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Fair Value of Financial Instruments | 3 Months Ended
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Mar. 31, 2023
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial InstrumentsThe 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, certain other assets and investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration and other liabilities, 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 March 31, 2023 and December 31, 2022, the estimated fair value of the Company’s Earn-out liabilities totaled $125.4 million and $127.4 million, respectively, of which $12.3 million and $13.9 million, respectively, related to mandatorily redeemable non-controlling interests. Earn-out liabilities included within other current liabilities totaled approximately $36.0 million and $37.7 million as of March 31, 2023 and December 31, 2022, 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 was 12.0% as of March 31, 2023, 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 March 31, 2023, the range of potential undiscounted Earn-out liabilities was estimated to be between $36 million and $149 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. For the three month period ended March 31, 2023, there were no additions from new business combinations, and for the three month period ended March 31, 2022, additions from new business combinations totaled approximately $1.7 million. There were no measurement period adjustments for the three month period ended March 31, 2023, and for the three month period ended March 31, 2022, measurement period adjustments totaled a decrease of approximately $1.9 million and related primarily to the Company’s Oil and Gas segment. For the three month period ended March 31, 2023, fair value adjustments across multiple segments totaled a decrease, net of approximately $0.3 million, and for the three month period ended March 31, 2022, there were no fair value adjustments. Earn-out payments for the three month period ended March 31, 2023 totaled approximately $1.7 million and related to mandatorily redeemable non-controlling interests. There were no Earn-out payments for the three month period ended March 31, 2022. Equity Investments The Company’s equity investments as of March 31, 2023 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 interests in certain proportionately consolidated non-controlled contractual joint ventures; and (v) 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 March 31, 2023, 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. The carrying values of the Company’s VIEs totaled approximately $26 million and $24 million as of March 31, 2023 and December 31, 2022, respectively, which amounts are recorded within other long-term assets in the consolidated balance sheets, and management believes that the Company’s maximum exposure to loss for its VIEs, inclusive of additional financing commitments, approximated $37 million for both periods. 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, which is referred to as the “adjusted cost basis.” As of March 31, 2023 and December 31, 2022, the aggregate carrying value of the Company’s equity investments, including equity investments measured on an adjusted cost basis, totaled approximately $307 million and $306 million, respectively. As of both March 31, 2023 and December 31, 2022, equity investments measured on an adjusted cost basis, including the Company’s $15 million investment in CCI, totaled approximately $20 million. There were no impairments related to these investments in either of the three month periods ended March 31, 2023 or 2022. 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 $8.0 million and $7.4 million for the three month periods ended March 31, 2023 and 2022, respectively. Distributions of earnings from the Waha JVs, which are included within operating cash flows, totaled $4.3 million and $3.1 million for the three month periods ended March 31, 2023 and 2022, respectively. Cumulative undistributed earnings from the Waha JVs, which represents cumulative equity in earnings for the Waha JVs less distributions of earnings, totaled $114.3 million as of March 31, 2023. 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 $262 million and $263 million as of March 31, 2023 and December 31, 2022, 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 month period ended March 31, 2023, the Company’s proportionate share of unrecognized unrealized activity on the Waha JV swaps totaled losses of approximately $5.6 million, or $4.2 million, net of tax, and for the three month period ended March 31, 2022, unrecognized unrealized activity totaled gains of approximately $18.2 million, or $13.8 million, net of tax. Other Investments. The Company has equity interests in certain telecommunications entities that are accounted for as equity method investments. As of March 31, 2023 and December 31, 2022, the Company had an aggregate investment of approximately $22 million and $21 million, respectively, in these entities, including $18 million for FM Tech as of both periods. The Company made no equity contributions related to its investments in telecommunications entities for the three month period ended March 31, 2023, and made equity contributions totaling approximately $0.5 million for the three month period ended March 31, 2022. Equity in earnings, net, related to the Company’s proportionate share of income from these telecommunications entities totaled approximately $1.1 million for the three month period ended March 31, 2023, and for the three month period ended March 31, 2022, equity in losses, net, related to these entities totaled approximately $0.3 million. Certain of these telecommunications entities provide services to MasTec. Expense recognized in connection with services provided by these entities totaled approximately $0.4 million and $1.0 million for the three month periods ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, related amounts payable to these entities totaled approximately $0.1 million and $0.2 million, respectively. In addition, the Company had an employee leasing arrangement with one of these entities and has advanced certain amounts to these entities. For the three month period ended March 31, 2023, employee lease expenses and advances to these entities were de minimis, and for the three month period ended March 31, 2022, there were no employee lease expenses or advances to these entities. As of both March 31, 2023 and December 31, 2022, receivables related to these arrangements totaled approximately $3.8 million. The Company has 49% equity interests in certain entities included within its Communications and Power Delivery segments that are accounted for as equity method investments, for which its aggregate investment as of both March 31, 2023 and December 31, 2022 totaled approximately $3 million. For both the three month periods ended March 31, 2023 and 2022, equity in losses, net, related to these entities totaled approximately $0.1 million. Certain of these entities provide construction services to MasTec. Expense recognized in connection with construction services provided by these entities totaled approximately $0.3 million and $3.6 million for the three month periods ended March 31, 2023 and 2022, respectively. As of March 31, 2023, related amounts payable totaled approximately $0.1 million, and as of December 31, 2022, were de minimis. In addition, the Company has line of credit arrangements with these entities, which, as of March 31, 2023 and December 31, 2022, provide for up to $3.0 million and $4.5 million, respectively, of borrowing availability. There were no borrowings as of March 31, 2023, and as of December 31, 2022, $0.6 million was drawn, which amount was included within other current assets in the consolidated balance sheets. The Company has a 75% equity interest in Confluence Networks, LLC (“Confluence”), an undersea fiber-optic communications systems developer and VIE, which is accounted for as an equity method investment. As of March 31, 2023, a total of $2.1 million of the $2.5 million initial commitment had been funded, of which $0.2 million was funded during the three month period ended March 31, 2023. No amounts were funded for the three month period ended March 31, 2022. Equity in losses related to the Company’s proportionate share of income from this investment was $0.1 million and $0.2 million for the three month periods ended March 31, 2023 and 2022, respectively. The Company also has certain equity investments in American Virtual Cloud Technologies, Inc. (“AVCT”), in which the Company has no active involvement. AVCT filed for bankruptcy in the first quarter of 2023, during which period the Company wrote-off its remaining $0.2 million investment. Senior Notes As of both March 31, 2023 and December 31, 2022, the gross carrying amount of the Company’s 4.50% senior notes due August 15, 2028 (the “4.50% Senior Notes”) totaled $600.0 million, and their estimated fair value totaled approximately $552.0 million and $534.0 million for the respective periods. As of March 31, 2023 and December 31, 2022, the gross carrying amount of the Company’s 6.625% senior notes due August 15, 2029 totaled $282.1 million and $281.2 million, respectively, which notes are composed of $225.1 million aggregate principal amount of 6.625%% IEA senior notes (the “6.625% IEA Senior Notes”) and $74.9 million aggregate principal amount of 6.625% MasTec senior notes (the “6.625% MasTec Senior Notes”), collectively, the “6.625% Senior Notes”). The estimated fair value of the 6.625% Senior Notes totaled approximately $268.5 million and $280.5 million as of March 31, 2023 and December 31, 2022, respectively. The estimated fair values of the Company’s 4.50% Senior Notes and 6.625% Senior Notes were determined based on an exit price approach using Level 1 inputs.

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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