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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments are primarily composed of cash and cash equivalents, accounts and notes receivable, cash collateral deposited with insurance carriers, life insurance assets, equity investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, 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. Acquisition-Related Contingent Consideration and Other Liabilities Acquisition-related contingent consideration and other liabilities is composed of earn-outs, which represent the estimated fair value of future amounts payable for businesses, including for mandatorily redeemable non-controlling interests (together, “Earn-outs”), that are contingent upon the acquired business achieving certain levels of earnings in the future. As of September 30, 2021 and December 31, 2020, the estimated fair value of the Company’s Earn-out liabilities totaled $114.2 million and $135.2 million, respectively, of which $15.8 million and $18.8 million, respectively, related to mandatorily redeemable non-controlling interests. Earn-out liabilities included within other current liabilities totaled approximately $51.2 million and $48.1 million as of September 30, 2021 and December 31, 2020, respectively. The fair values of the Company’s Earn-out liabilities are estimated using income approaches such as discounted cash flows or option pricing models, both of which incorporate significant inputs not observable in the 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, as of September 30, 2021, ranged from 12.0% to 23.5%, with a weighted average rate of 13.0% based on the relative fair value of each instrument, and probability-weighted projections of earnings before interest, taxes, depreciation and amortization (“EBITDA”). Significant changes in any of these assumptions could result in significantly higher or lower potential Earn-out liabilities. The ultimate payment amounts for the Company’s Earn-out liabilities will be determined based on the actual results achieved by the acquired businesses. As of September 30, 2021, the range of potential undiscounted Earn-out liabilities was estimated to be between $25 million and $157 million; however, there is no maximum payment amount. Earn-out activity consists primarily of additions from new business combinations; changes in the expected fair value of future payment obligations; and payments. There were no additions from new business combinations in either of the three month periods ended September 30, 2021 or 2020, and for the nine month periods ended September 30, 2021 and 2020, additions totaled $40.1 million and $7.2 million, respectively. There were no measurement period adjustments in either of the three or nine month periods ended September 30, 2021. For the three and nine month periods ended September 30, 2021, fair value adjustments totaled net decreases of $4.8 million and $14.1 million, respectively, including a $1.0 million decrease related to mandatorily redeemable non-controlling interests for both the three and nine month periods ended September 30, 2021. These fair value adjustments related to decreases in the Company’s Oil and Gas and Clean Energy and Infrastructure segments, partially offset by increases in the Company’s Communications segment. There were no fair value adjustments for the three month period ended September 30, 2020, and for the nine month period ended September 30, 2020, fair value adjustments, net, and measurement period adjustments totaled increases of $1.7 million and $1.1 million, respectively, and related to businesses in the Company’s Oil and Gas and Communications segments. Earn-out payments totaled $0.8 million and $47.0 million for the three and nine month periods ended September 30, 2021, respectively, including approximately $2.1 million related to mandatorily redeemable non-controlling interests for the nine month period ended September 30, 2021. There were no Earn-out payments for the three month period ended September 30, 2020, and for the nine month period ended September 30, 2020, Earn-out payments totaled $50.4 million. Earn-out payments, to the extent they relate to estimated liabilities as of the date of acquisition, are classified within financing activities in the consolidated statements of cash flows, whereas Earn-out payments in excess of acquisition date liabilities are classified within operating activities in the consolidated statements of cash flows. The method of determining the amount of excess of acquisition-date liabilities was revised in the fourth quarter of 2020 to more closely align the cash flow presentation for such amounts with the economics of the contingent consideration arrangement. Accordingly, all prior year periods have been updated to conform with the current year presentation. Equity Investments The Company’s equity investments as of September 30, 2021 include: (i) the Company’s 33% equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) a 15% equity interest in Cross Country Infrastructure Services, Inc. (“CCI”); (iii) the Company’s 50% equity interests in each of FM Technology Holdings, LLC, FM USA Holdings, LLC and All Communications Solutions Holdings, LLC, collectively “FM Tech”; (iv) the Company’s equity interests in American Virtual Cloud Technologies, Inc., or “AVCT”; (v) the Company’s interests in certain proportionately consolidated non-controlled contractual joint ventures; and (vi) certain other equity 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. The Company has determined that certain of its investment arrangements are variable interest entities (“VIEs”). As of September 30, 2021, 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 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, if any, less impairment (“adjusted cost basis”). As of September 30, 2021 and December 31, 2020, the aggregate carrying value of the Company’s equity investments, including equity investments measured on an adjusted cost basis, totaled approximately $250 million and $220 million, respectively. As of September 30, 2021 and December 31, 2020, equity investments measured on an adjusted cost basis, including the Company’s $15 million investment in CCI, totaled approximately $18 million and $17 million, respectively. There were no impairments related to these investments during any of the three or nine month periods ended September 30, 2021 or 2020. The Waha JVs. The Waha JVs own and operate certain pipeline infrastructure that transports natural gas to the Mexican border for export. The Company’s investments in the Waha JVs are accounted for as equity method investments. 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 $8.3 million and $24.6 million for the three and nine month periods ended September 30, 2021, respectively, and totaled $7.7 million and $22.9 million for the three and nine month periods ended September 30, 2020, respectively. Distributions of earnings from the Waha JVs, which are included within operating cash flows, totaled $4.4 million for both the three and nine month periods ended September 30, 2021, and for the three and nine month periods ended September 30, 2020, distributions of earnings totaled $2.4 million and $10.2 million, respectively. Cumulative undistributed earnings from the Waha JVs, which represents cumulative equity in earnings for the Waha JVs less distributions of earnings, totaled $87.5 million as of September 30, 2021. 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 equity method goodwill associated with capitalized investment costs, totaled approximately $206 million and $175 million as of September 30, 2021 and December 31, 2020, 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 (the “Waha JV 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 and nine month periods ended September 30, 2021, the Company’s proportionate share of unrecognized unrealized activity on the Waha JV swaps totaled gains of approximately $1.8 million and $14.1 million, respectively, or $1.3 million and $10.7 million, net of tax, respectively. For the three and nine month periods ended September 30, 2020, the Company’s proportionate share of unrecognized unrealized activity on the Waha JV swaps totaled gains of approximately $2.5 million and losses of approximately $29.5 million, respectively, or gains of $1.9 million and losses of $22.4 million, net of tax, respectively. Other Investments. As of September 30, 2021, the Company’s investments in AVCT include (i) shares of AVCT common stock, which are equity securities, and (ii) warrants for the purchase of AVCT common stock, which are derivative financial instruments. In the third quarter of 2021, the Company’s investment in AVCT convertible debentures was automatically converted into shares of AVCT common stock. As of September 30, 2021 and December 31, 2020, the Company’s ownership interest in AVCT’s common stock, including from the converted debentures, totaled approximately 5% and 9%, respectively, and its aggregate ownership interest, assuming the exercise and, as of December 31, 2020, the conversion, of all legally exercisable warrants and convertible debt into AVCT common stock, totaled approximately 8% and 21%, respectively. José R. Mas, MasTec’s Chief Executive Officer, was a director of AVCT through the end of March 2020. The Company does not have the ability to exert significant influence over the operating or financial policies of AVCT. As of September 30, 2021 and December 31, 2020, the aggregate fair value of the Company’s investments in AVCT approximated $9 million and $17 million, respectively, with an aggregate cost approximating $6 million and $5 million, respectively. Unrealized fair value measurement activity related to the AVCT securities recorded within other income or expense, net, totaled losses of approximately $7.6 million for both the three and nine month periods ended September 30, 2021, and totaled gains of approximately $0.9 million and $4.7 million for the three and nine month periods ended September 30, 2020, respectively. The fair value of the AVCT shares is determined based on the market price of identical securities, which is a Level 1 input, beginning as of the second quarter of 2021. Previously, the fair value of the shares was adjusted for certain restrictions on sale, a Level 3 input, which restrictions expired in April 2021. In the third quarter of 2021, in conjunction with the automatic conversion of the AVCT convertible debentures into shares of AVCT common stock, the Company reclassified a gain of $0.7 million from other comprehensive income to other income, net. Prior to the conversion of the AVCT convertible debentures in the third quarter of 2021, unrealized fair value measurement activity related to the AVCT convertible debentures recognized within other comprehensive income or loss totaled losses of approximately $2.4 million and $1.1 million, or $1.8 million and $0.8 million, net of tax, respectively, for the three and nine month periods ended September 30, 2021, and totaled gains of approximately $0.9 million, or $0.7 million, net of tax, respectively, for both the three and nine month periods ended September 30, 2020. The fair value of the AVCT convertible debentures was determined based on Level 3 inputs. During the first quarter of 2021, MasTec committed to fund up to $2.5 million for a 75% equity interest in Confluence Networks, LLC (“Confluence”), an undersea fiber-optic communications systems developer and VIE, of which $0.3 million and $1.3 million were funded during the three and nine month periods ended September 30, 2021, respectively. Equity in losses related to the Company’s proportionate share of income from this investment totaled $0.2 million and $0.6 million for the three and nine month periods ended September 30, 2021, respectively. As of September 30, 2021, MasTec had less than a majority of the members on the board and determined that it did not have a controlling financial interest. The Company has the ability to exert significant influence over the VIE, and, as a result, the Company’s investment in Confluence was accounted for as an equity method investment as of September 30, 2021. The Company has equity interests in certain telecommunications entities that are accounted for as equity method investments, for which the Company had an aggregate investment of $20 million and $19 million, respectively, including $17 million and $16 million, respectively, for FM Tech, as of September 30, 2021 and December 31, 2020. The initial investment in FM Tech provided for an additional $9 million of purchase price upon resolution of certain contingencies, of which $2 million was paid in the first quarter of 2021. As of September 30, 2021, approximately $3 million of contingent payment liabilities were included within other current liabilities. For the three month period ended September 30, 2021, the Company made no equity contributions related to these telecommunications entities, and for the nine month period ended September 30, 2021, made equity contributions of approximately $2 million. Equity in earnings, net, related to the Company’s proportionate share of income from these telecommunications entities totaled approximately $1 million for the three month period ended September 30, 2021, and for the nine month period ended September 30, 2021, equity in losses was de minimis. For the three month period ended September 30, 2020, equity in losses related to these telecommunications entities was de minimis, and for the nine month period ended September 30, 2020, totaled approximately $1 million. Certain of these entities provide services to MasTec. Expense recognized in connection with services provided by these entities totaled $3.2 million and $2.7 million for the three month periods ended September 30, 2021 and 2020, respectively, and totaled $7.3 million and $9.0 million for the nine month periods ended September 30, 2021 and 2020, respectively. As of both September 30, 2021 and December 31, 2020, related amounts payable to these entities totaled $0.2 million. In addition, the Company has an employee leasing arrangement with one of these entities. Charges to this entity were de minimis for both the three and nine month periods ended September 30, 2021, and totaled $0.1 million and $0.3 million for the three and nine month periods ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, related amounts receivable totaled $0.5 million and $0.4 million, respectively. There were no amounts advanced to these entities for the three month period ended September 30, 2021, and for the nine month period ended September 30, 2021, amounts advanced totaled $0.2 million, which amount was outstanding as of September 30, 2021. Senior Notes As of both September 30, 2021 and December 31, 2020, the gross carrying amount of the Company’s 4.50% senior notes due August 15, 2028 (the “4.50% Senior Notes”) totaled $600 million, and their estimated fair value, as determined based on an exit price approach using Level 1 inputs, totaled $624.0 million and $625.5 million, respectively.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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