Business Context and Reporting Period
MasTec, Inc. filed this Form 8-K on July 30, 2015, to announce the restatement of previously issued financial statements for interim periods in fiscal year 2014 and to provide updated guidance for the quarter ended June 30, 2015. The filing addresses an independent investigation by the Audit Committee into cost-to-complete estimates for projects within the Electrical Transmission segment accounted for under the percentage-of-completion method.
Key Financial Metrics and Adjustments
The filing details specific accounting adjustments to Net Income for fiscal year 2014 and the first quarter of 2015. The aggregate adjustments increase the previously disclosed unaudited, preliminary Net Income for the full year ended December 31, 2014, by $0.3 million to $115.9 million.
| Period | Previously Reported Net Income ($000s) | Accounting Adjustments ($000s) | Adjusted Net Income ($000s) |
|---|---|---|---|
| Q1 2014 | $16,023 | ($3,926) | $12,097 |
| Q2 2014 | $32,050 | $1,675 | $33,725 |
| Q3 2014 | $45,271 | $3,715 | $48,986 |
| Q4 2014 | $22,297 | ($1,181) | $21,116 |
| Full Year 2014 | $115,641 | $282 | $115,923 |
For the quarter ended March 31, 2015, the Company expects the final reported net loss to be reduced by approximately $0.5 million compared to previously disclosed preliminary figures. The filing does not provide specific values for revenue, cash flow, margins, debt, or liquidity in this text.
Material Changes Versus Prior Periods
The primary material change is the restatement of Net Income for all four quarters of 2014 due to revised cost-to-complete estimates on two complex, long-term electric transmission projects. Specific impacts include:
- Q1 2014: Net Income reduced by $3.9 million ($0.05 per share) due to costs that should have been foreseeable in Q1.
- Q2 2014: Net Income increased by $1.7 million ($0.02 per share) due to cost savings that should have been foreseeable in Q2.
- Q3 2014: Net Income increased by $3.7 million ($0.04 per share).
- Q4 2014: Net Income reduced by $1.2 million ($0.01 per share) due to costs that should have been foreseeable in Q4.
Additionally, unrelated to the investigation, a separate adjustment increased Q4 2014 Net Income by $0.9 million.
Guidance, Outlook, Risks, and Contingencies
Outlook and Guidance: The Company issued information regarding expected revenue, continuing operations adjusted EBITDA, and adjusted diluted earnings per share for the quarter ended June 30, 2015, in a press release incorporated by reference. The filing does not contain the specific numerical guidance values.
Internal Controls: Management expects the 2014 Form 10-K to disclose that disclosure controls and procedures were not effective and that a material weakness in internal control over financial reporting existed within the Electrical Transmission segment.
Risks and Contingencies: The Audit Committee's investigation is ongoing. Risks include the potential discovery of additional accounting errors, further changes to financial information, additional material weaknesses, delays in filing periodic reports, and possible regulatory action or litigation. The Company has self-reported the investigation to the SEC and is cooperating with requests for information.
Investor Verification Checklist
- Verify the specific revenue, adjusted EBITDA, and EPS guidance for the quarter ended June 30, 2015, in the referenced Press Release (Exhibit 99.1).
- Review the upcoming 2014 Form 10-K (expected July 31, 2015) for the restated financial statements and the formal disclosure of the material weakness in internal controls.
- Monitor updates regarding the Audit Committee's investigation to determine if additional accounting errors or material weaknesses are discovered.
- Assess the impact of the restatement on the Company's compliance with debt covenants, if applicable, given the changes in Net Income.
- Confirm the status of the two specific electric transmission projects mentioned as the source of the accounting adjustments.