Note 3 – Acquisitions

The Company acquired several businesses during 2014 and 2013, as discussed below. During the measurement period, as defined under U.S. GAAP, preliminary estimates of the fair values of net assets acquired may be revised if new information is obtained about the facts and circumstances existing as of the date of acquisition, or for purchase price adjustments, based on the final net assets and net working capital of the acquired business, as prescribed in the applicable purchase agreement. Such adjustments may result in the recognition of, or adjust the fair values of, acquired assets and assumed liabilities, and are presented in the accompanying tables as if the adjustments had been taken into account as of the date of acquisition. As of December 31, 2015, all such measurement period adjustments had been determined and were final. Changes to preliminary estimates of the fair values of net assets acquired that do not qualify as measurement period adjustments are included in current period results. As discussed in Note 1 - Business, Basis of Presentation and Significant Accounting Policies, ASU 2015-16 eliminated the requirement to retrospectively account for measurement period adjustments in the consolidated financial statements. The Company adopted ASU 2015-16 in the fourth quarter of 2015. Certain measurement period adjustments for the WesTower acquisition are reflected in the table accompanying the WesTower discussion below.

2014 Acquisitions

WesTower

Effective October 1, 2014, MasTec acquired all of the issued and outstanding equity interests of WesTower Communications Inc. (“WesTower”), a telecommunications services firm that focuses on construction and maintenance of communications infrastructure for wireless networks throughout the Eastern, Central and Western United States. The acquisition of WesTower has expanded the Company’s geographical presence, market penetration and skilled employee base within its existing wireless operations. WesTower is reported within the Company’s Communications segment.

The following table summarizes the estimated fair values, as adjusted, of consideration paid and identifiable assets acquired and liabilities assumed for WesTower as of the date of acquisition (in millions):



Acquisition consideration:	October 1, 2014
Cash	$	198.0
Identifiable assets acquired and liabilities assumed:
Accounts receivable	$	179.8
Other current assets, including $18.0 million of cash acquired	66.6
Property, equipment and other long-term assets	9.3
Finite-lived intangible assets	42.6
Billings in excess of costs and earnings	(33.3		)
Other current liabilities, including current portion of capital lease obligations	(87.7		)
Long-term liabilities, including capital lease obligations	(26.4		)
Total identifiable net assets	$	150.9
Goodwill	$	47.1
Total net assets acquired, including goodwill	$	198.0

The fair values and weighted average useful lives of WesTower’s acquired finite-lived intangible assets were assigned as follows:



	Fair Value (in millions)		Weighted Average Useful Life (in years)
Finite-lived intangible assets:	Fair Value (in millions)		Weighted Average Useful Life (in years)
Backlog	$	4.7	5
Trade name	1.1		4
Non-compete agreements	0.3		4
Customer relationships	36.5		18
Total acquired finite-lived intangible assets	$	42.6	16

Finite-lived intangible assets are amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed. Goodwill arising from the acquisition represents the estimated value of WesTower’s geographic presence in key high growth markets, its assembled workforce and synergies expected to be achieved from the combined operations of WesTower and MasTec. The goodwill balance is not tax deductible.

In connection with the WesTower acquisition, the Company incurred acquisition integration costs of approximately $17.8 million and $5.3 million for the years ended December 31, 2015 and 2014, which were included within general and administrative expenses within the consolidated statements of operations. These acquisition integration costs consisted primarily of employee termination costs, including employee compensation relating to the elimination of certain positions that were determined to be redundant, and other integration-type costs, including facility consolidation expenses, system migration expenses and training costs. As of December 31, 2015, the Company had completed the integration of WesTower. As of December 31, 2015 and 2014, acquisition integration costs totaling $1.5 million and $3.5 million, respectively, were included within current liabilities in the consolidated balance sheets. Liabilities assumed in connection with the WesTower acquisition in the table above include the estimated value of certain off-market contracts, which are recognized in revenue over the terms of the related contracts.

Subsequent to the acquisition date, in connection with the ongoing review of the acquired net working capital and acquired net assets of WesTower, the Company recorded increases of $15.7 million and $5.3 million, respectively, to other current assets and long-term liabilities, and a decrease of $7.8 million to other long-term assets, related to deferred taxes. The changes to the deferred tax amounts, as well as other immaterial adjustments, net, to the acquisition date values of accounts receivable, property and equipment and other current liabilities, resulted in a $3.6 million decrease in the acquisition date value of goodwill associated with the WesTower acquisition, which adjusted balances are reflected in the table above.

Pacer

Effective June 1, 2014, MasTec acquired all of the issued and outstanding equity interests of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”). Pacer is a western Canadian civil construction services company, headquartered in Calgary, Alberta, Canada. Pacer’s services include infrastructure construction primarily in support of oil and gas production, processing, mining and transportation. Pacer, a leading contractor in the Canadian oil sands market, is expected to enhance MasTec’s ability to develop energy infrastructure in western Canada and take advantage of associated opportunities in North America over the coming years. Pacer is primarily reported within the Company’s Oil and Gas segment, while Pacer’s proportionate share of its undivided interest in its proportionately consolidated non-controlled contractual joint venture is reported within the Other segment.

The following table summarizes the estimated fair values, as adjusted, of consideration paid and identifiable assets acquired and liabilities assumed for Pacer as of the date of acquisition (in millions). Net of cash acquired, substantially all of the current assets acquired consist of accounts receivable.



Acquisition consideration:	June 1, 2014
Cash	$	126.5
Fair value of contingent consideration (earn-out liability)	24.3
Total consideration transferred	$	150.8
Identifiable assets acquired and liabilities assumed:
Current assets, including $3.4 million of cash acquired	$	114.0
Property and equipment	81.2
Pre-qualifications	38.7
Finite-lived intangible assets	19.4
Current liabilities, including current portion of capital lease obligations and long-term debt	(71.8		)
Net equity method investment obligations	(31.0		)
Long-term debt, including capital lease obligations	(69.6		)
Deferred income taxes	(30.5		)
Total identifiable net assets	$	50.4
Goodwill	$	100.4
Total net assets acquired, including goodwill	$	150.8

The values of certain of the assets acquired and liabilities assumed include the proportionate values of Pacer’s proportionately consolidated non-controlled contractual joint venture, which is involved in a civil construction project. Pacer’s undivided interest in this contractual joint venture automatically terminates upon completion of the project, which is not controlled by Pacer and is managed by a third party. This project, which was over 50% complete as of December 31, 2015, incurred losses for the year ended December 31, 2015 due to delayed receipt of a key material. Pacer’s proportionate share of these losses totaling $16.3 million for the year ended December 31, 2015, are included in the Other segment. Pacer has minimal direct involvement in the remaining work on this project. For the years ended December 31, 2015 and 2014, revenue recognized by Pacer in connection with work performed for this contractual joint venture totaled $2.1 million and $1.7 million, respectively. As of December 31, 2015 and 2014, receivables from this contractual joint venture, including acquired receivables, totaled $1.2 million and $1.8 million, respectively. Performance guarantees associated with this contractual joint venture as of December 31, 2015 and 2014 totaled Canadian $132.1 million (or approximately $95.4 million and $113.6 million, respectively), based on the full contract value of the project, for which Pacer is obligated on a joint and several basis with its joint venture partner. In addition, from time to time, the Company may provide financing to this contractual joint venture. For the year ended December 31, 2015, Pacer provided $8.2 million of financing to this contractual joint venture under financing arrangements, and no such payments were made for the year ended December 31, 2014. As of December 31, 2015, there were no additional amounts committed by Pacer to this contractual joint venture under such financing arrangements.

The equity method investment obligations identified in the table above relate to acquired interests in entities that provide construction services. Subsequent to the acquisition of Pacer, and in connection with the ongoing review of the related acquired net assets, the Company determined that the initial fair value assigned to these investments was in excess of their fair value and that it would cease participation in their operations upon completion of the existing projects. The Company recorded a $49 million reduction to the acquisition date value of Pacer’s equity method investments to reflect their expected fair values as determined based on their expected net cash outflows, including the wind-down of these investments. Prior to entering into the receiverships discussed below, Pacer provided $10.2 million and $23.0 million of financing to these equity investees during the years ended December 31, 2015 and December 31, 2014, respectively. For the years ended December 31, 2015 and 2014, revenue recognized by Pacer on behalf of these entities totaled $2.9 million and $3.1 million, respectively, of which $1.4 million was outstanding as of December 31, 2015. There were no outstanding receivables as of December 31, 2014. Performance guarantees associated with these entities totaled approximately $61.2 million as of December 31, 2014, based on the full contract value of certain projects, for which Pacer was obligated on a joint and several basis with its other shareholders. As of December 31, 2015, all jobs related to these performance guarantees had been completed and the Company believes any remaining exposure to be insignificant. There are no other financial guarantees associated with, or remaining amounts committed to, these entities as of December 31, 2015. While the Company believes the obligations and guarantees associated with these entities represent variable interests, Pacer does not have the power to control the primary activities of, nor is the primary beneficiary of, these investments.

In March 2015, Pacer became the secured creditor of one of its equity method investees by purchasing the outstanding revolving credit facility of this investee for approximately $20.8 million in order to satisfy its obligations pursuant to a financial guarantee to the investee’s lender. This payment is included within Pacer’s net equity method investment obligations as of the date of acquisition. Subsequent to Pacer’s purchase of the outstanding credit facility, a receivership order was granted to assist with the orderly wind-down of the investee’s operations. As part of the receivership proceedings, Pacer provided $38.3 million of financing to the receiver, of which $12.8 million has been repaid as of December 31, 2015. The remaining balance is recorded within other current assets in the consolidated balance sheet as of December 31, 2015. Pacer does not expect to advance additional amounts to the receiver, and believes that it will be repaid the remaining amounts advanced under the receivership within the next twelve months. In September 2015, a separate equity method investee of Pacer entered into a receivership arrangement to facilitate the wind-down of its operations. As of December 31, 2015, there was an immaterial amount of remaining net assets related to this investee.

Subsequent to the acquisition date, in connection with the ongoing review of the acquired net working capital and net assets of Pacer, the Company recorded an $8.4 million increase in property and equipment, a $5.6 million increase in certain current liabilities and a $1.2 million increase in long-term deferred tax liabilities. These adjustments, along with the adjustments to the equity method investment obligations discussed above, as well as other immaterial adjustments, net, to the acquisition date values of certain current assets and intangible assets, resulted in a $47.5 million increase in the acquisition date value of goodwill associated with the Pacer acquisition, which adjustments are reflected in the table above.

The fair values and weighted average useful lives of Pacer’s acquired finite-lived intangible assets, as adjusted, were assigned as follows:



	Fair Value (in millions)		Weighted Average Useful Life (in years)
Finite-lived intangible assets:	Fair Value (in millions)		Weighted Average Useful Life (in years)
Backlog	$	6.1	3
Non-compete agreements	2.3		9
Customer relationships	11.0		8
Total acquired finite-lived intangible assets	$	19.4	6

Finite-lived intangible assets are amortized in a manner consistent with the pattern in which the related benefits are expected to be consumed. The intangible asset related to Pacer’s pre-qualifications with selected customer companies was assigned an indefinite life as the pre-qualifications are not expected to expire or diminish in value, and the companies to which they relate have extremely long operating histories. Goodwill arising from the acquisition represents the estimated value of Pacer’s geographic presence in key high-growth Canadian markets, its assembled workforce, its management team’s industry-specific project management expertise and synergies expected to be achieved from the combined operations of Pacer and MasTec. The goodwill balance is not tax deductible. In the fourth quarter of 2015, the Company recorded a $78.6 million impairment of Pacer’s goodwill and indefinite-lived intangible assets. See Note 4 - Goodwill and Other Intangible Assets for additional details.

The contingent consideration included in the table above equals 25% of the excess, if any, of Pacer’s expected earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) above certain thresholds for a five-year period, as set forth in the purchase agreement, and is payable annually in Canadian dollars. The fair value of the earn-out liability was estimated using an income approach and incorporated significant inputs not observable in the market. Key assumptions in the estimated valuation included the discount rate and probability-weighted EBITDA projections. The range of potential undiscounted payments was estimated to be between Canadian $0 and $71 million, or approximately $0 and $52 million as of December 31, 2015. As is customary for purchase agreements in the industry, the earn-out agreement contains certain right of offset provisions, under which the Company may, under certain circumstances, offset against the earn-out liability working capital adjustments, indemnification claims and similar items owed from the former owners of the entity.

Other 2014 Acquisitions

Effective April 1, 2014, MasTec acquired 100% of a telecommunications services firm, specializing in the installation of in-home security systems. Additionally, effective January 1, 2014, MasTec acquired 100% of a telecommunications services firm, specializing in the engineering, installation, furnishing and integration of telecommunications equipment. The aggregate purchase price for these acquisitions, which are included in MasTec’s Communications segment, was approximately $40.7 million, including cash and earn-out obligations, as adjusted, as of December 31, 2015.

2013 Acquisitions

Big Country

Effective May 1, 2013, MasTec acquired 100% of Big Country Energy Services, Inc. and its affiliated operating companies (collectively, “Big Country”), a North American oil and gas pipeline and facility construction services company, headquartered in Calgary, Alberta, Canada, for an aggregate purchase price composed of approximately $103.5 million in cash, and a five year earn-out, valued at $9.0 million as of December 31, 2015. As is customary for purchase agreements in the industry, the earn-out agreement contains certain right of offset provisions, under which the Company may, under certain circumstances, offset against the earn-out liability working capital adjustments, indemnification claims and similar items owed from the former owners of the entity. Big Country, which is reported within the Company’s Oil and Gas segment, provides services including the construction of oil, natural gas and natural gas liquids gathering systems and pipelines, pipeline modification and replacement services; compressor and pumping station construction; and other related services.

Other 2013 Acquisitions

Effective April 1, 2013, MasTec acquired a former subcontractor to its wireless business, which provides self-perform communications tower construction, installation, maintenance and other services in support of telecommunications infrastructure construction in the Company’s Communications segment. In addition, effective August 1, 2013, MasTec acquired an electrical transmission services company, which focuses primarily on substation construction activities within the Company’s Electrical Transmission segment.

Unaudited Supplemental Pro Forma Information

The following unaudited supplemental pro forma financial information includes the results of operations of each of the companies acquired in 2014 and 2013 and is presented as if each acquired company had been consolidated as of the beginning of the year immediately preceding the year in which the company was acquired. The unaudited supplemental pro forma financial information has been provided for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by the combined companies for the periods presented, or of the results that may be achieved by the combined companies in the future. Future results may vary significantly from the results reflected in the following unaudited supplemental pro forma financial information because of future events and transactions, as well as other factors, many of which are beyond MasTec’s control.

The unaudited supplemental pro forma financial information presented below has been prepared by adjusting the historical results of MasTec to include the historical results of the acquired businesses described above, and was then adjusted (i) to remove acquisition costs, including certain acquisition integration costs; (ii) to increase amortization expense resulting from the incremental intangible assets acquired; (iii) to increase interest expense as a result of the cash consideration paid; (iv) to remove integration-related employee redundancy costs; and (v) to reduce interest expense from debt repaid upon acquisition of the respective businesses. The unaudited supplemental pro forma financial information does not include adjustments to reflect the impact of other cost savings or synergies that may result from these acquisitions.



	For the Years Ended December 31,
Unaudited supplemental pro forma financial information (in millions):	2014		2013
Revenue	$	5,085.2	$	5,465.9
Net income from continuing operations	$	130.3	$	160.8

Results of Businesses Acquired

Revenue and net (loss) income from continuing operations resulting from the year-over-year incremental impact of acquired businesses, which are included within the Company’s consolidated results of operations for the years indicated, were as follows (in millions):



	For the Years Ended December 31,
Actual of acquirees (year-over-year impact):	2015			2014		2013
Revenue	$	301.5		$	565.4	$	406.6
Net (loss) income from continuing operations ^(a)	$	(13.4	)	$	0.7	$	20.0

(a)

Acquiree net (loss) income from continuing operations for the years ended December 31, 2015 and 2014 includes approximately $9.3 million and $5.0 million, respectively, of pre-tax acquisition integration costs incurred in connection with the WesTower acquisition and, for the year ended December 31, 2015, includes project losses of $16.3 million associated with the Company’s proportionate interest in a non-controlled Canadian joint venture. Other acquisition-related costs, including certain acquisition integration costs totaling $11.2 million, $2.7 million and $1.9 million for the years ended December 31, 2015, 2014 and 2013, respectively, which are included within general and administrative expenses in the Company’s consolidated statements of operations, are not included in the above presented acquiree results for the respective periods. The above results also do not include interest expense associated with consideration paid for these acquisitions.