MTZ 03.31.13 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-Q
_____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
Commission File Number 001-08106
_____________________________________________
MasTec, Inc.
(Exact Name of Registrant as Specified in Its Charter)
|
| |
Florida | 65-0829355 |
(State or Other jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
| |
800 S. Douglas Road, 12th Floor, | |
Coral Gables, FL | 33134 |
(Address of Principal Executive Offices) | (Zip Code) |
(305) 599-1800
(Registrant’s Telephone Number, Including Area Code)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨
Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | |
Large accelerated filer | þ | | Non-accelerated filer | ¨ |
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Accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Act.) Yes ¨ No þ
As of April 29, 2013, MasTec, Inc. had 76,824,401 shares of common stock, $0.10 par value, outstanding.
MASTEC, INC
FORM 10-Q
QUARTER ENDED MARCH 31, 2013
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
| |
ITEM 1. | FINANCIAL STATEMENTS |
MASTEC, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Revenue | $ | 918,648 |
| | $ | 738,257 |
|
Costs of revenue, excluding depreciation and amortization | 791,499 |
| | 652,247 |
|
Depreciation and amortization | 31,753 |
| | 20,717 |
|
General and administrative expenses | 48,885 |
| | 37,304 |
|
Interest expense, net | 10,045 |
| | 8,951 |
|
Loss on extinguishment of debt | 5,624 |
| | — |
|
Other income, net | (826 | ) | | (461 | ) |
Income from continuing operations before provision for income taxes | $ | 31,668 |
| | $ | 19,499 |
|
Provision for income taxes | (12,348 | ) | | (7,804 | ) |
Income from continuing operations before non-controlling interests | $ | 19,320 |
| | $ | 11,695 |
|
Discontinued operations (See Note 4 – Discontinued Operations): | | | |
(Loss) income from discontinued operations, net of tax | $ | (947 | ) | | $ | 2,475 |
|
Net income | $ | 18,373 |
| | $ | 14,170 |
|
Net income (loss) attributable to non-controlling interests | 3 |
| | (2 | ) |
Net income attributable to MasTec, Inc. | $ | 18,370 |
| | $ | 14,172 |
|
Earnings per share (1) (See Note 2 - Earnings Per Share): | | | |
Basic earnings (loss) per share: | | | |
Continuing operations | $ | 0.25 |
| | $ | 0.15 |
|
Discontinued operations | (0.01 | ) | | 0.03 |
|
Total basic earnings per share | $ | 0.24 |
| | $ | 0.18 |
|
Basic weighted average common shares outstanding | 76,608 |
| | 80,615 |
|
Diluted earnings (loss) per share: | | | |
Continuing operations | $ | 0.23 |
| | $ | 0.14 |
|
Discontinued operations | (0.01 | ) | | 0.03 |
|
Total diluted earnings per share | $ | 0.22 |
| | $ | 0.17 |
|
Diluted weighted average common shares outstanding | 84,094 |
| | 83,901 |
|
| |
(1) | Earnings per share tables may contain summation differences due to rounding. |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
MASTEC, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Net income | $ | 18,373 |
| | $ | 14,170 |
|
Foreign currency translation (losses) gains | (824 | ) | | 1,123 |
|
Unrealized gains on available for sale securities: | | | |
Unrealized gains on available for sale securities, before tax | 359 |
| | 416 |
|
Less: | | | |
Provision for income taxes | (138 | ) | | (170 | ) |
Unrealized gains on available for sale securities, net of tax | $ | 221 |
| | $ | 246 |
|
Comprehensive income | $ | 17,770 |
| | $ | 15,539 |
|
Comprehensive income (loss) attributable to non-controlling interests | 3 |
| | (2 | ) |
Comprehensive income attributable to MasTec, Inc. | $ | 17,767 |
| | $ | 15,541 |
|
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
MASTEC, INC.
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
|
| | | | | | | |
| March 31, 2013 | | December 31, 2012 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 109,247 |
| | $ | 26,382 |
|
Accounts receivable, net of allowance | 902,426 |
| | 877,131 |
|
Inventories | 70,395 |
| | 83,939 |
|
Current deferred tax assets, net | 9,945 |
| | 3,276 |
|
Prepaid expenses and deposits | 28,678 |
| | 30,550 |
|
Other current assets | 4,967 |
| | 7,496 |
|
Current assets of discontinued operations | 20,091 |
| | 18,591 |
|
Total current assets | $ | 1,145,749 |
| | $ | 1,047,365 |
|
Property and equipment, net | 383,174 |
| | 350,378 |
|
Goodwill | 824,014 |
| | 824,707 |
|
Other intangible assets, net | 132,885 |
| | 137,100 |
|
Available for sale auction rate securities | 14,767 |
| | 14,408 |
|
Other assets | 32,607 |
| | 31,013 |
|
Long-term assets of discontinued operations | 7,670 |
| | 7,648 |
|
Total assets | $ | 2,540,866 |
| | $ | 2,412,619 |
|
Liabilities and Shareholders’ Equity | | | |
Current liabilities: | | | |
Current maturities of long-term debt | $ | 49,284 |
| | $ | 52,596 |
|
Accounts payable | 360,649 |
| | 398,713 |
|
Accrued salaries and wages | 43,129 |
| | 31,368 |
|
Accrued taxes payable | 22,473 |
| | 17,488 |
|
Accrued insurance | 20,526 |
| | 21,754 |
|
Other accrued expenses | 12,685 |
| | 11,548 |
|
Acquisition-related contingent consideration, current | 33,300 |
| | 19,216 |
|
Billings in excess of costs and earnings | 104,601 |
| | 123,435 |
|
Other current liabilities | 42,574 |
| | 29,699 |
|
Current liabilities of discontinued operations | 2,508 |
| | 4,569 |
|
Total current liabilities | $ | 691,729 |
| | $ | 710,386 |
|
Acquisition-related contingent consideration, net of current portion | 116,179 |
| | 135,712 |
|
Long-term debt | 685,390 |
| | 546,323 |
|
Long-term deferred tax liabilities, net | 122,597 |
| | 119,388 |
|
Other liabilities | 39,316 |
| | 38,875 |
|
Total liabilities | $ | 1,655,211 |
| | $ | 1,550,684 |
|
Commitments and contingencies (See Note 17) |
|
| |
|
|
Shareholders’ equity: | | | |
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 - 86,256,387 and 85,915,552 as of March 31, 2013 and December 31, 2012, respectively | 8,626 |
| | 8,592 |
|
Capital surplus | 809,082 |
| | 803,166 |
|
Retained earnings | 219,285 |
| | 200,915 |
|
Accumulated other comprehensive loss | (6,104 | ) | | (5,501 | ) |
Treasury stock, at cost; 9,467,286 shares as of both March 31, 2013 and December 31, 2012 | (150,000 | ) | | (150,000 | ) |
Total MasTec, Inc. shareholders’ equity | $ | 880,889 |
| | $ | 857,172 |
|
Non-controlling interests | $ | 4,766 |
| | $ | 4,763 |
|
Total shareholders’ equity | $ | 885,655 |
| | $ | 861,935 |
|
Total liabilities and shareholders’ equity | $ | 2,540,866 |
| | $ | 2,412,619 |
|
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
MASTEC, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Cash flows from operating activities: | | | |
Net income | $ | 18,373 |
| | $ | 14,170 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 31,753 |
| | 20,954 |
|
Stock-based compensation expense | 2,357 |
| | 993 |
|
Excess tax benefit from stock-based compensation | (903 | ) | | (97 | ) |
Non-cash interest expense | 2,239 |
| | 2,128 |
|
Write-off of unamortized financing costs on redeemed debt | 1,508 |
| | — |
|
Provision for doubtful accounts | 3,302 |
| | 548 |
|
Provision for losses on construction projects, net | (252 | ) | | (4,240 | ) |
Provision for inventory obsolescence | 284 |
| | — |
|
Gain on sale of assets | (683 | ) | | (324 | ) |
Changes in assets and liabilities, net of assets acquired and liabilities assumed: | | | |
Accounts receivable | (28,497 | ) | | (1,724 | ) |
Inventories | 12,167 |
| | 216 |
|
Deferred tax assets and liabilities, net | (3,492 | ) | | 10,222 |
|
Other assets, current and non-current portion | 6,811 |
| | 1,760 |
|
Accounts payable and accrued expenses | (4,844 | ) | | 7,319 |
|
Billings in excess of costs and earnings | (19,596 | ) | | (14,335 | ) |
Other liabilities, current and non-current portion | 11,289 |
| | 5,855 |
|
Net cash provided by operating activities | $ | 31,816 |
| | $ | 43,445 |
|
Cash flows (used in) provided by investing activities: | | | |
Cash paid for acquisitions, net, including contingent consideration | (9,656 | ) | | (4,498 | ) |
Capital expenditures | (25,851 | ) | | (14,097 | ) |
Proceeds from sale of assets | 3,411 |
| | 2,014 |
|
Net cash used in investing activities | $ | (32,096 | ) | | $ | (16,581 | ) |
Cash flows provided by (used in) financing activities: | | | |
Proceeds from issuance of 4.875% senior notes | 400,000 |
| | — |
|
Repayment of 7.625% senior notes | (150,000 | ) | | — |
|
Proceeds from credit facility | 231,600 |
| | 166,700 |
|
Repayments of credit facility | (365,600 | ) | | (195,950 | ) |
Repayments of other borrowings | (7,683 | ) | | (5,323 | ) |
(Repayments of) proceeds from book overdrafts | (5,970 | ) | | 10,433 |
|
Payments of capital lease obligations | (11,438 | ) | | (4,185 | ) |
Proceeds from stock option exercises and other share-based awards | 2,838 |
| | 1,218 |
|
Excess tax benefit from stock-based compensation | 903 |
| | 97 |
|
Payments for debt extinguishment, call premiums | (4,116 | ) | | — |
|
Payments of financing costs | (6,852 | ) | | (52 | ) |
Net cash provided by (used in) financing activities | $ | 83,682 |
| | $ | (27,062 | ) |
Net increase (decrease) in cash and cash equivalents | 83,402 |
| | (198 | ) |
Net effect of currency translation on cash | (60 | ) | | 49 |
|
Cash and cash equivalents - beginning of period | 26,767 |
| | 20,280 |
|
Cash and cash equivalents - end of period | $ | 110,109 |
| | $ | 20,131 |
|
Cash and cash equivalents of discontinued operations | $ | 862 |
| | $ | 4,286 |
|
Cash and cash equivalents of continuing operations | $ | 109,247 |
| | $ | 15,845 |
|
|
| | | | | | | |
Supplemental cash flow information: | | | |
Interest paid | $ | 10,720 |
| | $ | 6,423 |
|
Income taxes paid, net of refunds | $ | 8,245 |
| | $ | 1,884 |
|
Receipt of inventory prepaid in prior year | $ | — |
| | $ | 12,005 |
|
Supplemental disclosure of non-cash information: | | | |
Equipment acquired under capital lease | $ | 23,002 |
| | $ | 3,914 |
|
Equipment acquired under financing arrangements | $ | 14,569 |
| | $ | — |
|
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
MASTEC, INC.
NOTES TO THE CONDENSED UNAUDITED 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 energy, utility and communications infrastructure, such as: electrical utility transmission and distribution; power generation; natural gas and petroleum pipeline infrastructure; wireless, wireline and satellite communications; wind farms, solar farms and other renewable energy infrastructure; and industrial infrastructure. MasTec’s customers are primarily in these industries.
Basis of Presentation
The accompanying condensed unaudited consolidated financial statements 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 consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated balance sheet as of December 31, 2012 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2012 contained in the Company’s most recent Annual Report on 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. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these condensed unaudited consolidated financial statements are adequate to make the information not misleading.
Principles of Consolidation
The accompanying condensed unaudited consolidated financial statements include MasTec, Inc. and its subsidiaries and include the accounts of all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. Other parties’ interests in companies for which MasTec exercises control and has a controlling financial interest are reported as non-controlling interests within shareholders’ equity. Net income or loss attributable to non-controlling interests is reported as a separate line item below net income. The Company’s investments in entities in which the Company does not have a controlling interest, but has the ability to exert significant influence, are accounted for using the equity method of accounting. Equity method investments are recorded as long-term assets in the condensed unaudited consolidated balance sheets. Income or loss from these investments is recorded in other income or expense, net, in the condensed unaudited consolidated statements of operations. The cost method is used for investments in entities in which the Company does not have the ability to exert significant influence. All significant intercompany balances and transactions have been eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Key estimates include: the recognition of revenue, in particular, on long-term construction contracts, including estimates to complete and provisions for contract losses; allowances for doubtful accounts; accrued self-insured claims; estimated fair values of goodwill and intangible assets, acquisition-related contingent consideration, assets and liabilities classified as held-for-sale, investments in equity method investees, securities available for sale and certain convertible debt obligations; asset lives used in computing depreciation and amortization, including amortization of intangible assets; accounting for income taxes; and the estimated impact of contingencies and ongoing litigation. While management believes that such estimates are fair when considered in conjunction with the consolidated financial position and results of operations taken as a whole, actual results could differ from those estimates and such differences may be material to the condensed unaudited consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current period presentation.
Significant Accounting Policies
Except for adoption of the accounting pronouncements discussed below, there have been no material changes to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
New accounting pronouncements
Recently Issued Accounting Standards, Not Adopted as of March 31, 2013
In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-05”). The objective of ASU 2013-05 is to resolve diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. The Company is currently evaluating the potential impact of this ASU on its condensed unaudited consolidated financial statements.
In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-04”). The objective of ASU 2013-04 is to resolve diversity in practice by providing guidance related to the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation. ASU 2013-05 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2013. Retrospective application is required for all periods presented. The Company is currently evaluating the potential impact of this ASU on its condensed unaudited consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). The amendment requires disclosure of information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, disclosure is required, either on the face of the statement where net income is presented or in the notes, of significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The new requirements are effective for public companies in interim and annual reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 as of January 1, 2013 did not have an impact on the Company's condensed unaudited consolidated financial statements.
Note 2 – Earnings Per Share
Basic earnings per share is computed by dividing earnings available to MasTec’s common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings by the number of fully diluted shares, which includes the effect of dilutive potential issuances of common shares, as determined using earnings from continuing operations. Potentially dilutive common shares include outstanding stock options and unvested restricted share awards, as calculated under the treasury stock method, as well as shares associated with the Company’s outstanding convertible debt securities.
The following table provides details of the Company’s earnings per share calculations for the periods indicated (in thousands, except per share amounts). The table below may contain summation differences due to rounding.
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| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Basic | | | |
Net income attributable to MasTec: | | | |
Net income from continuing operations | $ | 19,317 |
| | $ | 11,695 |
|
Net (loss) income from discontinued operations | (947 | ) | | 2,477 |
|
Basic net income attributable to MasTec | $ | 18,370 |
| | $ | 14,172 |
|
Weighted average shares outstanding | 76,608 |
| | 80,615 |
|
Basic earnings (loss) per share: | | | |
Continuing operations | $ | 0.25 |
| | $ | 0.15 |
|
Discontinued operations | (0.01 | ) | | 0.03 |
|
Total basic earnings per share | $ | 0.24 |
| | $ | 0.18 |
|
Diluted | | | |
Net income attributable to MasTec: | | | |
Basic net income from continuing operations | $ | 19,317 |
| | $ | 11,695 |
|
Interest expense on Original 4.0% Notes, net of tax | 58 |
| | 58 |
|
Interest expense on Original 4.25% Notes, net of tax | 19 |
| | 19 |
|
Diluted net income from continuing operations | $ | 19,394 |
| | $ | 11,772 |
|
Net (loss) income from discontinued operations | (947 | ) | | 2,477 |
|
Diluted net income attributable to MasTec | $ | 18,447 |
| | $ | 14,249 |
|
Shares: | | | |
Basic weighted average shares outstanding | 76,608 |
| | 80,615 |
|
Dilutive common stock equivalents | 785 |
| | 813 |
|
Dilutive premium shares, New 4.0% Notes | 3,010 |
| | 809 |
|
Dilutive premium shares, New 4.25% Notes | 2,885 |
| | 858 |
|
Dilutive shares, Original 4.0% Notes | 612 |
| | 612 |
|
Dilutive shares, Original 4.25% Notes | 194 |
| | 194 |
|
Diluted weighted average shares outstanding | 84,094 |
| | 83,901 |
|
Diluted earnings (loss) per share: | | | |
Continuing operations | $ | 0.23 |
| | $ | 0.14 |
|
Discontinued operations | (0.01 | ) | | 0.03 |
|
Total diluted earnings per share | $ | 0.22 |
| | $ | 0.17 |
|
There were no weighted average anti-dilutive common stock equivalents from restricted share awards for the three months ended March 31, 2013. For the three month periods ended March 31, 2012, a total of 10,962 weighted average anti-dilutive common stock equivalents from restricted share awards were not included in the Company’s diluted earnings per share calculations.
The Company’s Board of Directors authorized a $150 million share repurchase plan in 2011, under which the Company repurchased 4.6 million shares of common stock for $75.0 million during the year ended December 31, 2011. During the year ended December 31, 2012, the Company repurchased an additional 4.9 million shares under this plan for an aggregate purchase price of $75.0 million, which completed the share repurchase plan. The repurchased shares are held in the Company’s treasury.
Senior Convertible Notes – Diluted Share Impact
The Company has $215 million of outstanding convertible notes, including $105.3 million of new 4.0% senior convertible notes (the “New 4.0% Notes”) and $97.0 million of new 4.25% senior convertible notes (the “New 4.25% Notes” and, together with the New 4.0% Notes, the “New Convertible Notes”). The Company also holds $9.6 million of original 4.0% senior convertible notes and $3.0 million of original 4.25% senior convertible notes, (the “Original 4.0% Notes” and the “Original 4.25% Notes,” respectively and, collectively, the “Original Convertible Notes”). The New Notes have an optional physical (common share), cash or combination settlement feature and contain certain conditional conversion features. Due to the optional cash settlement feature and management’s intent to settle the principal amount thereof plus accrued interest in cash, the conversion shares underlying the outstanding principal amount of the New Convertible Notes, totaling approximately 13.0 million shares, are
not required to be included in the Company’s diluted share count. If, however, the Company’s average stock price per share during the corresponding periods exceeds the $15.76 conversion price for the New 4.0% Notes or the $15.48 conversion price for the New 4.25% Notes, the weighted average of the resulting value in excess of the principal amount, converted to shares at the market price, is included in the Company’s weighted average diluted share count (“premium shares”). See Note 10 - Debt of the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2012.
The number of common shares issuable upon conversion of the Company’s Original Notes is reflected in the calculation of weighted average diluted earnings per share for the corresponding periods by application of the “if-converted” method to the extent their effect on the computation of earnings per share from continuing operations is dilutive. Under the “if-converted” method, net income from continuing operations is adjusted to add back the after-tax amount of interest recognized in the period associated with the convertible notes, and correspondingly, the convertible notes are assumed to have been converted with the resulting common shares added to weighted average shares outstanding.
The following table, which may contain summation differences due to rounding, summarizes the principal amounts of the Company’s outstanding convertible notes for the periods indicated, including their respective classification within the computation of earnings per share for each period (in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Dilutive: | | | |
New 4.0% Notes (1) | $ | 105.3 |
| | $ | 105.3 |
|
New 4.25% Notes (1) | 97.0 |
| | 97.0 |
|
Original 4.0% Notes (2) | 9.6 |
| | 9.7 |
|
Original 4.25% Notes (2) | 3.0 |
| | 3.0 |
|
Total principal amount, dilutive outstanding convertible notes | $ | 215.0 |
| | $ | 215.0 |
|
(1)Dilutive shares associated with the New Convertible Notes are attributable to the premium over the respective conversion prices.
(2)Dilutive shares associated with the Original Convertible Notes are attributable to the underlying principal amounts.
The Company’s average stock price for the three month periods ended March 31, 2013 and 2012 exceeded the conversion prices of the New Convertible Notes. The number of premium shares included in the Company’s diluted share count varies with fluctuations in the Company’s actual share price for the related periods. Higher share prices result in a greater number of equivalent premium shares. Details of the calculation underlying the number of premium shares included in the Company’s diluted share count for the periods indicated are as follows (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| As of and for the Three Months Ended March 31, 2013 | | As of and for the Three Months Ended March 31, 2012 |
| New 4.0% Notes | | New 4.25% Notes | | New 4.0% Notes | | New 4.25% Notes |
Principal amount | $ | 105,322 |
| | $ | 97,000 |
| | $ | 105,322 |
| | $ | 97,000 |
|
Conversion price per share | $ | 15.76 |
| | $ | 15.48 |
| | $ | 15.76 |
| | $ | 15.48 |
|
Number of conversion shares, principal amount | 6,683 |
| | 6,268 |
| | 6,683 |
| | 6,268 |
|
Weighted average actual per share price | $ | 28.68 |
| | $ | 28.68 |
| | $ | 17.93 |
| | $ | 17.93 |
|
Excess over principal amount | $ | 86,316 |
| | $ | 82,735 |
| | $ | 14,512 |
| | $ | 15,390 |
|
Weighted average equivalent premium shares | 3,010 |
| | 2,885 |
| | 809 |
| | 858 |
|
See Note 14 - Common Stock Activity.
Note 3 – Acquisitions and Other Investments
Allocations of purchase prices for acquisitions are based on estimates of the fair value of consideration paid and of the net assets acquired and are subject to adjustment upon finalization of these fair value estimates. In December 2012, the Company acquired certain businesses, as discussed below and in Note 3 - Acquisitions and Other Investments of the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2012. As of March 31, 2013, the purchase prices, including the estimated fair value of contingent consideration and the related purchase price allocations for these acquisitions were preliminary. During the three months ended March 31, 2013, the Company revised its preliminary allocations for certain of these acquisitions based on new information about the facts and circumstances existing as of the respective dates of such acquisitions, and, for purchase price adjustments, based on the final net assets and net working capital of the businesses acquired, as prescribed in the relevant purchase agreements. These adjustments resulted in the recognition of, or adjusted the fair values of, certain assets acquired and liabilities assumed, which resulted in the revision of comparative prior period financial information. The effect of measurement period adjustments
on the allocations of purchase price for the respective acquisitions is as if the adjustments had been taken into account as of the dates of such acquisitions. All changes that do not qualify as measurement period adjustments are included in current period earnings.
See discussion below for details of the Company's 2012 acquisitions.
2012 Acquisitions
Bottom Line Services
Effective December 1, 2012, MasTec acquired all of the issued and outstanding interests of Bottom Line Services, LLC ("BLS") for an aggregate purchase price composed of approximately $67.6 million in cash, and a five year earn-out, valued at $11.1 million as of the date of acquisition. BLS is engaged in providing natural gas and petroleum pipeline infrastructure services, primarily in eastern Texas. Its services include pipeline and facilities construction, painting and maintenance services.
The following table summarizes the estimated fair value of consideration paid and the allocation of purchase price as of the date of acquisition (in millions). The allocation of purchase price to the fair value of tangible and intangible assets and liabilities, including the estimated value of the earn-out obligation and the estimated useful lives of acquired assets, is provisional and remains preliminary as management continues to assess the valuation of these items and any ultimate purchase price adjustments based on the final assets and net working capital, as prescribed by the purchase agreement.
|
| | | |
| December 1, 2012 |
Purchase price consideration: | |
Cash | $ | 67.6 |
|
Fair value of contingent consideration (earn-out liability) | 11.1 |
|
Total consideration transferred | $ | 78.7 |
|
Purchase price allocation to identifiable assets acquired and liabilities assumed: | |
Current assets | $ | 36.4 |
|
Property and equipment | 12.6 |
|
Trade name | 2.6 |
|
Non-compete agreements | 0.5 |
|
Customer relationships | 24.4 |
|
Current liabilities | (10.4 | ) |
Total identifiable net assets | $ | 66.1 |
|
Goodwill | $ | 12.6 |
|
Total consideration allocated | $ | 78.7 |
|
BLS is reported within the Company's oil and gas segment.
Other 2012 Acquisitions
Effective December 1, 2012, MasTec acquired all of the issued and outstanding interests of Go Green Services, LLC and all of the issued and outstanding shares of Dynamic Tower Services, Inc. ("DTS"). The earnings of both companies have been consolidated as of the effective date of the acquisitions, December 1, 2012. Go Green was formerly a subcontractor to MasTec's oil and gas business and provides self-perform clearing and trenching services for natural gas and petroleum pipeline infrastructure construction in the Company's oil and gas segment. DTS was formerly a subcontractor to MasTec's wireless business and will provide self-perform communications tower construction, installation, maintenance and other services in support of telecommunications infrastructure construction in the Company's communications segment.
Revenues of $43.1 million and net income of $1.8 million resulting from the year over year incremental impact of the Company’s 2012 acquisitions are included in MasTec’s consolidated results of operations for three month period ended March 31, 2013.
2011 Acquisitions
In the second quarter of 2011, the Company acquired certain businesses, as discussed below and in Note 3 - Acquisitions and Other Investments of the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2012. During the first quarter of 2013, the Company remeasured the contingent consideration liability for EC Source Services LLC ("EC Source") using currently available facts and circumstances, including recent and expected future performance, which resulted in an increase in EC Source's expected future earn-out liability. EC Source is reported within the Company's electrical transmission segment. In addition, the contingent consideration liability for Optima Network Services, Inc. ("Optima") was remeasured and settled in full during the first quarter of 2013 as a result of an amendment to the Optima purchase agreement effective February 28, 2013. Optima is reported within the Company's communications segment. The adjustments to the EC Source and Optima earn-out liabilities were recorded within other expense and other income, respectively, during the three month period ended March 31, 2013.
Other Investments
Through a 60%-owned consolidated subsidiary, MasTec owns a 34% interest in a rock extraction business in Panama (for a net beneficial ownership interest of 20.4%). This investment, which is a component of the Company's discontinued Globetec operation, is accounted for under the equity method of accounting, and is reflected within long-term assets of discontinued operations in the condensed unaudited consolidated financial statements. MasTec has performed construction services for this investee. No revenues were recognized for the three months ended March 31, 2013. Revenues of approximately $0.8 million are included within the Company's results from discontinued operations for the three months ended March 31, 2012. Receivables from this investee, which are reflected within assets held for sale in the condensed unaudited consolidated financial statements, were approximately $3.7 million as of both March 31, 2013 and December 31, 2012.
The Company has certain other cost and equity method investments. None of these investments was material individually or in the aggregate for any period presented. No impairment charges related to the Company's cost method investments nor the Company's equity method investments were recorded during the three month periods ended March 31, 2013 or 2012.
Note 4 – Discontinued Operations
DirectStar
In May 2012, Red Ventures exercised its option to acquire from the Company all of the issued and outstanding equity interests in DirectStar, which provides marketing and sales services on behalf of DIRECTV®. The sale of DirectStar to Red Ventures was consummated in June 2012 for a net sale price of $98.9 million in cash. DirectStar is presented as a discontinued operation in the Company’s condensed unaudited consolidated financial statements for all periods presented.
Results from discontinued operations associated with DirectStar for the period indicated were as follows (in millions):
|
| | | |
| For the Three Months Ended March 31, 2012 |
Revenue | $ | 34.9 |
|
Income from operations before provision for income taxes | 5.5 |
|
Loss on disposal before provision for income taxes | — |
|
Provision for income taxes | $ | (2.1 | ) |
Net income from discontinued operations | $ | 3.4 |
|
Globetec
In September 2012, the Company's board of directors approved a plan of sale for its Globetec business. The decision to sell was made after evaluation of, among other things, short and long-term prospects of the Globetec operation. Accordingly, Globetec's projects and assets are reflected as assets and liabilities of discontinued operations in the condensed unaudited consolidated balance sheets for all periods presented, and Globetec's results of operations are presented as discontinued operations in the condensed unaudited consolidated statements of operations for all periods presented.
As of March 31, 2013, the carrying value of the subject net assets held-for-sale was $25.3 million. This amount is composed of total assets of $27.8 million and total liabilities of $2.5 million. During the year ended December 31, 2012, the Company recognized impairment charges of approximately $6.4 million pertaining to goodwill and intangible assets associated with the Globetec operation. In addition, the Company recognized additional estimated losses on disposal of approximately $6.3 million during the year ended December 31, 2012 in connection with its decision to sell the Globetec operation. This estimate was based on an evaluation of, among other things, the expected cash flows from the operation of the projects of the Globetec business, as well as the estimated net realizable value of the assets to be sold.
Management is currently in discussions with a potential buyer and is discussing a selling price which considers the Company's view of the estimated fair value of the net assets that have been classified as held-for-sale as of March 31, 2013. The Company's estimates are subject to change in the future. If the Company is not able to sell these projects and assets at the currently estimated selling price, the Company may incur additional losses in the future.
The following table, which may contain summation differences due to rounding, is a summary of assets and liabilities associated with the Globetec operation as of the dates as indicated (in millions):
|
| | | | | | | |
| March 31, 2013 | | December 31, 2012 |
Assets: | | | |
Current assets | $ | 20.1 |
| | $ | 18.6 |
|
Property and equipment, net | 2.0 |
| | 2.0 |
|
Goodwill and other intangible assets, net | — |
| | — |
|
Other long-term assets | 5.7 |
| | 5.7 |
|
Assets of discontinued operations | $ | 27.8 |
| | $ | 26.2 |
|
Liabilities: | | | |
Accounts payable and accrued expenses | $ | 0.3 |
| | $ | 0.9 |
|
Other current liabilities | 2.2 |
| | 3.7 |
|
Liabilities of discontinued operations | $ | 2.5 |
| | $ | 4.6 |
|
See Note 8 - Accounts Receivable, Net of Allowance regarding long-term receivables of discontinued operations.
The following table, which may contain summation differences due to rounding, presents results from discontinued operations associated with Globetec for the periods indicated (in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Revenue | $ | 6.3 |
| | $ | 5.4 |
|
Loss from operations before benefit from income taxes | (1.2 | ) | | (1.5 | ) |
Impairment of assets, disposal group, before benefit from income taxes | — |
| | — |
|
Benefit from income taxes | $ | 0.2 |
| | $ | 0.6 |
|
Net loss from discontinued operations | $ | (0.9 | ) | | $ | (0.9 | ) |
Included within the above results from discontinued operations for DirectStar and Globetec is $0.2 million of depreciation and amortization for the three month period ended March 31, 2012.
Note 5 - Goodwill and Other Intangible Assets
The following table, which may contain summation differences due to rounding, sets forth information for the Company’s goodwill and intangible assets as of the dates indicated (in millions):
|
| | | | | | | |
| March 31, 2013 | | December 31, 2012 |
Amortizing intangible assets: (1) | | | |
Gross carrying amount | $ | 129.4 |
| | $ | 129.5 |
|
Less: accumulated amortization | (62.5 | ) | | (58.5 | ) |
Amortizing intangible assets, net | $ | 66.8 |
| | $ | 71.0 |
|
Non-amortizing intangible assets: | | | |
Trade names | $ | 34.7 |
| | $ | 34.8 |
|
Pre-qualifications | 31.3 |
| | 31.3 |
|
Non-amortizing intangible assets | 66.0 |
| | 66.1 |
|
Goodwill | $ | 824.0 |
| | $ | 824.7 |
|
Goodwill and other intangible assets | $ | 956.9 |
| | $ | 961.8 |
|
(1)Consists principally of customer relationships, backlog, trade names and non-compete agreements with finite lives.
During the first quarter of 2013, the Company recorded a $4.7 million post-closing purchase price adjustment for the DTS acquisition based on DTS's final closing tangible net worth and net working capital, as prescribed in the related purchase agreement, which resulted in the revision of comparative financial information as of December 31, 2012. See Note 3 - Acquisitions and Other Investments.
See Note 4 - Discontinued Operations for information pertaining to goodwill and other intangible assets of discontinued operations.
The following table, which may contain summation differences due to rounding, provides a reconciliation of changes in goodwill and other intangible assets for the periods indicated (in millions):
|
| | | | | | | | | | | | | | | |
| | | Other Intangible Assets | | |
| Goodwill | | Non-amortizing | | Amortizing | | Total |
Balance as of December 31, 2011 | $ | 714.8 |
| | $ | 66.2 |
| | $ | 44.5 |
| | $ | 825.5 |
|
Accruals of acquisition-related contingent consideration (a) | $ | — |
| | | | | | $ | — |
|
Amortization expense | | | | | $ | (2.8 | ) | | $ | (2.8 | ) |
Balance as of March 31, 2012 | $ | 714.8 |
| | $ | 66.2 |
| | $ | 41.7 |
| | $ | 822.7 |
|
| | | | | | | |
Balance as of December 31, 2012 | $ | 824.7 |
| | $ | 66.1 |
| | $ | 71.0 |
| | $ | 961.8 |
|
Accruals of acquisition-related contingent consideration (a) | — |
| |
| |
| | $ | — |
|
Amortization expense |
| | | | (4.2 | ) | | $ | (4.2 | ) |
Currency translation adjustments | (0.7 | ) | | (0.1 | ) | | — |
| | $ | (0.8 | ) |
Balance as of March 31, 2013 | $ | 824.0 |
| | $ | 66.0 |
| | $ | 66.8 |
| | $ | 956.9 |
|
| |
(a) | Represents contingent consideration for acquisitions prior to January 1, 2009, which is only accrued as earned, in accordance with U.S. GAAP. |
The following table provides a reconciliation of changes in goodwill by reportable segment for the periods indicated (in millions): |
| | | | | | | | | | | | | | | | | | | |
| Communications | | Electrical Transmission | | Oil and Gas | | Power Generation and Industrial | | Total Goodwill |
Balance as of December 31, 2011 | $ | 258.0 |
| | $ | 129.5 |
| | $ | 209.7 |
| | $ | 117.6 |
| | $ | 714.8 |
|
Accruals of acquisition-related contingent consideration (a) | — |
| | — |
| | — |
| | — |
| | $ | — |
|
Balance as of March 31, 2012 | $ | 258.0 |
| | $ | 129.5 |
| | $ | 209.7 |
| | $ | 117.6 |
| | $ | 714.8 |
|
| | | | | | | | | |
Balance as of December 31, 2012 | $ | 306.8 |
| | $ | 129.5 |
| | $ | 270.8 |
| | $ | 117.6 |
| | $ | 824.7 |
|
Accruals of acquisition-related contingent consideration (a) | — |
| | — |
| | — |
| | — |
| | $ | — |
|
Currency translation adjustments | — |
| | — |
| | (0.7 | ) | | — |
| | $ | (0.7 | ) |
Balance as of March 31, 2013 | $ | 306.8 |
| | $ | 129.5 |
| | $ | 270.1 |
| | $ | 117.6 |
| | $ | 824.0 |
|
(a) Represents contingent consideration for acquisitions prior to January 1, 2009, which is only accrued as earned, in accordance with U.S. GAAP.
See Note 16 - Segments and Operations by Geographic Area for details pertaining to the Company's reportable segments.
Note 6 – 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, cash surrender value of life insurance policies, auction rate securities, cost and equity method investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration and debt obligations.
Fair value is the price that would be received to sell an asset or 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:
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Observable market based inputs or other observable inputs.
Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data. These values are generally determined using valuation models incorporating management’s estimates of market participant assumptions.
Carrying amounts and estimated fair values of financial instruments as of the dates indicated were as follows (in millions): |
| | | | | | | | | | | | | | | |
| March 31, 2013 | | December 31, 2012 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | |
Cash surrender value of life insurance policies | $ | 12.8 |
| | $ | 12.8 |
| | $ | 11.9 |
| | $ | 11.9 |
|
Auction rate securities | 14.8 |
| | 14.8 |
| | 14.4 |
| | 14.4 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Deferred compensation plan liabilities | $ | 3.9 |
| | $ | 3.9 |
| | $ | 3.3 |
| | $ | 3.3 |
|
Acquisition-related contingent consideration | 142.6 |
| | 142.6 |
| | 143.6 |
| | 143.6 |
|
4.875% senior notes | 400.0 |
| | 397.0 |
| | — |
| | — |
|
7.625% senior notes | — |
| | — |
| | 150.0 |
| | 154.9 |
|
Original 4.0% Notes | 9.6 |
| | 18.1 |
| | 9.7 |
| | 15.9 |
|
Original 4.25% Notes | 3.0 |
| | 5.8 |
| | 3.0 |
| | 5.1 |
|
New 4.0% Notes | 101.6 |
| | 103.4 |
| | 100.9 |
| | 101.5 |
|
New 4.25% Notes | 92.7 |
| | 94.8 |
| | 92.1 |
| | 92.7 |
|
The following methods and assumptions were used to estimate the fair values of financial instruments:
Cash Surrender Value of Life Insurance Policies. Cash surrender values of life insurance policies are based on current cash surrender values as quoted by insurance carriers. Life insurance policies support the Company’s split dollar agreements and deferred compensation plan assets.
Auction Rate Securities. The fair value of the Company’s auction rate securities was estimated by an independent valuation firm, Houlihan Capital Advisors, LLC, using a probability weighted discounted cash flow model.
Deferred Compensation Plan Liabilities. Deferred compensation plan liabilities are based on employee deferrals, together with Company matching contributions, which are valued according to employee-directed investment options. The fair value of deferred compensation plan liabilities is based on quoted market prices of the employees' underlying investment selections.
Acquisition-Related Contingent Consideration Acquisition-related contingent consideration in the table above represents the estimated fair value of additional future earn-outs payable for acquisitions of businesses that closed after January 1, 2009, in accordance with U.S. GAAP. The fair value of such acquisition-related contingent consideration is based on management’s estimates and entity-specific assumptions and is evaluated on an on-going basis.
Debt. The estimated fair values of the Company’s 4.875% senior notes, 7.625% senior notes and Original Convertible Notes, which are measured on a nonrecurring basis, are based on quoted market prices, a Level 1 input. During the first quarter of 2013, the Company repurchased and redeemed all of its outstanding 7.625% senior notes. See Note 10 - Debt. The estimated fair value of the debt component of the Company’s New Convertible Notes is calculated using an income approach, based on a discounted cash flow model. This method is based on management’s estimates of the Company’s market interest rate for a similar nonconvertible instrument.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2013, the Company held certain assets and liabilities required to be measured at fair value on a recurring basis. The fair values of financial assets and liabilities measured on a recurring basis were determined using the following inputs as of the dates indicated (in millions):
|
| | | | | | | | | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as Significant |
| Fair Value as of March 31, 2013 | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Cash surrender value of life insurance policies | $ | 12.8 |
| | $ | 12.8 |
| | — |
| | — |
|
Auction rate securities | $ | 14.8 |
| | — |
| | — |
| | $ | 14.8 |
|
| | | | | | | |
Liabilities | | | | | | | |
Deferred compensation plan liabilities | $ | 3.9 |
| | $ | 3.9 |
| | — |
| | — |
|
Acquisition-related contingent consideration | $ | 142.6 |
| | — |
| | — |
| | $ | 142.6 |
|
| | | | | | | |
| | | Fair Value Measurements Using Inputs Considered as Significant |
| Fair Value as of December 31, 2012 | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | |
Cash surrender value of life insurance policies | $ | 11.9 |
| | $ | 11.9 |
| | — |
| | — |
|
Auction rate securities | $ | 14.4 |
| | — |
| | — |
| | $ | 14.4 |
|
| | | | | | | |
Liabilities | | | | | | | |
Deferred compensation plan liabilities | $ | 3.3 |
| | $ | 3.3 |
| | — |
| | — |
|
Acquisition-related contingent consideration | $ | 143.6 |
| | — |
| | — |
| | $ | 143.6 |
|
The following tables, which may contain summation differences due to rounding, provide a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis using significant unobservable inputs for the periods indicated (in millions):
|
| | | | | | | | | | | |
| Auction Rate Securities |
Assets | Student Loan | | Structured Finance Securities | | Total |
Balance as of December 31, 2011 | $ | 11.8 |
| | $ | 1.7 |
| | $ | 13.5 |
|
Changes in fair value recorded in earnings | — |
| | — |
| | — |
|
Unrealized gains included in other comprehensive income | $ | 0.2 |
| | $ | 0.3 |
| | $ | 0.5 |
|
Balance as of March 31, 2012 | $ | 12.0 |
| | $ | 2.0 |
| | $ | 14.0 |
|
| | | | | |
Balance as of December 31, 2012 | $ | 11.7 |
| | $ | 2.7 |
| | $ | 14.4 |
|
Changes in fair value recorded in earnings | — |
| | — |
| | — |
|
Unrealized gains included in other comprehensive income | — |
| | 0.4 |
| | 0.4 |
|
Balance as of March 31, 2013 | $ | 11.7 |
| | $ | 3.0 |
| | $ | 14.8 |
|
| | | | | |
Liabilities | Acquisition-Related Contingent Consideration | | | | |
Balance as of December 31, 2011 | $ | 79.3 |
| | | | |
Payments of contingent consideration | — |
| | | | |
Valuation gains (losses) recorded in earnings | — |
| | | | |
Balance as of March 31, 2012 | $ | 79.3 |
| | | | |
| | | | | |
Balance as of December 31, 2012 | $ | 143.6 |
| | | | |
Payments of contingent consideration | (0.6 | ) | | | | |
Valuation gains (losses) recorded in earnings | — |
| | | | |
Currency translation adjustments included in other comprehensive income | (0.4 | ) | | | | |
Balance as of March 31, 2013 | $ | 142.6 |
| | | | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on a nonrecurring basis include items such as equity method investments, goodwill and long-lived assets, which are initially measured at fair value, and are subsequently remeasured in the event of an impairment or other measurement event, if applicable. Except for the Company's 7.625% senior notes, which the Company repurchased and redeemed during the first quarter of 2013, and the assets and liabilities associated with the Globetec operation, which the Company reclassified as held-for-sale in the third quarter of 2012, the Company had no significant assets or liabilities required to be measured at fair value on a nonrecurring basis as of either March 31, 2013 or December 31, 2012. Refer to Note 10 - Debt and Note 4 - Discontinued Operations.
Note 7 - Securities Available For Sale
The Company’s securities available for sale consist of auction rate securities, which represent (i) interests in pools of student loans guaranteed by the U.S. government under the Federal Family Education Loan Program and (ii) a structured finance security. The structured finance security has an attached credit default swap under which the principal value of the structured finance security would be partially or fully forfeited at net default rates on the underlying corporate debt obligations ranging from 8% to 9%. The net default rate as of March 31, 2013 was estimated to be 6.22%. The structured finance security is fully collateralized by investment grade credit-linked notes made up of floating rate international bank notes, which are alternatively available to cover potential claims under the credit default swap in case of forfeiture.
Due to liquidity issues in the auction rate securities market, there was insufficient observable market data to determine the fair values of the Company’s auction rate securities as of March 31, 2013 or December 31, 2012. Therefore, their respective fair values were estimated by an independent valuation firm, Houlihan Capital Advisors, LLC, using a probability weighted discounted cash flow model. The valuation of these securities is sensitive to market conditions and management’s judgment and can change significantly based on the assumptions used. The following tables, which may contain summation differences due to rounding, set forth the fair values of the Company’s auction rate securities by type of security and underlying credit rating as of the dates indicated (in millions):
|
| | | | | | | | | | | | | | | |
| Underlying Credit Rating (1) |
As of March 31, 2013 | AA- | | BB | | CCC | | Total |
Student loans | $ | 9.2 |
| | $ | 2.6 |
| | $ | — |
| | $ | 11.7 |
|
Structured finance securities | — |
| | — |
| | 3.0 |
| | $ | 3.0 |
|
Total auction rate securities | $ | 9.2 |
| | $ | 2.6 |
| | $ | 3.0 |
| | $ | 14.8 |
|
|
| | | | | | | | | | | | | | | |
| Underlying Credit Rating (1) |
As of December 31, 2012 | AA- | | BB | | CCC | | Total |
Student loans | $ | 9.2 |
| | $ | 2.6 |
| | $ | — |
| | $ | 11.7 |
|
Structured finance securities | — |
| | — |
| | 2.7 |
| | $ | 2.7 |
|
Total auction rate securities | $ | 9.2 |
| | $ | 2.6 |
| | $ | 2.7 |
| | $ | 14.4 |
|
| |
(1) | The Company’s auction rate securities maintain split ratings. For purposes of this table, securities are categorized according to their lowest rating. |
The weighted average yields on the Company’s auction-rate securities ranged from 1.43% to 2.46% for the three months ended March 31, 2013. These yields represent the predetermined “maximum” reset rates that occur upon auction failures according to the specific terms within each security’s governing documents.
Auction Rate Securities – Reconciliation of Cost Basis to Fair Value
The Company's student loan auction rate securities have been in a continuous unrealized loss position for over twelve months. The following table, which may contain summation differences due to rounding, presents the cost basis, gross cumulative unrealized (losses) gains and estimated fair values of the Company’s auction rate securities as of the dates indicated (in millions): |
| | | | | | | | | | | |
| March 31, 2013 |
| Adjusted Cost Basis (1) | | Gross Cumulative Unrealized (Losses)/Gains | | Fair Value |
Auction rate securities – student loans | $ | 12.9 |
| | $ | (1.1 | ) | | $ | 11.7 |
|
Auction rate securities – structured finance securities | 1.7 |
| | 1.3 |
| | 3.0 |
|
Total auction rate securities | $ | 14.6 |
| | $ | 0.2 |
| | $ | 14.8 |
|
| | | | | |
| December 31, 2012 |
| Adjusted Cost Basis (1) | | Gross Cumulative Unrealized (Losses)/Gains | | Fair Value |
Auction rate securities – student loans | $ | 12.9 |
| | $ | (1.1 | ) | | $ | 11.7 |
|
Auction rate securities – structured finance securities | 1.7 |
| | 0.9 |
| | 2.7 |
|
Total auction rate securities | $ | 14.6 |
| | $ | (0.2 | ) | | $ | 14.4 |
|
| |
(1) | Adjusted cost basis reflects adjustments for credit and other losses recognized in earnings on our structured finance security. Cumulative adjustments to the cost basis of securities held as of both March 31, 2013 and December 31, 2012 totaled $3.3 million. Par value of securities held as of both March 31, 2013 and December 31, 2012 totaled $17.9 million. |
As of March 31, 2013, contractual maturities of the Company’s student loan auction rate securities ranged from 15 to 35 years, and for the structured finance security, was 4 years.
Note 8 - Accounts Receivable, Net of Allowance
The following table, which may contain summation differences due to rounding, provides details of accounts receivable, net of allowance, which is classified as current (in millions).
|
| | | | | | | |
| March 31, 2013 | | December 31, 2012 |
Contract billings | $ | 468.4 |
| | $ | 522.1 |
|
Retainage | 111.0 |
| | 113.5 |
|
Costs and earnings in excess of billings | 337.8 |
| | 252.8 |
|
Accounts receivable, gross | $ | 917.2 |
| | $ | 888.3 |
|
Less allowance for doubtful accounts | (14.7 | ) | | (11.2 | ) |
Accounts receivable, net | $ | 902.4 |
| | $ | 877.1 |
|
Retainage, which has been billed, but is not due until completion of performance and acceptance by customers, is generally expected to be collected within one year. Receivables expected to be collected beyond one year are recorded in other long-term assets. The Company maintains an allowance for doubtful accounts for estimated losses, both for specific customers and as a reserve against other balances, resulting from the inability of customers to make required payments.
The Company has trade receivables for certain “pay-when-paid” projects, which provide for payment through March 2018. These receivables, which are included within assets of discontinued operations in the condensed unaudited consolidated financial statements, have been recorded at their respective net present values, with the non-current portion recorded within long-term assets of discontinued operations. Imputed interest is recognized as interest income as earned, and is reflected within the results of operations from discontinued operations. As of March 31, 2013 and December 31, 2012, $6.1 million and $6.3 million were outstanding, respectively. Of these amounts, approximately $4.2 million and $4.3 million are long-term as of March 31, 2013 and December 31, 2012, respectively. See Note 4 - Discontinued Operations.
Certain of the Company’s international subsidiaries included within discontinued operations utilized factoring of accounts receivable as a short-term financing mechanism. The amounts of related receivables sold during the periods ended, or outstanding as of both March 31, 2013 and December 31, 2012, were not material.
Note 9 - Property and Equipment, Net
The following table, which may contain summation differences due to rounding, provides details of property and equipment, net, including property and equipment held under capital leases, as of the dates indicated (in millions):
|
| | | | | | | |
| March 31, 2013 | | December 31, 2012 |
Land | $ | 4.8 |
| | $ | 4.8 |
|
Buildings and leasehold improvements | 15.5 |
| | 15.4 |
|
Machinery and equipment | 565.3 |
| | 518.3 |
|
Office furniture and equipment | 100.5 |
| | 92.8 |
|
Total property and equipment | $ | 686.2 |
| | $ | 631.3 |
|
Less accumulated depreciation and amortization | (303.0 | ) | | (280.9 | ) |
Property and equipment, net | $ | 383.2 |
| | $ | 350.4 |
|
Depreciation and amortization expense associated with property and equipment of the Company's continuing operations businesses for the three month periods ended March 31, 2013 and 2012 was $27.6 million and $17.9 million, respectively. See Note 4 - Discontinued Operations for information pertaining to property and equipment of discontinued operations.
Note 10 - Debt
The following table, which may contain summation differences due to rounding, provides details of the carrying value of debt as of the dates indicated (in millions):
|
| | | | | | | | | | |
Description | | Maturity Date | | March 31, 2013 | | December 31, 2012 |
Credit facility | | August 22, 2016 | | $ | — |
| | $ | 134.0 |
|
4.875% senior notes | | March 15, 2023 | | 400.0 |
| | — |
|
7.625% senior notes | | February 1, 2017 | | — |
| | 150.0 |
|
New 4.0% Notes, $105.3 million principal amount | | June 15, 2014 | | 101.6 |
| | 100.9 |
|
New 4.25% Notes, $97.0 million principal amount | | December 15, 2014 | | 92.7 |
| | 92.1 |
|
Original 4.0% Notes | | June 15, 2014 | | 9.6 |
| | 9.7 |
|
Original 4.25% Notes | | December 15, 2014 | | 3.0 |
| | 3.0 |
|
Capital lease obligations, weighted average interest rate of 2.9% | | In installments through January 2020 | | 94.3 |
| | 79.0 |
|
Notes payable for equipment, weighted average interest rate of 2.8% | | In installments through June 2018 | | 33.4 |
| | 30.2 |
|
Total debt | | $ | 734.7 |
| | $ | 598.9 |
|
Less current maturities | | (49.3 | ) | | (52.6 | ) |
Long-term debt | | $ | 685.4 |
| | $ | 546.3 |
|
4.875% Senior Notes
On March 18, 2013, the Company issued $400 million of 4.875% senior notes due March 15, 2023 (the “4.875% Senior Notes”) in a registered public offering. The 4.875% Senior Notes bear interest at a rate of 4.875% per annum, payable on March 15 and September 15 of each year, commencing on September 15, 2013. The 4.875% Senior Notes are senior unsecured unsubordinated obligations and rank equal in right of payment with existing and future unsubordinated debt, and rank senior in right of payment to existing and future subordinated debt. The 4.875% Senior Notes, as well as the Company's senior convertible notes described below, are effectively junior to MasTec's secured debt, including the Company's credit facility, to the extent of the value of the assets securing that debt. The 4.875% Senior Notes are guaranteed on an unsecured unsubordinated basis by MasTec's direct and indirect 100%-owned domestic subsidiaries that guarantee the Company's credit facility.
The Company has the option to redeem all or a portion of the 4.875% Senior Notes at any time on or after March 15, 2018 at the redemption prices set forth in the indenture that governs the 4.875% Senior Notes (the “4.875% Senior Notes Indenture”) plus accrued and unpaid interest, if any, to the redemption date. At any time prior to March 15, 2018, the Company may redeem all or a part of the 4.875% Senior Notes at a redemption price equal to 100% of the principal amount of 4.875% Senior Notes redeemed plus an applicable premium, as defined in the 4.875% Senior Notes Indenture, and accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to March 15, 2016, the Company may redeem up to 35% of the principal amount of the 4.875% Senior Notes using the net cash proceeds of one or more sales of the Company's capital stock, as defined in the 4.875% Senior Notes Indenture, at a redemption price of 104.875% of the principal amount, plus accrued and unpaid interest to the redemption date.
The 4.875% Senior Notes Indenture, among other things, generally limits the ability of the Company and certain of its subsidiaries, subject to certain exceptions, to (i) incur additional debt and issue preferred stock, (ii) create liens, (iii) pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments, (iv) place limitations on distributions from certain subsidiaries, (v) issue guarantees, (vi) issue or sell the capital stock of certain subsidiaries, (vii) sell assets, (viii) enter into transactions with affiliates and (ix) effect mergers. The 4.875% Senior Notes Indenture provides for customary events of default, as well as customary remedies upon an event of default, as defined in the 4.875% Senior Notes Indenture, including acceleration of repayment of outstanding amounts.
Approximately $7.0 million in financing costs were incurred in connection with the issuance of the 4.875% Senior Notes. These deferred financing costs are included in other long-term assets in the condensed unaudited consolidated financial statements and will be amortized over the term of the 4.875% Senior Notes using the effective interest method. The Company used a portion of the proceeds from the 4.875% Senior Notes offering to fund the repurchase and redemption of the Company's $150 million principal amount of 7.625% senior notes due 2017 (the “7.625% Senior Notes”), discussed below, and to repay the outstanding balance of the Company's credit facility. The remaining net proceeds were used for working capital and other general corporate purposes.
Repurchase and Redemption of 7.625% Senior Notes
On March 18, 2013, the Company repurchased approximately $121.1 million of its 7.625% Senior Notes in a tender offer at a price of 102.792% of the principal amount, which included an early tender payment of $30.00 per $1,000 principal amount of notes tendered. The holders of the tendered 7.625% Senior Notes also received accrued interest from the most recent interest payment date to the date of repurchase. In addition, the remaining outstanding $28.9 million aggregate principal balance of the 7.625% Senior Notes was effectively redeemed in accordance with their terms on March 29, 2013 at a price of 102.542% of the principal amount, plus accrued interest from the most recent interest payment date to the date of redemption.
A loss on extinguishment of debt of $5.6 million was recognized during the three months ended March 31, 2013 related to the 7.625% Senior Notes, including $4.1 million of early payment premiums and $1.5 million of unamortized deferred financing costs. This loss is separately disclosed within the condensed unaudited consolidated statements of operations.
Credit Facility
As of March 31, 2013, the Company had no outstanding revolving loans under its credit facility, also referred to as the "Credit Facility." As of December 31, 2012, the Company had outstanding revolving loans under its Credit Facility of $134.0 million, which accrued interest at a weighted average rate of approximately 3.95% per annum. Approximately $119.3 million and $120.8 million of letters of credit were issued under the Credit Facility as of March 31, 2013 and December 31, 2012, respectively. The remaining $480.7 million and $345.2 million of Credit Facility borrowing capacity as of March 31, 2013 and December 31, 2012, respectively, was available for revolving loans or up to $230.7 million and $229.2 million of new 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, 2013 and December 31, 2012, interest on outstanding letters of credit accrued at either 1% or 2% per annum, based on the type of letter of credit issued. The unused facility fee as of both March 31, 2013 and December 31, 2012 was 0.35%.
Senior Convertible Notes
New Senior Convertible Notes. The Company has $105.3 million of New 4.0% Notes and $97.0 million of New 4.25% Notes. The principal balance of the New Convertible Notes was divided between the fair value of the debt component and the fair value of the common stock conversion feature of the notes, which resulted in a total debt discount of $17.4 million as of March 2011, when the New Convertible Notes were issued. The debt discount is being accreted to interest expense over the remaining terms of the New Convertible Notes, which will increase interest expense during the terms of the New Convertible Notes above their 4.0% and 4.25% cash interest rates to an effective interest rate of 6.73%. As of March 31, 2013, the remaining period of amortization associated with the debt discount and related financing costs was approximately 1.5 years. The fair value of the common stock conversion feature is recorded as a component of shareholders’ equity.
The carrying values of the debt and equity components of the New Convertible Notes as of the dates indicated are as follows (in millions):
|
| | | | | | | |
| March 31, 2013 |
| New 4.0% Senior Convertible Notes | | New 4.25% Senior Convertible Notes |
Principal amount | $ | 105.3 |
| | $ | 97.0 |
|
Unamortized debt discount and financing costs | (3.7 | ) | | (4.3 | ) |
Net carrying amount of debt component | $ | 101.6 |
| | $ | 92.7 |
|
Carrying amount of equity component | $ | 8.9 |
| | $ | 8.5 |
|
Debt Guarantees and Covenants
The Company’s New Convertible Notes and Original Convertible Notes are, and, through March 29, 2013, the Company's 7.625% Senior Notes were, fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by certain of the Company's existing and future 100%-owned direct and indirect domestic subsidiaries that are guarantors of the Company's Credit Facility or other outstanding indebtedness. The Company's 4.875% Senior Notes are guaranteed on an unsecured subordinated basis by the Company's 100%-owned domestic subsidiaries that guarantee the Credit Facility. See Note 20 - Supplemental Guarantor Financial Information.
MasTec was in compliance with all provisions and covenants pertaining to its outstanding debt instruments as of March 31, 2013 and December 31, 2012.
Interest Expense, Net
The following table, which may contain summation differences due to rounding, provides details of interest expense, net, classified within continuing operations for the periods indicated (in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Interest expense: | | | |
Contractual and other interest expense | $ | 7.6 |
| | $ | 6.5 |
|
Accretion of senior convertible note discount | 1.3 |
| | 1.2 |
|
Amortization of deferred financing costs and commitment fees | 1.3 |
| | 1.4 |
|
Total interest expense | $ | 10.1 |
| | $ | 9.1 |
|
Interest income | (0.1 | ) | | (0.1 | ) |
Interest expense, net | $ | 10.0 |
| | $ | 9.0 |
|
Note 11 - Lease Obligations
Capital Leases
MasTec enters into agreements that expire on various dates, which provide financing for certain machinery and equipment. Assets held under capital leases, net of accumulated depreciation, totaled $117.2 million and $102.2 million as of March 31, 2013 and December 31, 2012, respectively.
Operating Leases
In the ordinary course of business, the Company enters into non-cancelable operating leases for certain of its facility, vehicle and equipment needs, including related party leases. Rent expense relating to operating leases, including short term rentals, reflected within continuing operations, was approximately $48.8 million and $38.4 million for the three month periods ended March 31, 2013 and 2012, respectively.
Note 12 – Stock-Based Compensation and Other Employee Benefit Plans
The Company has certain stock-based compensation plans with stock options and restricted share awards outstanding as of March 31, 2013. Under plans currently in effect, there were a total of 3,821,690 shares available for grant as of March 31, 2013.
Restricted Share Awards
MasTec grants restricted share awards, which are valued based on the market price of MasTec common stock on the date of grant. Total unearned compensation related to restricted share awards as of March 31, 2013 was approximately $9.4 million, which is expected to be recognized over a weighted average period of approximately 2 years. The total intrinsic value, or fair value, of restricted share awards that vested, which is based on the market price on the date of vesting, was $0.7 million and $0.2 million for the three month periods ended March 31, 2013 and 2012, respectively.
Following is a summary of restricted share award activity during the periods indicated:
|
| | | | | | |
| Restricted Shares | | Weighted Average Grant Date Fair Value |
Non-vested restricted shares, as of December 31, 2011 | 716,780 |
| | $ | 14.45 |
|
Granted | 139,353 |
| | 18.55 |
|
Vested | (12,892 | ) | | 14.60 |
|
Canceled/forfeited | (9,000 | ) | | 15.08 |
|
Non-vested restricted shares, as of March 31, 2012 | 834,241 |
| | $ | 15.12 |
|
| | | |
Non-vested restricted shares, as of December 31, 2012 | 792,396 |
| | $ | 19.07 |
|
Granted | 21,267 |
| | 27.10 |
|
Vested | (23,767 | ) | | 20.35 |
|
Canceled/forfeited | — |
| | — |
|
Non-vested restricted shares, as of March 31, 2013 | 789,896 |
| | $ | 19.24 |
|
Stock Options
The Company has granted options to purchase its common stock to employees and members of the Board of Directors and affiliates under various stock option plans at not less than the fair market value of the underlying stock on the date of grant. No stock options have been granted since 2006.
The following is a summary of stock option activity during the periods indicated:
|
| | | | | | | | | | | | |
| Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (years) | | Aggregate Intrinsic Value (1) (in millions) |
Options outstanding as of December 31, 2011 | 1,445,774 |
| | $ | 10.25 |
| | 3.16 | | $ | 10.3 |
|
Exercised | (20,000 | ) | | 5.37 |
| | | | |
Canceled/forfeited | — |
| | — |
| | | | |
Options outstanding as of March 31, 2012 | 1,425,774 |
| | $ | 10.32 |
| | 2.97 | | $ | 11.1 |
|
Options exercisable as of March 31, 2012 | 1,425,774 |
| | $ | 10.32 |
| | 2.97 | | $ | 11.1 |
|
| | | | | | | |
Options outstanding as of December 31, 2012 | 1,053,825 |
| | $ | 10.55 |
| | 2.31 | | $ | 15.2 |
|
Exercised | (194,200 | ) | | 10.02 |
| | | | |
Canceled/forfeited | — |
| | — |
| | | | |
Options outstanding as of March 31, 2013 | 859,625 |
| | $ | 10.66 |
| | 2.06 | | $ | 15.9 |
|
Options exercisable as of March 31, 2013 | 859,625 |
| | $ | 10.66 |
| | 2.06 | | $ | 15.9 |
|
| |
(1) | Amount represents the difference between the exercise price and the market price of the Company’s stock on the last trading day of the corresponding period, multiplied by the number of in-the-money options. |
The total intrinsic value of options exercised during the three month periods ended March 31, 2013 and 2012, which is based on the difference between the exercise price and the market price of the Company’s stock at the date of exercise, was $3.5 million and $0.3 million, respectively. Proceeds from options exercised during the three month periods ended March 31, 2013 and 2012 totaled $1.9 million and $0.1 million, respectively.
Stock Based Compensation Expense and Related Tax Benefit (Expense)
Details of stock based compensation expense and related tax benefit (expense) for the periods indicated are as follows (in millions): |
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Stock based compensation expense: | | | |
Restricted share awards and other | $ | 2.4 |
| | $ | 1.0 |
|
Stock options | — |
| | — |
|
Total stock based compensation expense | $ | 2.4 |
| | $ | 1.0 |
|
Income tax benefit (expense) from stock based compensation: | | | |
Restricted share awards and other | $ | 0.7 |
| | $ | 0.4 |
|
Stock options | 0.8 |
| | 0.1 |
|
Total income tax benefit (expense) from stock based compensation | $ | 1.5 |
| | $ | 0.5 |
|
Excess tax benefit from stock based compensation: | | | |
Vested restricted shares and other (1) | $ | 0.1 |
| | $ | — |
|
Stock options exercised (1) | 0.8 |
| | 0.1 |
|
Total excess tax benefit from stock based compensation (1) | $ | 0.9 |
| | $ | 0.1 |
|
| |
(1) | Excess tax benefits, which represent cash flows from tax deductions in excess of the tax effect of compensation expense recognized for stock options exercised and vested restricted shares, are classified as financing cash flows in the Company’s condensed unaudited consolidated statements of cash flows. |
Note 13 – Other Retirement Plans
Multi-Employer Pension Plans. Certain of MasTec’s subsidiaries contribute amounts to multi-employer pension and other multi-employer benefit plans and trusts. Multi-employer 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 any given time, and the plans in which they may participate, vary depending upon the location and number of ongoing projects at a given time and the need for union resources in connection with those projects.
Total contributions to multi-employer pension plans, and the related number of employees covered by these plans, for the periods indicated ranged as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | |
| Number of Employees | | Contributions to Multi-Employer Plans (in millions) |
For the Three Months Ended March 31, | Low | | High | | Pension | | Post-Retirement Benefit | | Total |
2013 | 778 |
| | 1,149 |
| | $ | 7.6 |
| | $ | 0.4 |
| | $ | 8.0 |
|
2012 | 308 |
| | 1,608 |
| | $ | 3.4 |
| | $ | 0.2 |
| | $ | 3.6 |
|
The Company's contributions to multi-employer pension plans have increased in 2013 as a result of higher activity levels, primarily in its oil and gas business.
On November 15, 2011, the Company, along with other members of the Pipe Line Contractors Association (“PLCA”), voluntarily withdrew from the Central States Southeast and Southwest Areas Pension Fund (“Central States”), a defined benefit multi-employer pension plan that is in critical status, as defined under the Pension Protection Act of 2006. In connection with this withdrawal, the Company recorded a withdrawal liability of $6.4 million. The Company withdrew from Central States in order to mitigate its liability in connection with the plan. The Company currently does not have plans to withdraw from any other multi-employer pension plan as of March 31, 2013.
See Note 17 - Commitments and Contingencies for additional details.
Note 14 – Common Stock Activity
Treasury Stock and Share Activity
A summary of share activity for the periods indicated, which may contain summation differences due to rounding, is as follows (in thousands):
|
| | | | | |
| Common Shares Outstanding | | Treasury Shares |
Balance as of December 31, 2012 | 76,448 |
| | 9,467 |
|
Shares issued for stock option exercises | 194 |
| | |
Shares issued for restricted stock awards | 21 |
| | |
Other shares issued | 125 |
| | |
Balance as of March 31, 2013 | 76,789 |
| | 9,467 |
|
Note 15 - Income Taxes
The Company’s consolidated tax rates on income from continuing operations for the three month periods ended March 31, 2013 and 2012 were 39.0% and 40.0%, respectively. 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 impact of significant discrete items is separately recognized in the quarter(s) in which they occur.
Note 16 - Segments and Operations by Geographic Area
Segment Discussion
MasTec presents its continuing operations under five reportable segments: (1) Communications; (2) Electrical Transmission; (3) Oil and Gas; (4) Power Generation and Industrial and (5) Other. This structure is generally focused on broad end-user markets for MasTec's labor-based construction services and has been determined in accordance with the criteria in ASC 280, Segment Reporting. All five reportable segments derive their revenues from the engineering, installation and maintenance of infrastructure, primarily in North America.
The Communications segment performs engineering, construction and maintenance of communications infrastructure primarily related to wireless and wireline communications and install-to-the-home, and to a lesser extent, infrastructure for electrical utilities. The Electrical Transmission segment primarily serves the energy and utility industries through the engineering, construction and maintenance of electrical transmission lines and substations. MasTec also performs engineering, construction and maintenance services on oil and natural gas pipelines and processing facilities for the energy and utilities industries through the Oil and Gas segment. The Power Generation and Industrial segment primarily serves the energy and utility end markets and other end markets through the installation and construction of power plants, wind farms, solar farms, related electrical transmission infrastructure, ethanol facilities and various types of industrial infrastructure. The Other category primarily includes small business units that perform construction services for a variety of end markets in Mexico and elsewhere internationally.
The accounting policies of the reportable segments are the same as those described in Note 1 - Business, Basis of Presentation and Significant Accounting Policies. Intersegment revenues and costs are accounted for as if the revenues were to third parties because these items are based on negotiated fees between the segments involved. All intercompany transactions and balances are eliminated in consolidation; eliminations between segments are included in the Eliminations reconciling column in the tables below. Intrasegment revenues and costs between entities are eliminated to arrive at the segment totals. The Corporate column includes amounts related to Corporate functions such as administrative costs, professional fees, and acquisition costs. Segment results include certain allocations of centralized costs such as general liability, medical and workers' compensation insurance and information technology costs. Income tax expense is managed by Corporate on a consolidated basis and is not allocated to the reportable segments.
Income from continuing operations before non-controlling interests before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of consolidated financial information determined in accordance with U.S. GAAP with certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-U.S. GAAP measures provide meaningful information that helps 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 versus its peers, because it excludes certain items that may not be indicative of the Company's reportable segment results, 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.
Corporate EBITDA in 2013 includes a loss on debt extinguishment of $5.6 million related to the repurchase and redemption of the Company's 7.625% Senior Notes in March 2013. See Note 10 - Debt for further discussion.
Summarized financial information for MasTec’s reportable segments is presented and reconciled to consolidated continuing operations financial information for total MasTec in the following tables (in millions), which may contain summation differences due to rounding:
As of and for the three months ended March 31, 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Communications | | Oil and Gas | | Electrical Transmission | | Power Generation and Industrial | | Other | | Corporate | | Eliminations |
| | Continuing Operations for Consolidated MasTec |
Revenue | $ | 424.9 |
| | $ | 318.8 |
| | $ | 84.6 |
| | $ | 88.9 |
| | $ | 2.3 |
| | $ | — |
| | $ | (0.8 | ) | | $ | 918.6 |
|
EBITDA | $ | 46.4 |
| | $ | 42.4 |
| | $ | 3.4 |
| | $ | (0.2 | ) | | $ | 0.1 |
| | $ | (18.6 | ) | | $ | — |
| | $ | 73.5 |
|
Depreciation | $ | 7.1 |
| | $ | 16.4 |
| | $ | 2.0 |
| | $ | 1.2 |
| | $ | — |
| | $ | 0.9 |
| | $ | — |
| | $ | 27.6 |
|
Amortization | $ | 1.1 |
| | $ | 2.2 |
| | $ | 0.3 |
| | $ | 0.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4.2 |
|
As of and for the three months ended March 31, 2012:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Communications | | Oil and Gas | | Electrical Transmission | | Power Generation and Industrial | | Other | | Corporate | | Eliminations |
| | Continuing Operations for Consolidated MasTec |
Revenue | $ | 389.1 |
| | $ | 167.7 |
| | $ | 64.4 |
| | $ | 117.4 |
| | $ | 0.4 |
| | $ | — |
| | $ | (0.7 | ) | | $ | 738.3 |
|
EBITDA | $ | 32.8 |
| | $ | 12.6 |
| | $ | 8.4 |
| | $ | 5.0 |
| | $ | (0.2 | ) | | $ | (9.3 | ) | | $ | (0.1 | ) | | $ | 49.2 |
|
Depreciation | $ | 6.2 |
| | $ | 8.7 |
| | $ | 1.4 |
| | $ | 1.0 |
| | $ | — |
| | $ | 0.7 |
| | $ | — |
| | $ | 17.9 |
|
Amortization | $ | 0.4 |
| | $ | 0.5 |
| | $ | 1.2 |
| | $ | 0.7 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2.8 |
|
Revenue generated from utilities customers represented 10.7% and 9.1% of Communications segment revenues for the three month periods ended March 31, 2013 and 2012, respectively.
The following table, which may contain summation differences due to rounding, presents a reconciliation of EBITDA to consolidated income from continuing operations before provision for income taxes (in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
EBITDA | $ | 73.5 |
| | $ | 49.2 |
|
Less: | | | |
Interest expense, net | (10.0 | ) | | (9.0 | ) |
Depreciation | (27.6 | ) | | (17.9 | ) |
Amortization | (4.2 | ) | | (2.8 | ) |
Income from continuing operations before provision for income taxes | $ | 31.7 |
| | $ | 19.5 |
|
Foreign Operations. The Company has operations in Canada as well as in parts of Latin America and the Caribbean. The following table presents revenue by geographic area for the periods indicated (dollar amounts in millions):
|
| | | | | | | |
| For the Three Months Ended March 31, |
| 2013 | | 2012 |
Continuing operations: | | | |
Derived from foreign operations | $ | 39.7 |
| | $ | 62.3 |
|
Derived in the United States | 878.9 |
| | 676.0 |
|
Revenue from continuing operations | $ | 918.6 |
| | $ | 738.3 |
|
| | | |
Discontinued operations: | | | |
Derived from foreign operations | $ | 2.3 |
| | $ | |