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Fair Value of Financial Instruments
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
Note 4 – Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts and notes receivable, cash collateral deposited with insurance carriers, life insurance assets, cost and equity method investments, deferred compensation plan assets and liabilities, accounts payable and other current liabilities, acquisition-related contingent consideration, certain intangible assets and liabilities, including off-market contracts, 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: (i) Level 1 - quoted market prices in active markets for identical assets or liabilities; (ii) Level 2 - observable market-based inputs or other observable inputs; and (iii) Level 3 - significant unobservable inputs that cannot be corroborated by observable market data, which are generally determined using valuation models incorporating management estimates of market participant assumptions. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Fair values of financial instruments are estimated using public market prices, quotes from financial institutions and other available information. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair values. Management believes the carrying values of notes and other receivables, cash collateral deposited with insurance carriers, deferred compensation plan assets and liabilities and outstanding balances on its credit facilities approximate their fair values.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of March 31, 2017 and December 31, 2016, financial instruments required to be measured at fair value on a recurring basis consisted primarily of acquisition-related contingent consideration, which represents the estimated fair value of future earn-outs payable for acquisitions of businesses (“ASC 805 contingent consideration”). ASC 805 contingent consideration is based on management estimates and entity-specific assumptions, which are Level 3 inputs, and is evaluated on an ongoing basis. As of both March 31, 2017 and December 31, 2016, the fair value of the Company’s ASC 805 contingent consideration totaled $45.8 million, of which $21.8 million was included within other current liabilities. The fair value of the Company’s ASC 805 contingent consideration is estimated using an income approach and incorporates significant inputs not observable in the market. These assumptions include the discount rate and probability-weighted earnings before interest, taxes, depreciation and amortization (“EBITDA”) projections. Significant changes in any of these assumptions could result in a significantly higher or lower potential earn-out liability. As of March 31, 2017, the range of potential undiscounted earn-out liabilities was estimated to be between $27 million and $53 million; however, there is no maximum payment amount.
ASC 805 contingent consideration activity consists primarily of additions from new business combinations, payments of earn-out liabilities, changes in the expected fair value of future earn-out obligations, and foreign currency translation gains or losses related to earn-out liabilities denominated in foreign currencies. Fair value adjustments are recorded within other income or expense, and foreign currency translation activity is recorded within other comprehensive income or loss, as appropriate. There were no changes in ASC 805 contingent consideration for the three month period ended March 31, 2017. For the three month period ended March 31, 2016, ASC 805 contingent consideration activity consisted of foreign currency translation losses totaling $0.6 million and a decrease in the expected fair value of future earn-out obligations of $2.3 million. The net reduction in ASC 805 contingent consideration for the three month period ended March 31, 2016 related to a decrease in the expected earn-out obligations for certain of the Company’s western Canadian oil and gas businesses due to finalization of completed earn-out arrangements and adjustments to expected future period earn-out obligations.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Assets and liabilities recognized or disclosed at fair value on a non-recurring basis, for which remeasurement occurs in the event of an impairment or other measurement event, if applicable, include items such as cost and equity method investments, life insurance assets, long-lived assets, goodwill, other intangible assets and liabilities and debt.
As of both March 31, 2017 and December 31, 2016, the gross carrying amount of the Company’s 4.875% senior notes due 2023 (the “4.875% Senior Notes”) totaled $400 million. As of March 31, 2017 and December 31, 2016, the estimated fair value of the Company’s 4.875% Senior Notes, based on quoted market prices in active markets, a Level 1 input, totaled $395.0 million and $388.0 million, respectively.
Cost and Equity Investees. The Company’s cost and equity investees as of March 31, 2017 are primarily composed of: (i) the Company’s equity interests in Trans-Pecos Pipeline, LLC (“TPP”) and Comanche Trail Pipeline, LLC (“CTP,” and together with TPP, the “Waha JVs”); (ii) the Company’s equity interests in a pre-acquisition investment of Pacer Construction Holdings Corporation and its affiliated operating companies (collectively, “Pacer”); (iii) a $15 million cost investment in Cross Country Pipeline Supply, Inc. (“CCP”); and (iv) the Company’s interests in certain proportionately consolidated non-controlled contractual joint ventures, as discussed in Note 15 - Related Party Transactions.
The fair values of the Company’s cost and equity method investments are not readily observable. The Company is not aware of events or changes in circumstances that would have a significant adverse effect on the carrying values of its cost and/or equity investments as of March 31, 2017 or December 31, 2016.

The Waha JVs. The Waha JVs own and operate a header system and two pipelines that will transport natural gas to the Mexican border for export. One of the pipelines commenced operations in the first quarter of 2017 and the second pipeline commenced operations in the second quarter of 2017. For the three month period ended March 31, 2017, the Company made equity and other contributions of approximately $53.3 million to these joint ventures, and, for the three month period ended March 31, 2016, the Company made no contributions. As collateral for its equity commitments in the Waha JVs, the Company has issued letters of credit (the “Equity LC Amount”), of which $36 million and $91 million, respectively, were outstanding as of March 31, 2017 and December 31, 2016. Equity in earnings related to the Company’s proportionate share of income from the Waha JVs, which totaled approximately $1.6 million for the three month period ended March 31, 2017, is included within the Company’s Other segment.
The Waha JVs are party to certain interest rate swaps. The Company reflects its proportionate share of any unrealized fair market value gains or losses from fluctuations in interest rates associated with these swaps in its financial statements. For the three month period ended March 31, 2017, the Company’s proportionate share of unrecognized unrealized activity on these interest rate swaps was a gain of approximately $1.0 million, or $0.6 million, net of tax, and for the three month period ended March 31, 2016, was a loss of approximately $13.0 million, or $8.0 million, net of tax, which amounts are included within other comprehensive income or loss, as appropriate.
A subsidiary of MasTec is providing pipeline construction services to the Waha JVs. For the three month periods ended March 31, 2017 and 2016, revenue recognized in connection with work performed for the Waha JVs, net of intercompany eliminations, totaled $151.4 million and $10.3 million, respectively. As of March 31, 2017 and December 31, 2016, related receivables, including retainage, net of BIEC, totaled $68.5 million and $71.2 million, respectively. As of March 31, 2017 and December 31, 2016, the Company’s net investment in the Waha JVs represented an asset totaling approximately $64 million and $6 million, respectively. The Company’s net investment in the Waha JVs differs from its proportionate share of the net assets of the Waha JVs due to capitalized investment costs as well as the net effect of intercompany eliminations.
Other equity investees. In connection with the 2014 acquisition of Pacer, the Company acquired equity interests in two joint ventures. One of these entities was liquidated in 2016, and the second, which is in the final stages of liquidation, is being managed by a receiver to assist with the orderly wind-down of its operations. The aggregate net carrying value of this investment, including project and financing receivables, totaled $19.7 million and $31.4 million as of March 31, 2017 and December 31, 2016, and is recorded within other current assets. In the first quarter of 2017, the Company received $12.1 million of proceeds related to this investment, and during the first quarter of 2016, the Company recorded $3.6 million of earnings related to increases in expected recoveries. There are no remaining amounts expected to be advanced to this entity, which is included within the Company’s Oil and Gas segment, and all related project work was complete as of March 31, 2017.