Acquisitions and Other Investments

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Acquisitions and Other Investments

Acquisitions and Other Investments

Allocations of purchase prices for acquisitions are based on estimates of the fair value of consideration paid and the net assets acquired and are subject to adjustment upon finalization of these fair value estimates. During 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 financial statements included in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2011. During the second quarter of 2012, the Company revised its preliminary allocations for certain of these acquisitions based on 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, as prescribed by the relevant purchase agreements. These adjustments resulted in the recognition of, or adjusted the fair values of, certain acquired assets and liabilities, resulting in the revision of comparative prior period financial information. The effects of measurement period adjustments on the allocations of purchase prices for acquired businesses are presented in the Company's financial statements as if the adjustments had been taken into account as of the respective dates of acquisition. All changes that do not qualify as measurement period adjustments are included in current period earnings.

EC Source

In November 2010, MasTec entered into a membership interest purchase agreement and invested $10 million in exchange for a 33% voting interest in EC Source Services LLC (“EC Source”) and a two-year option (the “EC Source Merger Option”) that granted MasTec the right, but not the obligation, to acquire the entirety of EC Source’s outstanding equity pursuant to the terms of a merger agreement. On April 29, 2011, the Company exercised its EC Source Merger Option and, effective May 2, 2011, acquired the remaining 67% membership interest in EC Source for a total ownership percentage of 100%, for an aggregate purchase price composed of 5,129,642 shares of MasTec common stock, valued at $94.2 million, $0.3 million in cash and a five year earn-out, valued at $25.0 million as of the date of acquisition. In addition, we assumed $8.6 million of debt, which relates primarily to equipment loans payable to the former owner of EC Source, of which $8.6 million remains outstanding as of September 30, 2012. The fair value of the 33% equity investment in EC Source was estimated to be $39.6 million immediately before the closing of the merger, resulting in a gain on remeasurement of $29.0 million, which was reflected as a component of other income in the Company’s results of operations during the second quarter of 2011.

The following table summarizes the estimated fair value of consideration paid and the final allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the date of acquisition (in millions).

Purchase price consideration:
Shares transferred	$	94.2
Cash	0.3
Fair value of contingent consideration (earn-out liability)	25.0
Total consideration transferred	$	119.5
Fair value of equity investment	39.6
Fair value of total consideration	$	159.1
Purchase price allocation to identifiable assets acquired and liabilities assumed:
Current assets	$	21.0
Property and equipment	10.1
Pre-qualifications	31.3
Backlog	11.0
Non-compete agreements	1.5
Current liabilities	(13.4		)
Debt	(8.6		)
Deferred income taxes	(14.5		)
Total identifiable net assets	$	38.4
Goodwill	$	120.7
Total consideration allocated	$	159.1

EC Source’s earnings have been consolidated as of the effective date of the acquisition, May 2, 2011. Prior to the effective date of the acquisition, the Company’s investment in EC Source was accounted for under the equity method of accounting.

Fabcor

Effective April 1, 2011, MasTec acquired all of the issued and outstanding shares of Fabcor TargetCo Ltd. (“Fabcor Parent” and, together with its wholly-owned Canadian subsidiaries, Fabcor 2001, Inc. and Fabcor Pipelines B.C. Inc., “Fabcor”) for an aggregate purchase price composed of approximately $24.2 million in cash, including a $1.4 million post-closing purchase price adjustment based on Fabcor’s final closing tangible net worth and net working capital, recorded in the second quarter of 2012, and a five year earn-out, valued at $16.9 million as of the date of acquisition. In addition, we assumed $7.0 million of debt, which was repaid immediately.    

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).

Purchase price consideration:
Cash	$	24.2
Fair value of contingent consideration (earn-out liability)	16.9
Total consideration transferred	$	41.1
Purchase price allocation to identifiable assets acquired and liabilities assumed:
Current assets	$	24.3
Property and equipment	12.8
Trade names	0.7
Non-compete agreements	0.1
Customer relationships	3.1
Backlog	0.4
Current liabilities	(24.1		)
Deferred income taxes and other liabilities	(4.3		)
Total identifiable net assets	$	13.0
Goodwill	$	28.1
Total consideration allocated	$	41.1

Fabcor’s earnings have been consolidated as of the effective date of the acquisition, April 1, 2011.

Other 2011 Acquisitions

During the second quarter of 2012, $3.9 million of additional goodwill and workers compensation liabilities related to the Halsted Communications, Ltd. ("Halsted") acquisition were recorded as a result of final claims data for the pre-acquisition period. Also, the estimated fair value of the contingent consideration arrangement related to Optima Network Services, Inc. ("Optima") was increased by $1.5 million in the second quarter of 2012 to reflect additional information and analysis. Refer to Note 3 – Acquisitions and Other Investments of the Company’s financial statements included in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2011 for details of the Halsted and Optima acquisitions.

Revenues of $164.7 million and net income of $11.6 million resulting from the year over year incremental impact of the Company’s 2011 acquisitions are included in MasTec’s consolidated results of operations for the nine months ended September 30, 2012.

Other Investments

Through a 60%-owned consolidated subsidiary, MasTec acquired a 34% interest in a rock extraction business in Panama (for a net beneficial ownership interest of 20.4%) during 2010. 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 performed construction services for this investee and revenues of approximately $0.8 million and $0.7 million are included within the Company's results from discontinued operations for the three months ended September 30, 2012 and 2011, respectively. Revenues of $2.0 million and $2.4 million are included within the Company's results from discontinued operations for the nine months ended September 30, 2012 and 2011, respectively. Receivables from this investee, which are reflected within assets held for sale in the condensed unaudited consolidated financial statements, were approximately $3.9 million and $6.7 million as of September 30, 2012 and December 31, 2011, respectively, of which $1.1 million and $4.3 million, respectively, were classified as long term. In connection with the decision to sell the projects and assets of Globetec, an impairment charge of $4.4 million associated with the outstanding receivable balance from this investee was recognized during the three months ended September 30, 2012. See Note 4 – Discontinued Operations.

The Company has certain other cost and equity method investments. None of these investments was material individually or in the aggregate as of September 30, 2012. No impairment charges related to the Company's cost method investments nor the Company's equity method investments were recorded during the three or nine months ended September 30, 2012 or 2011.