced to receiver, and the remaining balance of $23.1 million, based on currency exchange rates as of September 30, 2015, was recorded within prepaid expenses and other current assets in the condensed unaudited consolidated balance sheet. Pacer does not expect to advance additional amounts to the receiver, and, based on operational estimates from the receiver, the Company believes Pacer will be repaid the remaining amounts advanced under the receivership financing commitment within the next twelve months, with a substantial portion expected to be collected in the fourth quarter of 2015. Additionally, in September 2015, a separate equity method investee of Pacer entered into a receivership arrangement to facilitate the wind-down of its operations. As of September 30, 2015, Pacer expected to receive the remaining net assets related to this investee, which total less than $1.0 million, within the next twelve months. Subsequent to the acquisition date, in connection with the ongoing review of the acquired net working capital and acquired net assets of Pacer, the Company recorded an $8.4 million increase in property and equipment, a $5.6 million increase in certain current liabilities and a $1.2 million increase in long-term deferred tax liabilities. These adjustments, along with the adjustments to the equity method investment obligations discussed above, as well as other immaterial adjustments, net, in the acquisition date values of certain current assets and intangible assets, resulted in a $47.5 million increase in the acquisition date value of goodwill associated with the Pacer acquisition. The fair values and weighted average useful lives of Pacer’s acquired finite-lived intangible assets, as adjusted, as of the date of acquisition were assigned as follows:
| Fair Value (in millions) |  | Weighted Average Useful Life (in years)
Finite-lived intangible assets: |
Backlog | $ | 6.1 |  |  | 3
Non-compete agreements | 2.3 |  |  | 9
Customer relationships | 11.0 |  |  | 8
Total acquired finite-lived intangible assets | $ | 19.4 |  |  | 6
Finite-lived intangible assets are amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed. The intangible asset related to Pacer’s pre-qualifications with selected customer companies has been assigned an indefinite life as the pre-qualifications are not expected to expire or diminish in value, and the companies to which they relate have extremely long operating histories. Goodwill arising from the acquisition represents the estimated value of Pacer’s geographic presence in key high-growth Canadian markets, its assembled workforce, its management team’s industry-specific project management expertise and synergies expected to be achieved from the combined operations of Pacer and MasTec. The goodwill balance is not tax deductible. The contingent consideration included in the table above equals 25% of the excess, if any, of Pacer’s earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) above certain thresholds for a five-year period, as set forth in the purchase agreement, and is payable annually in Canadian dollars. The fair value of the earn-out liability was estimated using an income approach and incorporates significant inputs not observable in the market. Key assumptions in the estimated valuation 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. The range of potential undiscounted payments that MasTec could be required to make under the earn-out arrangement is estimated to be between Canadian $0 and $71 million, or approximately $0 and $54 million as of September 30, 2015; however, there is no maximum earn-out payment amount. As is customary for purchase agreements in the industry, the earn-out agreement contains certain right of offset provisions, under which the Company may, under certain circumstances, offset against the earn-out liability working capital adjustments, indemnification claims and similar items owed from the former owners of the entity. Other 2014 Acquisitions Effective April 1, 2014, MasTec acquired 100% of a telecommunications services firm, specializing in the installation of in-home security systems, for an aggregate purchase price composed of approximately $16.3 million in cash, as adjusted for the final net working capital, and a five year earn-out, valued at $0.6 million as of September 30, 2015. Additionally, effective January 1, 2014, MasTec acquired 100% of a telecommunications services firm, specializing in the engineering, installation, furnishing and integration of telecommunications equipment, for an aggregate purchase price composed of approximately $23.8 million in cash and a five year earn-out, valued at $8.7 million as of September 30, 2015. These companies are included in MasTec’s Communications segment. Unaudited Supplemental Pro Forma Information The following unaudited supplemental pro forma financial information includes the results of operations of each of the companies acquired in 2014 and is presented as if each acquired company had been consolidated as of the beginning of the year immediately preceding the year in which the company was acquired. The unaudited supplemental pro forma financial information has been provided for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented, or of the results that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following unaudited supplemental pro forma financial information because of future events and transactions, as well as other factors, many of which are beyond MasTec’s control. The unaudited supplemental pro forma financial information presented below has been prepared by adjusting the historical results of MasTec to include the historical results of the acquired businesses described above and was then adjusted (i) to remove acquisition costs, including certain acquisition integration costs; (ii) to increase amortization expense resulting from the incremental intangible assets acquired; (iii) to increase interest expense as a result of the cash consideration paid; (iv) to remove integration-related employee redundancy costs; and (v) to reduce interest expense from debt repaid upon acquisition of the respective businesses. The unaudited supplemental pro forma financial information does not include adjustments to reflect the impact of other cost savings or synergies that may result from these acquisitions.
| For the Three Months Ended September 30, 2014 |  | For the Nine Months Ended September 30, 2014
Unaudited pro forma financial information (in millions): |
Revenue | $ | 1,423.5 |  |  | $ | 3,854.0 |
Net income from continuing operations | $ | 50.6 |  |  | $ | 100.2 |
Results of Businesses Acquired Revenue and net income (loss) from continuing operations resulting from the year-over-year incremental impact of acquired businesses, which are included within the Company’s condensed unaudited consolidated results of operations for the periods indicated, were as follows (in millions):
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
| 2015 |  | 2014 |  | 2015 |  | 2014
Actual of acquirees (year-over-year impact): |  |  | As Restated |  |  |  | As Restated
Revenue | $ | 69.2 |  |  | $ | 133.2 |  |  | $ | 301.5 |  |  | $ | 342.5 |
Net income (loss) from continuing operations (a) | $ | 0.2 |  |  | $ | 2.3 |  |  | $ | (13.4 | ) |  | $ | 4.3 |
(a) | Acquiree net income (loss) from continuing operations for the nine month period ended September 30, 2015 includes approximately $9.3 million of pre-tax acquisition integration costs incurred in connection with the WesTower acquisition, and for the three and nine month periods ended September 30, 2015, includes project losses of $2.8 million and $8.3 million, respectively, associated with the Company’s proportionate interest in a non-controlled Canadian joint venture. Other acquisition-related costs, including certain acquisition integration costs totaling $1.9 million and $10.3 million for the three and nine month periods ended September 30, 2015, respectively, and $0.5 million and $2.0 million for the three and nine month periods ended September 30, 2014, respectively, are not included in the above presented acquiree results for the respective periods. The above results also do not include interest expense associated with consideration paid for these acquisitions.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1500-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1524-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4922-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4934-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4926-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
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