Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2020

Note 4 – Fair Value of Financial Instruments

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, that are contingent upon the acquired business achieving certain levels of earnings in the future. As of December 31, 2020 and 2019, the estimated fair value of the Company’s Earn-out liabilities totaled $135.2 million and $173.2 million, respectively, of which $48.1 million and $54.1 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 December 31, 2020, 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 December 31, 2020, the range of potential undiscounted Earn-out liabilities was estimated to be between $48 million and $179 million; however, there is no maximum payment amount.

Earn-out activity consists primarily of additions from new business combinations; changes in the expected fair value of future payment obligations; and payments. For the years ended December 31, 2020, 2019 and 2018, additions to acquisition-related contingent consideration and other liabilities from new business combinations totaled approximately $7.2 million, $45.2 million and $1.5 million, respectively. For the year ended December 31, 2020, measurement period adjustments totaled an increase of approximately $2.1 million and related to businesses in the Company’s

Communications segment. Measurement period adjustments in 2019 totaled a decrease of approximately $6.1 million and related primarily to businesses in the Company’s Oil and Gas and Communications segment, and in 2018, totaled a net increase of approximately $5.0 million and related primarily to a business in the Company’s Oil and Gas segment. For the year ended December 31, 2020 fair value adjustments totaled a net increase of approximately $3.1 million across multiple segments, including a $1.0 million increase related to mandatorily redeemable non-controlling interests. For the years ended December 31, 2019 and 2018, fair value adjustments totaled net increases of approximately $51.0 million and $17.5 million, respectively, and related primarily to Earn-outs for businesses in the Company’s Oil and Gas and Communications segments. Earn-out payments totaled $50.4 million, $35.0 million and $23.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Equity Investments

The Company’s equity investments as of December 31, 2020 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.

As of December 31, 2020 and 2019, the aggregate carrying value of the Company’s equity investments, including equity investments measured on an adjusted cost basis, totaled approximately $220 million and $196 million, respectively. As of December 31, 2020 and 2019, equity investments measured on an adjusted cost basis, including the Company’s $15 million investment in CCI, totaled approximately $17 million and $18 million, respectively. There were no material changes in the fair values of, or impairments related to, these investments during either of the years then ended.

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 $31.3 million, $27.3 million and $23.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. Distributions of earnings from the Waha JVs, which are included within operating cash flows, totaled $12.0 million, $9.1 million and $10.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. Cumulative undistributed earnings from the Waha JVs, which represents cumulative equity in earnings for the Waha JVs less distributions of earnings, totaled $67.3 million as of December 31, 2020. The Company made no equity contributions to these joint ventures for the year ended December 31, 2020, and for the years ended December 31, 2019 and 2018, the Company made equity contributions of approximately $1 million and $28 million, respectively. 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 $175 million and $174 million as of December 31, 2020 and 2019, 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 years ended December 31, 2020 and 2019, the Company’s proportionate share of unrecognized unrealized activity on these interest rate swaps totaled losses of approximately $24.4 million and $19.9 million, respectively, or $18.5 million and $15.0 million, net of tax, respectively, and for the year ended December 31, 2018, totaled gains of approximately $7.7 million, or $5.9 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 December 31, 2020 and 2019, the Company’s ownership interest in AVCT’s common stock, represented by the AVCT shares, totaled approximately 9% and 21%, respectively, and its aggregate ownership interest, assuming the exercise and conversion of all legally exercisable warrants and convertible debt into AVCT common stock, totaled approximately 21% as of both periods. 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 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 December 31, 2020, the aggregate fair value of the Company’s investments in AVCT approximated $17 million. For the year ended December 31, 2020, the Company recorded unrealized fair value measurement gains on the AVCT securities within other income totaling approximately $10.1 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 are recognized within other comprehensive income, totaled approximately $1.8 million, or $1.4 million net of tax, for the year ended December 31, 2020. As of December 31, 2019, the AVCT shares were measured on an adjusted cost basis as their fair value was not readily determinable. The aggregate carrying value of the Company’s investment in AVCT as of December 31, 2019, including the AVCT shares and initial warrants, was approximately $2 million.

The Company has equity interests in certain telecommunications entities that provide services to MasTec and are accounted for as equity method investments, including the Company’s $16 million aggregate investment in FM Tech. For the year ended December 31, 2020 equity in losses, net, related to these entities totaled approximately $1.5 million, and for the year ended December 31, 2019, was de minimis. The difference between the carrying amount of these investments and the Company’s underlying equity in the net assets of the respective entities relates primarily to equity method goodwill associated with assembled workforce for each of these entities. For the years ended December 31, 2020 and 2019, expense recognized in connection with services provided by these entities to MasTec totaled $11.5 million and $7.0 million, respectively, and related amounts

payable totaled $0.2 million as of December 31, 2020, and were de minimis as of December 31, 2019.

Summarized Financial Information of Equity Method Investments

The following presents summarized information for the entities that comprise the Company’s significant equity method investments (in millions):


	December 31,
	2020		2019
Current assets	$	160.3	$	144.5
Long-term assets	1,395.4		1,359.9
Total assets	$	1,555.7	$	1,504.4

Current liabilities	$	56.0	$	34.9
Long-term liabilities	1,024.5		978.6
Total liabilities	$	1,080.5	$	1,013.5


	For the Years Ended December 31,
	2020		2019		2018
Revenue	$	169.2	$	152.4	$	145.8
Net income	$	94.7	$	82.8	$	72.4

Senior Notes

As of 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 totaled $625.5 million. As of December 31, 2019, the gross carrying amount of the Company’s 4.875% senior notes due March 15, 2023 (the “4.875% Senior Notes”) totaled $400 million and their estimated fair value totaled $404.5 million. The estimated fair values of the Company’s senior notes were determined using an “exit price” approach based on Level 1 inputs. See Note 7 - Debt for additional information on the 2020 redemption of the Company’s 4.875% Senior Notes and related issuance of its 4.50% Senior Notes.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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