SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number 001-08106
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of incorporation or organization)||(I.R.S. Employer Identification No.)|
800 S. Douglas Road, 12th Floor
|(Address of principal executive offices)||(Zip Code)|
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading symbol(s)|
Name of each exchange on which registered
|Common Stock, $0.10 Par Value||MTZ||New York Stock Exchange|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☑
As of May 3, 2021, MasTec, Inc. had 74,311,342 shares of common stock outstanding.
QUARTER ENDED MARCH 31, 2021
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited - in thousands, except per share amounts)
|For the Three Months Ended March 31, |
|Revenue||$||1,775,424 ||$||1,416,604 |
|Costs of revenue, excluding depreciation and amortization||1,513,859 ||1,226,297 |
|Depreciation||79,264 ||53,089 |
|Amortization of intangible assets||11,247 ||7,391 |
|General and administrative expenses||73,108 ||85,514 |
|Interest expense, net||12,459 ||17,004 |
|Equity in earnings of unconsolidated affiliates||(7,346)||(7,834)|
|Other income, net||(2,596)||(1,342)|
|Income before income taxes||$||95,429 ||$||36,485 |
|Provision for income taxes||(29,317)||(423)|
|Net income||$||66,112 ||$||36,062 |
|Net income (loss) attributable to non-controlling interests||463 ||(168)|
|Net income attributable to MasTec, Inc.||$||65,649 ||$||36,230 |
|Earnings per share (Note 2):|
|Basic earnings per share||$||0.91 ||$||0.48 |
|Basic weighted average common shares outstanding||72,439 ||74,738 |
|Diluted earnings per share||$||0.89 ||$||0.48 |
|Diluted weighted average common shares outstanding||73,846 ||75,413 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited - in thousands)
|For the Three Months Ended March 31, |
|Net income||$||66,112 ||$||36,062 |
|Other comprehensive income (loss):|
|Foreign currency translation gains (losses), net of tax||371 ||(296)|
|Unrealized gains (losses) on investment activity, net of tax||13,839 ||(22,961)|
|Comprehensive income||$||80,322 ||$||12,805 |
|Comprehensive income (loss) attributable to non-controlling interests||463 ||(168)|
|Comprehensive income attributable to MasTec, Inc.||$||79,859 ||$||12,973 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(unaudited - in thousands, except share information)
|Cash and cash equivalents||$||512,407 ||$||423,118 |
|Accounts receivable, net of allowance||876,715 ||784,488 |
|Contract assets||958,064 ||969,743 |
|Inventories, net||92,677 ||89,645 |
|Prepaid expenses||59,825 ||60,631 |
|Other current assets||50,736 ||31,390 |
|Total current assets||$||2,550,424 ||$||2,359,015 |
|Property and equipment, net||1,024,509 ||982,328 |
|Operating lease assets||162,359 ||176,573 |
|Goodwill, net||1,262,718 ||1,243,034 |
|Other intangible assets, net||225,566 ||184,043 |
|Other long-term assets||312,727 ||282,856 |
|Total assets||$||5,538,303 ||$||5,227,849 |
|Liabilities and equity|
|Current portion of long-term debt, including finance leases||$||157,257 ||$||145,110 |
|Current portion of operating lease liabilities||69,184 ||72,481 |
|Accounts payable||632,088 ||571,269 |
|Accrued salaries and wages||176,450 ||135,316 |
|Other accrued expenses||236,753 ||187,647 |
|Contract liabilities||259,488 ||228,388 |
|Other current liabilities||101,680 ||74,988 |
|Total current liabilities||$||1,632,900 ||$||1,415,199 |
|Long-term debt, including finance leases||1,170,419 ||1,157,632 |
|Long-term operating lease liabilities||106,971 ||116,506 |
|Deferred income taxes||304,006 ||302,938 |
|Other long-term liabilities||235,032 ||230,049 |
|Total liabilities||$||3,449,328 ||$||3,222,324 |
Commitments and contingencies (Note 14)
Preferred stock, $1.00 par value: authorized shares - 5,000,000; issued and outstanding shares – none
|$||— ||$||— |
Common stock, $0.10 par value: authorized shares - 145,000,000; issued shares - 93,253,268 and 93,107,440 (including 1,870,460 and 1,843,041 of unvested stock awards) as of March 31, 2021 and December 31, 2020, respectively
|9,325 ||9,311 |
|Capital surplus||840,567 ||837,453 |
|Retained earnings||1,899,206 ||1,833,557 |
|Accumulated other comprehensive loss||(77,234)||(91,444)|
Treasury stock, at cost: 18,941,926 shares as of both March 31, 2021 and December 31, 2020, respectively
|Total MasTec, Inc. shareholders’ equity||$||2,084,909 ||$||2,001,922 |
|Non-controlling interests||$||4,066 ||$||3,603 |
|Total equity||$||2,088,975 ||$||2,005,525 |
|Total liabilities and equity||$||5,538,303 ||$||5,227,849 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited - in thousands, except shares)
|Common Stock||Treasury Stock||Capital Surplus||Retained Earnings||Accumulated Other Comprehensive Loss|
MasTec, Inc. Shareholders’ Equity
|Non-Controlling Interests||Total Equity |
|For the Three Months Ended March 31, 2021|
|Balance as of December 31, 2020||93,107,440 ||$||9,311 ||(18,941,926)||$||(586,955)||$||837,453 ||$||1,833,557 ||$||(91,444)||$||2,001,922 ||$||3,603 ||$||2,005,525 |
|Net income||65,649 ||65,649 ||463 ||66,112 |
|Other comprehensive income||14,210 ||14,210 ||14,210 |
|Non-cash stock-based compensation||5,528 ||5,528 ||5,528 |
|Issuance of restricted shares, net||138,081 ||14 ||(14)||— ||— |
|Other stock issuances, net of shares withheld for taxes||7,747 ||— ||(2,400)||(2,400)||(2,400)|
|Balance as of March 31, 2021||93,253,268 ||$||9,325 ||(18,941,926)||$||(586,955)||$||840,567 ||$||1,899,206 ||$||(77,234)||$||2,084,909 ||$||4,066 ||$||2,088,975 |
|For the Three Months Ended March 31, 2020|
|Balance as of December 31, 2019||91,909,430 ||$||9,191 ||(15,344,917)||$||(466,727)||$||809,753 ||$||1,510,709 ||$||(75,706)||$||1,787,220 ||$||4,471 ||$||1,791,691 |
|Net income (loss)||36,230 ||36,230 ||(168)||36,062 |
|Other comprehensive loss||(23,257)||(23,257)||(23,257)|
|Non-cash stock-based compensation||4,049 ||4,049 ||4,049 |
|Issuance of restricted shares, net||694,779 ||69 ||(69)||— ||— |
|Other stock issuances, net of shares withheld for taxes||13,823 ||2 ||692 ||694 ||694 |
|Acquisition of treasury stock, at cost||(3,569,924)||(119,426)||(119,426)||(119,426)|
|Balance as of March 31, 2020||92,618,032 ||$||9,262 ||(18,914,841)||$||(586,153)||$||814,425 ||$||1,546,939 ||$||(98,963)||$||1,685,510 ||$||4,303 ||$||1,689,813 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
|For the Three Months Ended March 31, |
|Cash flows from operating activities:|
|Net income||$||66,112 ||$||36,062 |
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Depreciation||79,264 ||53,089 |
|Amortization of intangible assets||11,247 ||7,391 |
|Non-cash interest expense, net||783 ||725 |
|Non-cash stock-based compensation expense||5,528 ||4,049 |
|Benefit from deferred income taxes||(19,838)||(12,614)|
|Equity in earnings of unconsolidated affiliates||(7,346)||(7,834)|
|Gains on sales of assets, net||(1,965)||(2,407)|
|Other non-cash items, net||(5,578)||734 |
Changes in assets and liabilities, net of acquisitions:
|Accounts receivable||(61,993)||48,337 |
|Contract assets||26,799 ||26,311 |
|Inventories||651 ||5,932 |
|Other assets, current and long-term portion||(7,961)||17,906 |
|Accounts payable and accrued expenses||153,386 ||34,058 |
|Contract liabilities||14,782 ||2,603 |
|Other liabilities, current and long-term portion||3,293 ||(11,076)|
|Net cash provided by operating activities||$||257,164 ||$||203,266 |
|Cash flows from investing activities:|
|Cash paid for acquisitions, net of cash acquired||(88,646)||— |
|Proceeds from sale of property and equipment||6,035 ||8,363 |
|Payments for other investments||(4,350)||(12,000)|
|Proceeds from other investments||557 ||648 |
|Other investing activities, net||(150)||4,843 |
|Net cash used in investing activities||$||(134,612)||$||(58,740)|
|Cash flows from financing activities:|
|Proceeds from credit facilities||18,155 ||675,935 |
|Repayments of credit facilities||(8,869)||(671,780)|
|Payments of finance lease obligations||(38,222)||(30,856)|
|Proceeds from stock-based awards||— ||1,476 |
|Payments for stock-based awards||(3,753)||(572)|
|Repurchases of common stock||— ||(119,427)|
|Other financing activities, net||(502)||— |
|Net cash used in financing activities||$||(33,191)||$||(145,224)|
|Effect of currency translation on cash||(72)||934 |
|Net increase in cash and cash equivalents||$||89,289 ||$||236 |
|Cash and cash equivalents - beginning of period||$||423,118 ||$||71,427 |
|Cash and cash equivalents - end of period||$||512,407 ||$||71,663 |
Supplemental cash flow information:
|$||21,689 ||$||21,479 |
Supplemental disclosure of non-cash information:
Additions to property and equipment from finance leases
|$||50,772 ||$||26,932 |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Business, Basis of Presentation and Significant Accounting Policies
Nature of the Business
MasTec, Inc. (collectively with its subsidiaries, “MasTec” or the “Company”) is a leading infrastructure construction company operating mainly throughout North America across a range of industries. The Company’s primary activities include the engineering, building, installation, maintenance and upgrade of communications, energy, utility and other infrastructure, such as: wireless, wireline/fiber and customer fulfillment activities; power generation, including from clean energy and renewable sources; pipeline infrastructure; electrical utility transmission and distribution; heavy civil; and industrial infrastructure. MasTec’s customers are primarily in these industries. MasTec reports its results under five reportable segments: (1) Communications; (2) Clean Energy and Infrastructure; (3) Oil and Gas; (4) Electrical Transmission; and (5) Other. See Note 13 - Segments and Related Information.
Basis of Presentation
The accompanying 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 consolidated balance sheet as of December 31, 2020 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 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, 2020 contained in the Company’s 2020 Annual Report on Form 10-K (the “2020 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. When 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 consolidated financial statements are adequate to make the information not misleading.
Principles of Consolidation
The accompanying consolidated financial statements include MasTec, Inc. and its subsidiaries and include the accounts of all majority owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that MasTec consolidates are reported as non-controlling interests within equity, 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 applies the equity method of accounting for its investments in entities for which it does not have a controlling financial interest, but over which it has the ability to exert significant influence. See Note 4 - Fair Value of Financial Instruments. For equity investees in which the Company has an undivided interest in the assets, liabilities and profits or losses of an unincorporated entity, but does not exercise control over the entity, the Company consolidates its proportional interest in the accounts of the entity.
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 included 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. For foreign operations for which the local currency is not the functional currency, the operation’s non-monetary assets are remeasured into U.S. dollars at historical exchange rates. All other accounts are remeasured at current exchange rates. Gains or losses from remeasurement are included in other income or expense, net. Currency gains or losses resulting from transactions executed in currencies other than the functional currency are included in other income or expense, net.
In these consolidated financial statements, “$” means U.S. dollars unless otherwise noted.
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based on historical experience and various other assumptions that management believes to be reasonable under the circumstances, including the potential future effects of the COVID-19 pandemic, climate change, and other relevant global and/or macroeconomic trends and events. These estimates form the basis for making judgments about the Company’s operating results and the carrying values of assets and liabilities that are not readily apparent from other sources. 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 these estimates.
Key estimates include: the recognition of revenue and project profit or loss, which the Company defines as project revenue, less project costs of revenue, including project-related depreciation, in particular, on construction contracts accounted for under the cost-to-cost method, for which the recorded amounts require estimates of costs to complete and the amount and probability of variable consideration included in the contract transaction price; fair value estimates, including those related to acquisitions, valuations of goodwill and intangible assets, acquisition-related contingent consideration and other liabilities, equity investments and other long-lived assets; allowances for credit losses; asset lives used in
computing depreciation and amortization; fair values of financial instruments; self-insurance liabilities; other accruals and allowances; income taxes; and the estimated effects of litigation and other contingencies.
During the first quarter of 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 disrupted business activities and significantly affected global economic conditions in 2020 and continuing into 2021 as federal, state and local governments imposed restrictions and mitigation measures to address the public health crisis, the effects of which resulted in workforce, supply chain and production disruptions and created significant uncertainties in the U.S. and global economies. While the adverse effects of these restrictions and mitigation measures partially subsided in the second half of 2020 and into 2021, the possibility of future restrictions remains in the event of a rise in the number of COVID-19 cases in the future.
As a provider of essential services, all of the Company’s business segments continued to operate throughout 2020 and into 2021, and where safe and possible, the Company’s customers generally directed it to maintain normal work schedules. The Company’s business model has, thus far, proven resilient, and management continues to adapt to the changing operational and economic environment that has resulted from the COVID-19 pandemic. Management’s top priority has been to take appropriate actions to protect the health and safety of its employees, customers and business partners. The Company has adjusted its standard operating procedures within its business operations to ensure employee and customer safety, and is continually monitoring evolving health guidelines and responding to changes as appropriate. The COVID-19 pandemic had a negative impact on the Company’s operations in 2020 and is expected to continue to affect its business activities in 2021. These impacts include lost productivity from governmental permitting approval delays, reduced crew productivity due to social distancing, other mitigation measures and other factors, the health and availability of work crews or other key personnel, including subcontractors or supply chain disruptions, and/or delayed project start dates or project shutdowns or cancellations that may be mandated or requested by governmental authorities or others, all of which could result in lower revenue or higher operating costs and/or create lower levels of overhead cost absorption.
Several relief measures have been enacted in response to the effects of the COVID-19 pandemic, including the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Coronavirus Response and Relief Supplemental Appropriations Act (the “Coronavirus Relief Act”). The CARES Act permitted deferral and/or reduction of certain federal and payroll tax amounts, certain of which the Company pursued, including the deferral of approximately $59 million of payroll taxes, half of which are due by December 31, 2021, with the remainder due by December 31, 2022. The Company will continue to monitor and evaluate the potential effects, usefulness of, and qualification for, additional COVID-19 relief measures on the Company’s financial position, results of operations and cash flows.
Notwithstanding moderation of the COVID-19 pandemic and easing of governmental and other restrictions, the Company may continue to experience negative effects on its business and operations from possible longer-term changes in consumer and customer behavior, and/or from continuing negative economic conditions. The Company believes that it has taken appropriate steps to mitigate the impacts of the COVID-19 pandemic on its business; however, the potential effects of the COVID-19 pandemic are uncertain, as they depend upon numerous evolving factors that management may not be able to accurately predict. The availability of effective treatments and vaccines, the speed with which they can be administered to the public, the degree to which the public is willing to be vaccinated and the degree that vaccines are effective in preventing infection or illness from existing or new strains of COVID-19, along with the length and extent of any continuing economic and market disruptions are unknown, and, therefore, any future impacts on our business, financial condition and/or results of operations cannot be quantified or predicted with specificity.
Significant Accounting Policies
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 primarily 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 under: (i) master and other service agreements, which 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 requiring the construction and installation of an entire infrastructure system, or specified units within an infrastructure system, which are subject to multiple pricing options, including fixed price, unit price, time and materials, or cost plus a markup. Revenue derived from projects performed under master service and other service agreements totaled 28% and 42% of consolidated revenue for the three month periods ended March 31, 2021 and 2020, respectively.
For certain master service and other service agreements under which the Company performs installation and maintenance services, primarily for install-to-the-home service providers in its Communications segment, revenue is recognized at a point in time. This is generally when the work order has been fulfilled, which is typically the same day the work is initiated. Point in time revenue accounted for approximately 5% and 6% of consolidated revenue for the three month periods ended March 31, 2021 and 2020, respectively. Substantially all of the Company’s other revenue is recognized over time.
The total contract transaction price and cost estimation processes used for recognizing revenue over time under the cost-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 transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s profit recognition. Changes in these factors could result in revisions to revenue 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 losses are determined. For both the three month periods ended March 31, 2021 and 2020, 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, 2020 and 2019. Revenue recognized for the three month periods ended March 31, 2021 and 2020 as a result of changes in total contract transaction price estimates, including from variable consideration, from performance obligations satisfied or partially satisfied in prior periods, totaled approximately $13.8 million and $17.8 million, respectively.
The Company may incur certain costs that can be capitalized, such as initial set-up or mobilization costs. Such costs, which are amortized over the life of the respective projects, were $3.7 million and $5.5 million as of March 31, 2021 and December 31, 2020.
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 the Company’s performance obligations are completed within one year.
Remaining 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, 2021, the amount of the Company’s remaining performance obligations was $5.0 billion. Based on current expectations, the Company expects to recognize approximately $4.0 billion of its remaining performance obligations as revenue during 2021, with the majority of the remaining balance to be recognized in 2022.
Variable Consideration. Transaction prices for the Company’s contracts may include variable consideration, which comprises items such as change orders, claims and incentives. Management estimates variable consideration for a performance obligation utilizing estimation methods that it believes best predict the amount of consideration to which the Company will be entitled. Management’s estimates of variable consideration and the determination of whether to include estimated amounts in transaction prices are based largely on engineering studies and legal opinions, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer and all other relevant information that is reasonably available at the time of the estimate. To the extent unapproved change orders, claims and other variable consideration reflected in transaction prices are not resolved in the Company’s favor, or to the extent incentives reflected in transaction prices are not earned, there could be reductions in, or reversals of, previously recognized revenue.
As of March 31, 2021 and December 31, 2020, the Company included approximately $59 million and $51 million, respectively, of change orders and/or claims in transaction prices for certain contracts that were in the process of being resolved in the ordinary course of business, including through negotiation, arbitration and other proceedings. These transaction price adjustments, when earned, are included within contract assets or accounts receivable, net of allowance, as appropriate. As of both March 31, 2021 and December 31, 2020, these change orders and/or claims related to projects across the Company’s segments. The Company actively engages with its customers to complete the final approval process, and generally expects these processes to be completed within one year. Amounts ultimately realized upon final agreement by customers could be higher or lower than such estimated amounts.
Recently Issued Accounting Pronouncements
The discussion below describes the effects of recent accounting pronouncements, as updated from the discussion in the Company’s 2020 Form 10-K.
Accounting Pronouncements Adopted in 2021
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12, which the Company adopted during the first quarter of 2021, did not have a material effect on the Company’s consolidated financial statements.
Note 2 – Earnings Per Share
Basic earnings per share is computed by dividing net income 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. 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.
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, |
|Net income attributable to MasTec:|
Net income - basic and diluted (a)
|$||65,649 ||$||36,230 |
|Weighted average shares outstanding:|
|Weighted average shares outstanding - basic||72,439 ||74,738 |
Dilutive common stock equivalents (b)
|1,407 ||675 |
Weighted average shares outstanding - diluted
|73,846 ||75,413 |
(a)Calculated as total net income less amounts attributable to non-controlling interests.
(b)For the three month period ended March 31, 2021, there were 22,527 anti-dilutive common stock equivalents.
Note 3 – Goodwill and Other Intangible Assets
The following table provides balances for goodwill by reportable segment as of March 31, 2021 (in millions):
|Communications||Clean Energy and Infrastructure||Oil and Gas||Electrical|
|Goodwill, gross||$||561.9 ||$||166.4 ||$||509.7 ||$||150.1 ||$||1,388.1 |
|Accumulated impairment loss||— ||— ||(125.4)||— ||(125.4)|
|Goodwill, net||$||561.9 ||$||166.4 ||$||384.3 ||$||150.1 ||$||1,262.7 |
For the three month period ended March 31, 2021, goodwill included additions of $19.7 million from new business combinations and a decrease of $0.2 million from measurement period adjustments. Currency translation effects related to goodwill and accumulated impairment losses for the three month period ended March 31, 2021 totaled approximately $1.8 million of gains and $1.6 million of losses, respectively.
The following table provides a reconciliation of changes in other intangible assets, net, for the period indicated (in millions):
|Other Intangible Assets|
|Trade Names||Customer Relationships and Backlog||Pre-Qualifications|
|Other intangible assets, gross, as of December 31, 2020||$||34.5 ||$||297.9 ||$||73.8 ||$||26.4 ||$||432.6 |
|Other intangible assets, net, as of December 31, 2020||$||34.5 ||$||79.4 ||$||63.2 ||$||6.9 ||$||184.0 |
|Additions from new business combinations||— ||48.0 ||— ||4.3 ||52.3 |
|Currency translation adjustments||— ||— ||0.5 ||— ||0.5 |
|Other intangible assets, net, as of March 31, 2021||$||34.5 ||$||119.5 ||$||61.0 ||$||10.6 ||$||225.6 |
(a)Consists principally of trade names and non-compete agreements.
Quarterly Assessment for Indicators of Impairment. During the first quarter of 2021, in conjunction with the Company’s quarterly review for indicators of impairment, management performed a quantitative assessment of the goodwill associated with one reporting unit within the Oil and Gas segment. Based on the results of this assessment, management determined that the estimated fair value of the reporting unit substantially exceeded its carrying value. Significant changes in the assumptions or estimates used in management’s assessment, such as a reduction in profitability and/or cash flows, could result in non-cash impairment charges to goodwill and indefinite-lived intangible assets in the future.
The Company seeks to grow and diversify its business both organically and through acquisitions and/or other strategic arrangements in order to deepen its market presence, broaden its geographic reach and expand its service offerings.
2021 Acquisitions. For the three month period ended March 31, 2021, MasTec completed two acquisitions, including all of the equity interests in a heavy civil infrastructure construction company that is included within the Company’s Clean Energy and Infrastructure segment, and all of the equity interests in a pipeline integrity and gas distribution contractor that is included within the Company’s Oil and Gas segment. The aggregate purchase price for these entities was composed of approximately $90 million in cash, net of cash acquired. Determination of the estimated fair values of net assets acquired for these acquisitions was preliminary as of March 31, 2021; as a result, further adjustments to these estimates may occur.
2020 Acquisitions. During the year ended December 31, 2020, MasTec completed five acquisitions. These acquisitions included the
equity interests of two entities. Through a consolidated subsidiary, the Company acquired all of the equity interests in a heavy civil infrastructure construction company that is included within the Company’s Clean Energy and Infrastructure segment. As of the date of acquisition, the Company’s ownership interest in the consolidated subsidiary was 96%, and as of both March 31, 2021 and December 31, 2020, was 91%, with the non-controlling interests owned by members of subsidiary management. The Company also acquired all of the equity interests in a utility service and telecommunications construction contractor that is included within the Company’s Communications segment. Additionally, the Company acquired the assets of three entities in 2020, one that specializes in wireless telecommunications and one that specializes in install-to-the-home services, both of which are included within the Company’s Communications segment, and one that specializes in electrical transmission services that is included within the Company’s Electrical Transmission segment.
The aggregate purchase price for these entities was composed of approximately $23.5 million in cash, net of cash acquired, with an additional $3.2 million due through 2023, subject to certain indemnification provisions, and earn-out liabilities with five-year terms valued at approximately $8.3 million. Earn-outs are generally payable annually and are recorded within other current and other long-term liabilities in the consolidated balance sheets. As of March 31, 2021, the range of remaining potential undiscounted earn-out liabilities for the 2020 acquisitions was estimated to be between $1 million and $13 million; however, there is no maximum payment amount. Determination of the estimated fair values of net assets acquired and earn-out liabilities for these acquisitions was preliminary as of March 31, 2021; as a result, further adjustments to these estimates may occur.
Pro Forma Financial Information and Acquisition Results. For the three month periods ended March 31, 2021 and 2020, unaudited supplemental pro forma revenue totaled approximately $1.8 billion and $1.6 billion, respectively, and unaudited supplemental pro forma net income totaled approximately $68.6 million and $46.7 million, respectively.
For the three month periods ended March 31, 2021 and 2020, the Company’s consolidated results of operations included acquisition-related revenue of approximately $86.8 million and $49.5 million, respectively, and included acquisition-related net income of approximately $1.2 million and acquisition-related net losses of approximately $1.2 million, respectively, based on the Company’s consolidated effective tax rates. These acquisition-related results include amortization of intangible assets and exclude the effects of acquisition costs and interest expense associated with consideration paid for the related acquisitions.
Q2 2021 Acquisitions. In the second quarter of 2021, MasTec completed the acquisition of INTREN, LLC (“INTREN”), a premier specialty utility contractor primarily providing electrical distribution network services under various multi-year master services agreements to the nation’s largest utilities, municipalities and cooperatives. This entity will be included within the Company’s Electrical Transmission segment. MasTec acquired all of INTREN’s equity interests for approximately $420 million in cash plus an Earn-out, which is contingent upon INTREN’s results for the year ended December 31, 2021. The acquisition of INTREN was funded with cash on hand and borrowings under the Company’s senior secured credit facility and is subject to customary purchase price adjustments. MasTec also completed two additional immaterial acquisitions, which included all of the equity interests of a telecommunications and utility engineering services company and a heavy industrial general contractor that will be included within our Communications and Clean Energy and Infrastructure segments, respectively. Due to the limited amount of time since these acquisitions, the initial purchase accounting is incomplete. The Company will complete an initial allocation of purchase price to total net assets acquired for these acquisitions in the second quarter of 2021.
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, equity investments, certain other investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, mandatorily redeemable non-controlling interests, convertible debentures 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, 2021 and December 31, 2020, the estimated fair value of the Company’s Earn-out liabilities totaled $134.8 million and $135.2 million, respectively, of which $47.9 million and $48.1 million, respectively, was included within other current liabilities. 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 March 31, 2021, ranged from 12.0% to 20.0%, with a weighted average rate of 13.1% 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 March 31, 2021, the range of potential undiscounted Earn-out liabilities was estimated to be between $56 million and $174 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 Earn-out additions from new business combinations in either of the three month periods ended March 31,
2021 or 2020. For the three month period ended March 31, 2021, there were no measurement period adjustments, and for the three month period ended March 31, 2020, measurement period adjustments totaled an increase of approximately $1.1 million and related to a business in the Company’s Communications segment. Fair value adjustments across multiple segments totaled a net decrease of approximately $0.4 million for the three month period ended March 31, 2021, and totaled a net increase of approximately $1.8 million for the three month period ended March 31, 2020. There were no Earn-out payments in either of the three month periods ended March 31, 2021 or 2020.
The Company’s equity investments as of March 31, 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 these investment or strategic arrangements may involve the extension of loans or other types of financing, including approximately $3 million of financing receivables as of both March 31, 2021 and December 31, 2020, and $3 million of financing commitments as of December 31, 2020. The Company has determined that certain of its investment arrangements are variable interest entities (“VIEs”). As of March 31, 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 March 31, 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 $242 million and $220 million, respectively. As of March 31, 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 material changes in the fair values of, or impairments related to, these investments during either of the three month periods ended March 31, 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 $7.7 million and $7.6 million for the three month periods ended March 31, 2021 and 2020, respectively. Distributions of earnings from the Waha JVs are included within operating cash flows. There were no distributions of earnings for the three month period ended March 31, 2021, and for the three month period ended March 31, 2020, distributions of earnings totaled $2.6 million. Cumulative undistributed earnings from the Waha JVs, which represents cumulative equity in earnings for the Waha JVs less distributions of earnings, totaled $75.0 million as of March 31, 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 $196 million and $175 million as of March 31, 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 month period ended March 31, 2021, the Company’s proportionate share of unrecognized unrealized activity on the Waha JV swaps totaled gains of approximately $17.3 million, or $13.1 million, net of tax, and for the three month period ended March 31, 2020, totaled losses of approximately $30.3 million, or $23.0 million, net of tax.
Other Investments. The Company has investments in AVCT. These investments include (i) shares of AVCT common stock, which are equity securities, (ii) warrants for the purchase of AVCT common stock, which are derivative financial instruments, and (iii) debentures that are convertible into shares of AVCT common stock, which are available-for-sale securities. As of both March 31, 2021 and December 31, 2020, the Company’s ownership interest in AVCT’s common stock, represented by the AVCT shares, totaled approximately 9%, and its aggregate ownership interest, assuming the exercise and conversion of all legally exercisable warrants and convertible debt into AVCT common stock, totaled approximately 22% and 21% as of March 31, 2021 and December 31, 2020, respectively. José R. Mas, MasTec’s Chief Executive Officer, was a director of AVCT through the end of March 2020. The Company paid an aggregate of approximately $5 million for its investments in AVCT, all of which are included within other long-term assets in the Company’s consolidated financial statements. The issued shares and those underlying the derivative instruments are salable at various times through 2025 subject to various contractual and securities law restrictions. The Company does not have the ability to exert significant influence over the operating and financial policies of AVCT.
As of both March 31, 2021 and December 31, 2020, the aggregate fair value of the Company’s investments in AVCT approximated $17 million. For the three month period ended March 31, 2021, the Company recorded unrealized fair value measurement losses, net, on the AVCT securities within other expense totaling approximately $1.0 million, primarily related to the AVCT shares, for which the fair value was determined based on the market price of identical securities, adjusted for the restrictions on sale, which is a Level 3 input. Unrealized fair value measurement gains on the AVCT convertible debentures as determined based on Monte Carlo simulations, a Level 3 input, which were recognized within other comprehensive income, totaled approximately $1.0 million, or $0.8 million, net of tax, respectively, for the three month period ended March 31, 2021. There were no material changes in the fair value of the Company’s investment in AVCT for the three month period ended March 31, 2020.
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 $0.4 million was funded during the three month period ended March 31, 2021. As of March 31, 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 March 31, 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 $21 million and $19 million, respectively, including $17 million and $16 million, respectively, for FM Tech, as of March 31, 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 March 31, 2021, approximately $3 million of contingent payment liabilities were included within other current liabilities. For the three month period ended March 31, 2021, the Company made equity contributions of approximately $2 million related to these entities, and for the three month period ended March 31, 2020, the Company made no equity contributions. Certain of these entities provide services to MasTec. For the three month periods ended March 31, 2021 and 2020, expense recognized in connection with services provided by these entities totaled $1.8 million and $2.7 million, respectively, and related amounts payable totaled $0.3 million and $0.2 million as of March 31, 2021 and December 31, 2020, respectively. In addition, the Company has an employee leasing arrangement with one of these entities. Charges to this entity were de minimis for the three month period ended March 31, 2021, and related amounts receivable totaled $0.5 million and $0.4 million as of March 31, 2021 and December 31, 2020, respectively. Amounts advanced to these entities totaled $0.2 million for the three month period ended March 31, 2021, which amount was outstanding as of March 31, 2021.
As of both March 31, 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 $618.0 million and $625.5 million, respectively.
Note 5 – Accounts Receivable, Net of Allowance, and Contract Assets and Liabilities
The following table provides details of accounts receivable, net of allowance, and contract assets (together, “accounts receivable, net”) as of the dates indicated (in millions):
|$||889.5 ||$||805.0 |
|Accounts receivable, net of allowance||$||876.7 ||$||784.5 |
|314.0 ||287.7 |
|644.1 ||682.0 |
|$||958.1 ||$||969.7 |
Contract billings represent the amount of performance obligations that have been billed but have not yet been 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 represents a portion of the contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount until final contract settlement (generally, from 5% to 10% of contract billings). For the three month period ended March 31, 2021, provisions for credit losses totaled a recovery of $7.7 million, resulting from successful collection efforts for previously reserved amounts. For the three month period ended March 31, 2020, provisions for credit losses totaled $1.6 million. Impairment losses on contract assets were not material in either period.
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 amount of any accrued project losses. Total contract liabilities, including accrued project losses, totaled approximately $259.5 million and $228.4 million as of March 31, 2021 and December 31, 2020, respectively, of which deferred revenue comprised approximately $240.8 million and $203.0 million, respectively. For the three month periods ended March 31, 2021 and 2020, the Company recognized revenue of approximately $146.8 million and $105.6 million, respectively, related to amounts that were included in deferred revenue as of December 31, 2020 and 2019, respectively, resulting primarily from the advancement of physical progress on the related projects during the related periods.
The Company is party to non-recourse financing arrangements in the ordinary course of business, under which certain receivables are settled with the customer’s bank in return for a nominal fee. Discount charges related to these arrangements, which are included within interest expense, net, totaled approximately $0.8 million and $1.8 million for the three month periods ended March 31, 2021 and 2020, respectively.
Note 6 – Property and Equipment, Net
The following table provides details of property and equipment, net, including property and equipment held under finance leases as of the dates indicated (in millions):
|$||8.4 ||$||6.0 |
Buildings and leasehold improvements
|43.7 ||40.5 |
Machinery and equipment
|1,972.1 ||1,875.5 |
Office furniture and equipment
|228.3 ||221.6 |
Construction in progress
|23.0 ||26.1 |
Total property and equipment
|$||2,275.5 ||$||2,169.7 |
Less accumulated depreciation and amortization
Property and equipment, net
|$||1,024.5 ||$||982.3 |
The gross amount of capitalized internal-use software, which is included within office furniture and equipment, totaled $160.2 million and $154.1 million as of March 31, 2021 and December 31, 2020, respectively. Capitalized internal-use software, net of accumulated amortization, totaled $36.7 million and $34.3 million as of March 31, 2021 and December 31, 2020, respectively. The effects of accrued capital expenditures are excluded from the Company’s consolidated statements of cash flows given their non-cash nature.
Note 7 – Debt
The following table provides details of the carrying values of debt as of the dates indicated (in millions):
|Description||Maturity Date||March 31,|
|Senior secured credit facility:||September 19, 2024|
|Revolving loans||$||45.0 ||$||32.7 |
|Term loan||395.0 ||397.5 |
4.50% Senior Notes
|August 15, 2028||600.0 ||600.0 |
|Finance lease and other obligations||302.9 ||288.5 |
|Total debt obligations||$||1,342.9 ||$||1,318.7 |
|Less unamortized deferred financing costs||(15.2)||(16.0)|
|Total debt, net of deferred financing costs||$||1,327.7 ||$||1,302.7 |
|Current portion of long-term debt||157.3 ||145.1 |
|Long-term debt||$||1,170.4 ||$||1,157.6 |
Senior Secured Credit Facility
The Company’s senior secured credit facility (the “Credit Facility”) has aggregate borrowing commitments totaling approximately $1.75 billion, which amount is composed of $1.35 billion of revolving commitments and a term loan in the aggregate principal amount of $400 million. The term loan is subject to amortization in quarterly principal installments of $2.5 million, which commenced in December 2020. This amount will increase to $5.0 million commencing in December 2021. Quarterly principal installments on the term loan are subject to adjustment, if applicable, for certain prepayments.
As of March 31, 2021 and December 31, 2020, outstanding revolving loans, which included $45 million and $33 million, respectively, of borrowings denominated in foreign currencies, accrued interest at weighted average rates of approximately 1.77% and 1.87% per annum, respectively. The term loan accrued interest at rates of 1.36% and 1.40% as of March 31, 2021 and December 31, 2020, respectively. Letters of credit of approximately $127.0 million and $133.6 million were issued as of March 31, 2021 and December 31, 2020, respectively. As of both March 31, 2021 and December 31, 2020, letter of credit fees accrued at 0.375% per annum for performance standby letters of credit and at 1.25% per annum 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 both March 31, 2021 and December 31, 2020, availability for revolving loans totaled $1.2 billion, or up to $523.0 million and $516.4 million, respectively, for new letters of credit. Revolving loan borrowing capacity included $255.0 million and $267.3 million of availability in either Canadian dollars or Mexican pesos as of March 31, 2021 and December 31, 2020, respectively. The unused facility fee as of both March 31, 2021 and December 31, 2020 accrued at 0.20% per annum.
The Credit Facility is guaranteed by certain subsidiaries of the Company (the “Guarantor Subsidiaries”) and obligations under the Credit Facility are secured by substantially all of the Company’s and the Guarantor Subsidiaries’ respective assets, subject to certain exceptions.
Other Credit Facilities. The Company has other credit facilities that support the working capital requirements of its foreign operations and certain letter of credit issuances. There were no outstanding borrowings under the Company’s other credit facilities as of either March 31, 2021 or December 31, 2020. Additionally, the Company has a separate credit facility, under which it may issue up to $50.0 million of performance standby letters of credit. As of March 31, 2021 and December 31, 2020, letters of credit issued under this facility totaled $26.2 million and $18.2 million,
respectively, and accrued fees at 0.40% and 0.50% per annum, respectively. The Company’s other credit facilities are subject to customary provisions and covenants.
Debt Guarantees and Covenants
The 4.50% Senior Notes are fully and unconditionally guaranteed on a senior unsecured, joint and several basis by the Company’s wholly-owned domestic restricted subsidiaries that guarantee its existing credit facilities, subject to certain exceptions. MasTec was in compliance with the provisions and covenants of its outstanding debt instruments as of both March 31, 2021 and December 31, 2020.
As of March 31, 2021 and December 31, 2020, accrued interest payable, which is recorded within other accrued expenses in the consolidated balance sheets, totaled $4.8 million and $12.4 million, respectively. For additional information pertaining to the Company’s debt instruments, see Note 7 - Debt in the Company’s 2020 Form 10-K.
Note 8 – Lease Obligations
In the ordinary course of business, the Company enters into agreements that provide financing for machinery and equipment and for other of its facility, vehicle and equipment needs, including related party leases. As of March 31, 2021, the Company’s leases have remaining lease terms of up to eight 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 facility 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.
The gross amount of assets held under finance leases as of March 31, 2021 and December 31, 2020 totaled $591.3 million and $563.0 million, respectively. Assets held under finance leases, net of accumulated depreciation, totaled $439.1 million and $418.7 million as of March 31, 2021 and December 31, 2020, respectively. Depreciation expense associated with finance leases totaled $19.0 million and $15.8 million for the three month periods ended March 31, 2021 and 2020, respectively.
Operating lease additions for the three month periods ended March 31, 2021 and 2020 totaled $5.5 million and $5.8 million, respectively. For the three month periods ended March 31, 2021 and 2020, rent expense for leases that have terms in excess of one year totaled approximately $27.4 million and $35.3 million, respectively, of which $2.2 million and $2.9 million, respectively, represented variable lease costs. The Company also incurred rent expense for leases with terms of one year or less totaling approximately $110.1 million and $77.5 million for the three month periods ended March 31, 2021 and 2020, respectively. Rent expense for operating leases is generally consistent with the amount of the related payments, which payments are included within operating activities in the consolidated statements of cash flows.
Additional Lease Information
Future minimum lease commitments as of March 31, 2021 were as follows (in millions):
|2021, remaining nine months||$||115.4 ||$||63.1 |
|2022||115.3 ||51.5 |
|2023||61.7 ||27.3 |
|2024||22.5 ||17.3 |
|2025||2.1 ||10.8 |
|— ||19.8 |
Total minimum lease payments
|$||317.0 ||$||189.8 |
Less amounts representing interest
Total lease obligations, net of interest
|$||302.8 ||$||176.2 |
Less current portion
|142.2 ||69.2 |
Long-term portion of lease obligations, net of interest
|$||160.6 ||$||107.0 |
As of March 31, 2021, finance leases had a weighted average remaining lease term of 2.5 years and a weighted average discount rate of 3.7%. Non-cancelable operating leases had a weighted average remaining lease term of 3.9 years and a weighted average discount rate of 3.5% as of March 31, 2021.
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 March 31, 2021, there were approximately 2,519,000 shares available for future grant. Non-cash stock-based compensation expense under all plans totaled $5.5 million and $4.0 million for the three month periods ended March 31, 2021 and 2020,
respectively. Income tax benefits associated with stock-based compensation arrangements totaled $1.1 million and $0.9 million for the three month periods ended March 31, 2021 and 2020, respectively, including net tax benefits related to the vesting of share-based payment awards totaling $0.1 million and net tax deficiencies totaling $0.1 million, respectively.
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. As of March 31, 2021, total unearned compensation related to restricted shares was approximately $45.7 million, which is expected to be recognized over a weighted average period of approximately 2.2 years. The fair value of restricted shares that vested, which is based on the market price on the date of vesting, totaled $10.9 million and $5.6 million for the three month periods ended March 31, 2021 and 2020, respectively.
Activity, restricted shares: (a)
|Per Share Weighted Average Grant Date Fair Value |
|Non-vested restricted shares, as of December 31, 2020||1,845,341 ||$||34.90 |
|Granted||146,681 ||92.29 |
|Non-vested restricted shares, as of March 31, 2021||1,872,960 ||$||38.44 |
(a) Includes 2,500 and 2,300 restricted stock units as of March 31, 2021 and December 31, 2020, respectively.
Employee Stock Purchase Plans
The Company has certain employee stock purchase plans (collectively, “ESPPs”), under which shares of the Company’s common stock are available for purchase by eligible participants. Effective January 1, 2021, the Company’s ESPPs were amended (the “Amended ESPPs”), eliminating the look-back option and changing the offering period from three months to two weeks. Under the Amended ESPPs, eligible participants are permitted to purchase MasTec, Inc. common stock at 85% of the fair market value of the shares on the date of purchase, which occurs on the last trading day of each two week offering period. Previously, these plans allowed participants to purchase MasTec, Inc. common stock at 85% of the fair market value of the shares at the lower of (i) the date of commencement of the offering period or (ii) the last day of the offering period, as defined in the plan documents. Prior to January 1, 2021, the fair value of purchases under the ESPPs was estimated using the Black-Scholes option-pricing valuation model. The Company may issue common shares to plan participants or reacquire common shares on the open market or in privately negotiated transactions, at the Company’s discretion. For the three month period ended March 31, 2021, 18,843 shares were purchased by employees for $1.4 million pursuant to the Amended ESPPs, which shares were reacquired by the Company on the open market. For the three month period ended March 31, 2020, 53,399 shares were purchased by employees for $1.5 million, which shares were newly issued by the Company. Compensation expense associated with the Company’s ESPPs totaled approximately $0.3 million and $0.4 million for the three month periods ended March 31, 2021 and 2020, respectively.
Note 10 – Other Retirement Plans
Multiemployer Plans. Certain of MasTec’s subsidiaries contribute amounts to multiemployer pension and other multiemployer benefit plans and trusts (“MEPPs”). Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a “pay-as-you-go” basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they participate, vary depending upon the location and number of ongoing projects and the need for union resources in connection with those projects. Total contributions to multiemployer plans and the related number of employees covered by these plans for the periods indicated were as follows:
Contributions (in millions)
|For the Three Months Ended March 31: |
|2021||2,412 ||2,532 ||$||22.5 ||$||2.2 ||$||24.7 |
|2020||1,119 ||1,424 ||$||5.4 ||$||1.7 ||$||7.1 |
The fluctuations in the number of employees covered under multiemployer plans and related contributions in the table above related primarily to timing of activity for the Company’s union resource-based projects, the majority of which are within its oil and gas operations.
Note 11 – Equity
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. There were no share repurchases under the Company’s share repurchase programs for the three month period ended March 31, 2021. For the three month period ended March 31, 2020, the Company repurchased 3.6 million shares of its common stock for an aggregate purchase price totaling approximately $119.4 million, of which 0.6 million shares were repurchased for $28.8 million under a $150 million share repurchase program that was completed in the first quarter of 2020, and 3.0 million shares of which were repurchased for $90.6 million under the Company’s December 2018 $100 million share repurchase program. As of March 31, 2021, $158.6 million was available for future share repurchases under all of the Company’s open share repurchase programs, which included $8.6 million under the Company’s December 2018 share repurchase program, and the full amount of the Company’s March 2020 $150 million share repurchase program.
Accumulated Other Comprehensive Loss
Unrealized foreign currency translation activity, net, for the three month periods ended March 31, 2021 and 2020 relates to the Company’s operations in Canada and Mexico. For the three month period ended March 31, 2021, unrealized investment activity includes unrealized gains on both the interest rate swaps associated with the Waha JVs and on the Company’s investment in AVCT convertible debentures. For the three month period ended March 31, 2020, unrealized losses on investment activity relates to the Waha JV swaps. See Note 4 - Fair Value of Financial Instruments for additional information pertaining to the Waha JV swaps and AVCT convertible debentures.
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 periods ended March 31, 2021 and 2020, the Company’s consolidated effective tax rates were 30.7% and 1.2%, respectively. The Company’s effective tax rate for the three month period ended March 31, 2021 included the effect of $2.3 million related to non-deductible share-based compensation, and for the three month period ended March 31, 2020, benefited from the release of approximately $9.6 million of certain valuation allowances on Canadian deferred tax assets that were no longer necessary.
Note 13 – Segments and Related Information
The Company manages its operations under five operating segments, which represent its five reportable segments: (1) Communications; (2) Clean Energy and Infrastructure; (3) Oil and Gas; (4) Electrical Transmission and (5) Other. This structure is generally focused on broad end-user markets for the Company’s labor-based construction services. All five reportable segments derive their revenue from the engineering, installation and maintenance of infrastructure, primarily in North America.
The Communications segment performs engineering, construction, maintenance and customer fulfillment activities related to communications infrastructure, primarily for wireless and wireline/fiber communications and install-to-the-home customers, as well as infrastructure for utilities, among others. The Clean Energy and Infrastructure segment primarily serves energy, utility and other end-markets through the installation and construction of power generation facilities, including from clean energy and renewable sources, such as wind, solar and biomass, as well as various types of heavy civil and industrial infrastructure. The Company performs engineering, construction and maintenance services for 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 Other segment includes certain equity investees, the services of which vary from those provided by the Company’s 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 its 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. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.
Summarized financial information for MasTec’s reportable segments is presented and reconciled to consolidated financial information for total MasTec in the following tables, 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.