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MASTEC INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[February 27, 2014]

MASTEC INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in Item 8. "Financial Statements and Supplementary Data." The discussion below contains forward-looking statements that are based upon our current expectations and is subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in "Cautionary Statement Regarding Forward-Looking Statements" and Item 1A. "Risk Factors." Business See Item 1. "Business - Overview," which is incorporated herein by reference, for discussion pertaining to our business and reportable segments. In connection with our diversification and expansion strategy, we have acquired several businesses in recent years.



2013 Acquisitions. We acquired 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 during the second quarter of 2013. Big Country is expected to enhance our ability to take advantage of the rapidly expanding opportunities anticipated for pipeline energy infrastructure work in North America. During the second quarter of 2013, we also acquired a former subcontractor to our wireless business, which will provide self-perform communications tower construction, installation, maintenance and other services.

In addition, during the third quarter of 2013, we acquired an electrical transmission services company that focuses primarily on substation construction activities.


2012 Acquisitions. During the fourth quarter of 2012, we acquired Bottom Line Services, LLC ("BLS"), a natural gas and petroleum pipeline infrastructure services company, which performs services including pipeline and facilities construction, painting and maintenance services, primarily in eastern Texas.

Also during the fourth quarter of 2012, we acquired (i) a former subcontractor to our oil and gas business that provides self-perform clearing and trenching services for natural gas and petroleum pipeline infrastructure construction, and (ii) a former subcontractor to our wireless business that provides self-perform communications tower construction, installation, maintenance and other services.

2011 Acquisitions. In November 2010, we acquired 33% of EC Source, a nationally recognized full-service engineering, procurement and construction services company that installs extra high voltage ("EHV") electrical transmission systems throughout North America. During the second 26-------------------------------------------------------------------------------- Table of Contents quarter of 2011, we acquired the remaining 67% equity interest in EC Source. We also completed four additional acquisitions during the second quarter of 2011, including: (i) a company based in western Canada that provides natural gas and petroleum pipeline infrastructure construction services; (ii) a company that provides telephone, cabling, engineering, construction, equipment integration, testing, wiring and computer network services to telecommunications carriers; (iii) a self-perform wireless infrastructure services company headquartered in California; and (iv) an install-to-the-home contractor operating primarily in portions of New York, Pennsylvania and New England, whose primary customer is DIRECTV®.

Dispositions. In the third quarter of 2012, our board of directors approved a plan of sale for Globetec Construction, LLC ("Globetec"), a small water and sewer subsidiary that had not been performing well due to a lack of financial resources available to municipalities and state governments, and accordingly, Globetec was classified as a discontinued operation. During the third quarter of 2013, we sold all of our membership interests in Globetec. Additionally, in the second quarter of 2012, Red Ventures exercised its option to purchase DirectStar TV, LLC and its subsidiaries ("DirectStar"), which provides marketing and sales services on behalf of DIRECTV®. The Company consummated the sale of DirectStar to Red Ventures in June 2012.

For additional information pertaining to our recent acquisitions, see Note 3 - Acquisitions in the notes to the audited consolidated financial statements, which is incorporated herein by reference. See Note 4 - Discontinued Operations in the notes to the audited consolidated financial statements, which is incorporated herein by reference, for information pertaining to our discontinued operations.

Economic, Industry and Market Factors While overall economic and market conditions have improved over the past year, we closely monitor the effects that changes in these conditions may have on our customers. General economic conditions can negatively affect demand for our customers' products and services, which can lead to rationalization of our customers' capital and maintenance budgets in certain end markets. This influence, as well as the highly competitive nature of our industry, particularly when work is deferred, can, and in recent years, has, resulted in lower bids and lower profit on the services we provide. In the face of increased pricing pressure, we strive to maintain our profit margins through productivity improvements and cost reduction programs. Other market and industry factors, such as access to capital for customers in the industries we serve, changes to our customers' capital spending plans, changes in technology, tax and other incentives, renewable energy portfolio standards and new or changing regulatory requirements affecting the industries we serve, can affect demand for our services. Fluctuations in market prices for, or availability of, oil, gas and other fuel sources can also affect demand for our pipeline and renewable energy construction services. While we actively monitor economic, industry and market factors affecting our business, we cannot predict the impact such factors may have on our future results of operations, liquidity and cash flows.

Impact of Seasonality and Cyclical Nature of Business Our revenues and results of operations can be subject to seasonal and other variations. These variations are influenced by weather, customer spending patterns, bidding seasons, project schedules and timing, particularly for large non-recurring projects and holidays. Typically, our revenues are lowest in the first quarter of the year because cold, snowy or wet conditions cause delays.

Revenues in the second quarter are typically higher than in the first quarter, as some projects begin, but continued cold and wet weather can often impact second quarter productivity. The third and fourth quarters are typically the most productive quarters of the year, as a greater number of projects are underway and weather is normally more accommodating to construction projects. In the fourth quarter, many projects tend to be completed by customers seeking to spend their capital budget before the end of the year, which generally has a positive impact on our revenues. However, the holiday season and inclement weather can cause delays, which can reduce revenues and increase costs on affected projects. Any quarter may be positively or negatively affected by out of the ordinary weather patterns, such as excessive rainfall or warm winter weather, making it difficult to predict quarterly revenue and margin variations.

Additionally, our industry can be highly cyclical. Fluctuations in end-user demand within the industries we serve, or in the supply of services within those industries, can impact demand for our services. As a result, our business may be adversely affected by industry declines or by delays in new projects. Variations in project schedules or unanticipated changes in project schedules, in particular in connection with large construction and installation projects, can create fluctuations in revenues, which may adversely affect us in a given period, even if not in total. The financial condition of our customers and their access to capital; variations in project margins; regional, national and global economic and market conditions; regulatory or environmental influences; and acquisitions, dispositions or strategic investments can also materially affect quarterly results. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Understanding our Operating Results Revenue We provide engineering, building, installation, maintenance and upgrade services to our customers. Revenues are derived from projects performed under master and other service agreements as well as from fixed price contracts for specific projects or jobs requiring the construction and installation of an entire infrastructure system or specified units within an entire infrastructure system.

See Item 1. "Business" for discussion of our business and revenue-generating activities and see "Comparison of Fiscal Year Results" below for details of revenue by reportable segment.

Costs of Revenue, Excluding Depreciation and Amortization Costs of revenue, excluding depreciation and amortization, consists principally of salaries, employee wages and benefits, subcontracted services, equipment rentals and repairs, fuel and other equipment expenses, material costs, parts and supplies, insurance and facilities expenses. Project margins are calculated by subtracting a project's costs of revenue, excluding depreciation and amortization, from project revenue. Project profitability and corresponding project margins will be reduced if actual costs to complete a project exceed original estimates on fixed price and installation/construction service agreements. Estimated losses on contracts are recognized immediately when estimated costs to complete a project exceed the 27-------------------------------------------------------------------------------- Table of Contents remaining revenue to be received over the remainder of the contract. Factors impacting our costs of revenue, excluding depreciation and amortization, include: Revenue Mix. The mix of revenues derived from the projects we perform impacts overall project margins, as certain projects provide higher margin opportunities. Installation work is often obtained on a fixed price basis, while maintenance work is often performed under pre-established or time and materials pricing arrangements. Project margins for installation work may vary from project to project, and can be higher than maintenance and upgrade work due to the fact that fixed price contracts often have a higher level of risk than other types of project work. Changes in project mix between installation work and maintenance or upgrade services can impact our project margins in a given period. Additionally, the mix of project revenues by industry served can also have an impact on overall project margins, as project margins can vary by industry and over time.

Seasonality, Weather and Geographic Mix. Seasonal patterns can have a significant impact on project margins. Generally, business is slower at the beginning of the year. Adverse or favorable weather conditions can impact project margins in a given period. For example, extended periods of rain or snowfall can negatively impact revenues and project margins as a result of reduced productivity from projects being delayed or temporarily placed on hold.

Conversely, in periods when weather remains dry and temperatures are accommodating, more work can be done, sometimes with less cost, which can favorably impact project margins. In addition, the mix of business conducted in different parts of the country can affect project margins due to geographic characteristics associated with the physical location where the work is being performed, such as mountainous or rocky terrain versus open terrain. Site conditions, including unforeseen underground conditions, can also impact project margins.

Performance Risk. Overall project margins may fluctuate due to the volume of work performed, project pricing, job productivity and crew productivity. Job productivity can be impacted by quality of the work crew, quality of equipment, availability of skilled labor, environmental or regulatory factors, customer decisions and crew productivity. Crew productivity can be influenced by factors including weather conditions and job terrain, such as whether project work is in a right of way that is open or one that is obstructed (either by physical obstructions or legal encumbrances).

Subcontracted Resources. Our use of subcontracted resources in a given period varies, based upon activity levels and the amount and location of existing in-house resources and capacity. Project margins on subcontracted work may be lower than project margins on self-perform work. As a result, changes in the mix of subcontracted versus self-perform work can impact our overall project margins.

Material versus Labor Costs. In many cases, our customers are responsible for supplying their own materials on projects; however, under certain contracts, we may agree to provide all or part of the required materials. Project margins are typically lower on projects where we furnish a significant amount of materials due to the fact that mark-ups on materials are generally lower than project margins on labor costs. Therefore, increases in the percentage of work with significant materials requirements could decrease our overall project margins.

General and Administrative Expense General and administrative expenses consist principally of compensation and benefit expenses, travel expenses and related costs for our finance, benefits and risk, legal, facilities, information services and executive personnel.

General and administrative expenses also include non-cash stock based compensation expenses, outside professional and accounting fees, acquisition costs, expenses associated with information technology used in administration of the business and various forms of insurance.

Interest Expense, Net Interest expense, net, consists of contractual interest expense on outstanding debt obligations, amortization of deferred financing costs, accretion of debt discount and other interest expense, offset by interest earned on cash and fixed income investments.

Other (Income) Expense, Net Other (income) expense, net, consists primarily of gains or losses from sales of assets and investments, legal settlement charges and gains or losses from changes to estimated earn-outs accrued as a component of purchase price.

Financial Performance Metrics Our senior management team regularly reviews certain key financial performance metrics within our business, including: • revenue and profitability on an overall, reportable segment and, as required, on an individual project basis; • changes in revenue and profitability on an overall, reportable segment and, as required, on an individual project basis; • revenues by customer and by contract type; • costs of revenue, excluding depreciation and amortization; general and administrative expenses; depreciation and amortization; other expenses or income; provision for income taxes; and interest expense, net; • earnings from continuing operations before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA, which is EBITDA excluding non-cash share-based compensation, Sintel legal settlement charges, the loss on debt extinguishment from the repurchase and redemption of our 7.625% senior notes, the gain on remeasurement of our equity interests in EC Source and a multi-employer pension plan withdrawal charge. See discussion of non-U.S. GAAP financial measures following the "Comparison of Fiscal Year Results" below: • days sales outstanding, net of billings in excess of costs and earnings; and days payable outstanding; 28-------------------------------------------------------------------------------- Table of Contents • interest and debt service coverage ratios; and • liquidity and cash flows.

Managements' analysis of this information includes detailed discussions of proposed investments in new business opportunities or property and equipment, acquisition integration efforts and cost reduction efforts. Measuring these key performance indicators is an important tool used by management to make informed and timely operational decisions, which we believe can help us improve our performance.

Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. As management estimates, by their nature, involve judgment regarding future uncertainties, actual results may differ from these estimates if conditions change or if certain key assumptions used in making these estimates ultimately prove to be materially incorrect. Our accounting policies and critical accounting measurements are reviewed frequently with the Audit Committee of the Board of Directors. Refer to Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the audited consolidated financial statements, which is incorporated herein by reference, for discussion of our significant accounting policies.

We believe that our accounting estimates pertaining to: revenues and costs derived from fixed price contracts under the percentage-of-completion method; allowances for doubtful accounts; fair value estimates in connection with business acquisitions, in particular, estimated values of net assets acquired and estimated liabilities for future earn-out obligations; valuation of goodwill and indefinite-lived intangible assets; income taxes; legal contingencies; and self-insurance contingencies are the most critical in the preparation of our consolidated financial statements as they are important to the portrayal of our financial condition and as they require significant or complex judgment and estimates on the part of management.

Revenue and Cost Recognition - Fixed Price Contracts Revenues from fixed price contracts provide for a fixed amount of revenue for the entire project, subject to certain conditions for changed scope or specifications. Revenues from these contracts are recognized using the percentage-of-completion method. Under this method, the percentage of revenue to be recognized for a given project is measured by the percentage of costs incurred to date on the contract to the total estimated costs for the contract.

The cost estimation process for such projects is based on the professional knowledge and experience of our engineers, project managers and financial professionals. Changes in job performance, job conditions and final contract settlements are factors that influence our assessment of total contract value and the total estimated costs to complete those contracts and, therefore, our profit recognition. Changes in these factors may result in revisions to costs and income, and their effects are recognized in the period in which the revisions are determined. In addition, we may incur costs subject to change orders, whether approved or unapproved by the customer, and/or claims related to certain contracts. We determine the probability that such costs will be recovered based upon evidence such as engineering studies and legal opinions, past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer. Changes in project cost estimates could materially affect our results of operations in the period in which such changes are recognized. For example, a 100 basis point change in project cost estimates for our percentage-of-completion projects for the year ended December 31, 2013 would result in a $23 million impact to costs of revenue, excluding depreciation and amortization.

Allowance for Doubtful Accounts We regularly analyze the collectibility of accounts receivable and the adequacy of our allowance for doubtful accounts based on the aging of account balances, historical bad debt experience, customer concentrations, customer credit-worthiness, customer financial condition and credit reports, availability of mechanics' and other liens, existence of payment bonds and other sources of payment and current economic trends. Estimates of collectibility are subject to significant change during times of economic weakness or uncertainty in either the overall economy or within the industries served by us. If estimates of the collectibility of accounts receivable change, or should customers experience unanticipated financial difficulties, or if anticipated recoveries in existing bankruptcies or other work-out situations fail to materialize, adjustments to the allowance for doubtful accounts may be required, which could materially affect our results of operations in a given period.

Business Combinations - Valuation of Acquired Net Assets and Estimated Future Earn-Out Obligations We allocate the purchase prices of acquired businesses based upon the fair value of consideration paid, including the estimated values of contingent earn-out obligations, and the estimated fair values of the acquired net assets.

Valuations of acquired net assets and contingent earn-out obligations require estimates and judgments of future cash flow expectations for the acquired businesses. Fair values are calculated by incorporating expected cash flows into industry standard valuation techniques. Changes in the estimated fair values of the net assets acquired or of the expected future earn-out obligations subsequent to the measurement period are recorded in earnings as gains or losses. Significant changes in the assumptions or estimates used in the underlying valuations, such as changes in the expected profitability or cash flows of an acquired business, could materially affect our operating results in the period such changes are recognized.

Valuation of Goodwill and Indefinite-Lived Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. We perform our annual impairment review during the fourth quarter of each year. Goodwill is evaluated at the reporting unit level, which is one level below our reportable segments. Each of our reporting units comprises one component of our five reportable segments. For the year ended December 31, 2013, we assessed 29-------------------------------------------------------------------------------- Table of Contents qualitative factors to determine whether it was more likely than not that the fair values of our reporting units were less than their carrying amounts. Based on this analysis, we estimated the fair values of three of our reporting units using a discounted cash flow methodology, which incorporated management estimates including five-year projections of revenues, operating costs and cash flows, considering both historical and anticipated future results, general economic and market conditions and the impact of planned business and operational strategies. We applied a discounted cash flow technique utilizing a terminal value equal to 5.5 times estimated year five EBITDA and an estimated discount rate of 7.2% per annum. For the year ended December 31, 2013, the estimated fair values of the Company's reporting units were determined to substantially exceed their carrying values. A 100 basis point change in the discount rate would not have had a material impact on the results of the impairment analyses. Our indefinite-lived intangible assets, which were also assessed during the fourth quarter of 2013 using qualitative factors, were determined to substantially exceed their carrying values.

Significant changes in the assumptions or estimates used in our impairment analyses, such as a reduction in profitability and/or cash flows, could result in impairment charges and materially affect our operating results.

Income Taxes Our provision for income taxes uses an effective tax rate based on annual pre-tax income, statutory tax rates, permanent tax differences and tax planning opportunities in the various jurisdictions in which we operate. Significant factors that can impact our annual effective tax rate include our assessment of certain tax matters, the location and amount of taxable earnings, changes in certain non-deductible expenses and expected credits. As of December 31, 2013, we have not made a provision for U.S. income taxes on unremitted foreign earnings because such earnings are intended to be indefinitely reinvested outside the U.S. Although we believe our provision for income taxes is correct and the related assumptions are reasonable, the final outcome of tax matters could be materially different from what we currently anticipate, which could result in significant costs or benefits to us.

In September 2013, the U.S. Treasury and Internal Revenue Service ("IRS") issued final Tangible Property Regulations ("TPR") regarding the deduction and capitalization of expenditures related to tangible property effective for tax years beginning on or after January 1, 2014. Since the changes will affect the timing for deducting expenditures for tax purposes, the impact will be reflected in the amount of income taxes payable or receivable, cash flows from operations, and deferred taxes beginning in 2014, with no net tax provision effect expected.

We have completed a preliminary evaluation of the expected impact of the TPR and concluded that the expected impact is minimal. We will continue to monitor the impact of any future changes to the TPR.

Litigation and Contingencies Accruals for litigation and contingencies are based on our assessment, along with legal counsel, of expected outcomes of such litigation matters or contingencies. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. As additional information becomes available, we reassess potential liabilities and may revise previous estimates, which could materially affect our results of operations in a given period.

Self-Insurance We are self-insured up to the amount of our deductible for our insurance policies. Liabilities under our insurance programs are accrued based upon our estimate of the ultimate liability for claims, with assistance from third-party actuaries. The determination of such claims and the related liability is reviewed and updated quarterly, however, insurance liabilities are difficult to estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties and the number of incidents not reported. Accruals are based upon known facts and historical trends, and while we believe such accruals to be adequate, a change in experience or actuarial assumptions could materially affect our results of operations in a particular period.

2014 Outlook We believe we have significant market opportunities in 2014 in six areas: Wireless and Fiber Communications Network Upgrades - we believe wireless and fiber optic communication network upgrades will continue to grow in 2014 and that the major regional and rural telecommunications and other communications companies will continue to expand and enhance their capabilities in these areas, which could increase demand for our services. We continue to expand our capabilities in wireless infrastructure construction. Additionally, we expect continued technological development of broadband facilities throughout the U.S and expansion of broadband access into areas that are currently not served by high-speed data networks.

Petroleum, Natural Gas and Natural Gas Liquids Pipelines - we believe that demand for clean-burning, domestic natural gas will grow in order to reduce U.S.

dependence on foreign energy sources. Improved access to shale formations as a result of technological advances and improved economics has driven significant increases in petroleum industry estimates of available North American oil and natural gas reserves. Technological advances in horizontal drilling and hydraulic fracturing have led to an oil and natural gas shale drilling boom in recent years and created additional proved reserves, with a much lower reliance on foreign imports from unstable regions of the world. We expect new North American producing fields to be developed as well as significantly expanded productivity within older producing fields. Much of the new oil and gas production is from relatively remote areas such as the Bakken in North Dakota and oil sands in Western Canada. In contrast, the largest concentration of refining capacity in North America is on the U.S. Gulf Coast. As a result of this reserve dislocation, significant amounts of oil and gas need to be transported to markets, or refining centers, to be utilized or converted into usable fuel. We anticipate the resulting incremental production will provide increasing opportunities for our oil and gas gathering, gas compression, liquids pumping, oil and gas treatment, long-haul and mid-stream oil and gas and other liquids pipeline construction operations. We have made acquisitions in the last few years to expand our capabilities in these areas.

30-------------------------------------------------------------------------------- Table of Contents Electrical Grid Upgrades - we believe that the nation's electrical grid, which routinely encounters capacity and reliability issues, will be expanded, modernized and upgraded in the coming years. During the recent recession, demand for electric power declined, which eased many of the grid reliability issues that caused blackouts, brownouts and other grid failures in 2007 and early 2008.

In addition, renewable energy, which is often generated in remote areas, requires significant investment in transmission and substation infrastructure in order to deliver this power to the population and to industrial centers with high electrical power demand. We expect continued efforts to modernize and expand the national electrical grid in order to develop a smart grid. As the economy improves, we believe that old grid reliability issues will reappear and that utilities across the country will respond by increasing their capital expenditures in this area. Additionally, we believe that cost and labor conditions are making it increasingly attractive for utilities to outsource their construction and maintenance activities.

Renewable Energy Projects - delay in the reinstatement of the federal investment and production tax credits for wind projects at the end of 2012 caused a significant slow down in wind project activity in 2013. We expect stronger levels of activity in 2014 as developers seek to qualify for these credits. Our power generation business specializes in the construction of renewable energy infrastructure, including wind farms and solar farms. Regulatory mandates, in addition to federal incentive programs for electricity generation from alternative and renewable sources, which call for expansion of domestic renewable energy sources through tax incentives, cash grants and loan guarantees drive demand for these services.

Power Plants and Heavy Industrial - we believe there will be increased demand for heavy industrial construction across a range of industries. The current low price and environmental advantage of clean burning natural gas should result in the conversion of coal fired power plants and the construction of new gas fired power plants. Additionally, a wide variety of industries may seek to expand, convert or construct new plants to take advantage of this economical, lower carbon fuel source. We continue to expand our capabilities in heavy industrial construction in anticipation of this trend.

Install-to-the-Home - we believe the continued high number of DIRECTV® subscribers and expansion of high definition video programming, special or proprietary programming, new technology set-top boxes and other in-home technology advances provide us with the continuing opportunity to provide installation, upgrade and maintenance services for new and existing customers.

Our expertise in home installation and existing network of technicians also provide opportunities to offer installation services for new customers.

Additionally, DIRECTV® and AT&T have recently rolled out home security and smart home management services that might provide additional install-to-the-home revenue opportunities.

Our 2014 results could be adversely affected by the matters discussed in the "Cautionary Statement Regarding Forward-Looking Statements," Item 1A. "Risk Factors" and Item 3. "Legal Proceedings" of this Annual Report on Form 10-K.

Comparison of Fiscal Year Results The following table reflects our consolidated results of operations in dollar and percentage of revenue terms for the periods indicated (dollar amounts in millions). Our consolidated results of operations are not necessarily comparable from period to period due to the impact of recent acquisitions. See Note 3 - Acquisitions in the notes to the audited consolidated financial statements, which is incorporated herein by reference.

Years Ended December 31, 2013 2012 2011 Revenue $ 4,324.8 100.0 % $ 3,726.8 100.0 % $ 2,831.3 100.0 % Costs of revenue, excluding depreciation and amortization 3,682.4 85.1 % 3,239.2 86.9 % 2,459.7 86.9 % Depreciation and amortization 140.9 3.3 % 92.0 2.5 % 74.2 2.6 % General and administrative expenses 215.4 5.0 % 157.5 4.2 % 132.6 4.7 % Interest expense, net 46.4 1.1 % 37.4 1.0 % 34.5 1.2 % Loss on extinguishment of debt 5.6 0.1 % - - - - Gain on remeasurement of equity interest in acquiree - - - - (29.0 ) (1.0 )% Other (income) expense, net (6.1 ) (0.1 )% 8.0 0.2 % 0.0 0.0 % Income from continuing operations before taxes $ 240.2 5.6 % $ 192.7 5.2 % $ 159.3 5.6 % Provision for income taxes (92.5 ) (2.1 )% (76.1 ) (2.0 )% (61.8 ) (2.2 )% Net income from continuing operations $ 147.7 3.4 % $ 116.6 3.1 % $ 97.5 3.4 % Net (loss) income from discontinued operations (6.5 ) (0.1 )% (9.2 ) (0.2 )% 8.5 0.3 % Net income $ 141.2 3.3 % $ 107.4 2.9 % $ 106.0 3.7 % Net income (loss) attributable to non-controlling interests 0.3 0.0 % 0.0 0.0 % 0.0 0.0 % Net income attributable to MasTec, Inc $ 140.9 3.3 % $ 107.4 2.9 % $ 106.0 3.7 % Management reviews our operating results by reportable segment. See Note 15 - Segments and Related Information in the notes to the audited consolidated financial statements, which is incorporated herein by reference. Our reportable segments are: (1) Communications; (2) Oil and Gas; (3) Electrical Transmission; (4) Power Generation and Industrial and (5) Other. Management's review of reportable segment results includes analyses of trends in revenue and EBITDA. We calculate EBITDA for segment reporting purposes consistently with our consolidated EBITDA calculation. See discussion of non-U.S. GAAP financial measures following the Comparison of Fiscal Year Results discussion below. The following table presents revenue and EBITDA by reportable segment for our continuing operations for the periods indicated (dollar amounts in millions): 31-------------------------------------------------------------------------------- Table of Contents Years Ended December 31, Revenue EBITDA and EBITDA Margin Reportable Segment: 2013 2012 2011 2013 2012 2011 Communications $ 1,962.6 $ 1,772.7 $ 1,635.1 $ 247.7 12.6 % $ 192.0 10.8 % $ 154.3 9.4 % Oil and Gas 1,628.8 959.0 774.3 215.9 13.3 % 99.4 10.4 % 80.1 10.4 % Electrical Transmission 428.8 312.2 198.3 41.2 9.6 % 38.7 12.4 % 28.7 14.5 % Power Generation and Industrial 294.3 668.1 219.6 (16.3 ) (5.5 )% 32.0 4.8 % (3.2 ) (1.4 )% Other 12.3 16.7 4.8 0.5 3.9 % 2.0 11.7 % 0.4 5.5 % Eliminations (2.0 ) (1.9 ) (0.8 ) - - - - - - Corporate - - - (61.4 ) - (42.0 ) - 7.6 -Consolidated Results $ 4,324.8 $ 3,726.8 $ 2,831.3 $ 427.6 9.9 % $ 322.1 8.6 % $ 267.9 9.5 % The following discussion and analysis of our results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto in Item 8 of this Form 10-K.

Comparison of Years Ended December 31, 2013 and 2012 Revenue. Our revenue was $4.3 billion in 2013 as compared with $3.7 billion in 2012, an increase of $598 million, or 16.0%. Oil and Gas revenue increased by $670 million, or 70%, Communications revenue increased by $190 million, or 11% and Electrical Transmission revenue increased by $117 million, or 37%. As expected, Power Generation and Industrial revenue was down, with a decrease of $374 million, or 56%. Organic revenue growth in the Oil and Gas, Electrical Transmission and Communications segments totaled $565 million, or 18%. Organic revenue growth inclusive of the decrease in Power Generation and Industrial revenues was $191 million, or 5%. Acquisitions contributed $407 million of the year over year increase in revenue. A discussion of revenue by segment follows below.

Communications Segment. Communications revenue was $2.0 billion in 2013, compared to $1.8 billion in 2012, an increase of $190 million, or 11%.

Communications revenue was favorably affected by demand for our wireless and wireline services, which increased by $253 million, offset in part by $60 million of lower revenue for certain utility services. Organic revenue growth totaled $138 million, or 8%. Acquisitions contributed $52 million of the year over year increase in revenue.

Oil and Gas Segment. Oil and Gas revenue was $1.6 billion in 2013, compared to $959 million in 2012, an increase of $670 million, or 70%. Long-haul activity for petroleum and natural gas pipelines increased by approximately $552 million, while midstream shale and petroleum pipeline activities decreased by approximately $63 million. Pipeline facility and other project work increased approximately $181 million. Organic revenue increased by $329 million, or 34% versus the prior year. Acquisitions contributed $341 million of the year over year increase in revenue.

Electrical Transmission Segment. Electrical Transmission revenues were $429 million in 2013, as compared with $312 million in 2012, an increase of $117 million, or 37%. Transmission and distribution activities increased by $100 million, while substation activities increased by $16 million. Acquisitions contributed $14 million of the year over year increase in Electrical Transmission revenues.

Power Generation and Industrial Segment. Power Generation and Industrial revenues were $294 million in 2013, compared to $668 million in 2012, a decrease of $374 million, or 56%. As expected, Power Generation and Industrial revenues were down, driven by a decrease in wind and other renewable revenue of $486 million, partially offset by an increase of $112 million in industrial and other project work, which include pumping stations, storage tanks and related civil projects for power generation facilities. Wind project activity was down in 2013 as a result of the delay in renewal of the federal production tax credit for qualified wind facilities, which was not renewed until January 2013.

Other Segment. Revenue from Other businesses was $12 million in 2013, compared to $17 million in 2012, a decrease of approximately $4 million, or 26%. This decrease resulted from completion of a project in our international division.

Costs of revenue, excluding depreciation and amortization. Costs of revenue, excluding depreciation and amortization, totaled $3.7 billion, or 85.1% of revenue in 2013, as compared with $3.2 billion, or 86.9% of revenue in 2012, a $443 million, or 13.7% increase, of which approximately $509 million was driven by higher revenue, offset in part by $67 million of cost improvements. Costs of revenue, excluding depreciation and amortization, as a percentage of revenue decreased by 180 basis points, driven largely by improved margins in our Oil and Gas and Communications segments. Oil and Gas margins have benefited from more profitable long-haul pipeline activities in 2013, as well as from improved contract pricing and project efficiencies. Additionally, in 2012, we incurred approximately $36 million of project losses on two oil and gas pipeline projects. Project margins also improved in our Communications segment, primarily due to improvements in contract pricing and improved efficiencies on wireless projects. These improvements were partially offset by lower margins in our Power Generation and Industrial and Electrical Transmission segments.

Depreciation and amortization. Depreciation and amortization was $141 million, or 3.3% of revenue in 2013, as compared with $92 million, or 2.5% of revenue in 2012, an increase of approximately $49 million, or 53.3%. The increase in depreciation and amortization was driven primarily by growth in our Oil and Gas segment, which typically requires a higher level of capital investment, as well as from growth in our Electrical Transmission segment. Acquisition-related depreciation and amortization contributed $23 million of the year over year increase in expense. See Note 15 - Segments and Related Information in the notes to the audited consolidated financial statements, which is incorporated herein by reference, for details of depreciation and amortization expense and capital spending by reportable segment.

32-------------------------------------------------------------------------------- Table of Contents General and administrative expense. General and administrative expense was $215 million, or 5.0% of revenue in 2013, as compared with $158 million, or 4.2% of revenue in 2012, an increase of $58 million, or 36.7%. Acquisitions contributed $25 million of incremental general and administrative costs. Organic growth in general and administrative expenses was $33 million, including $9 million of incremental non-cash stock-based compensation expense. Non-cash stock-based compensation expense increased primarily as a result of the issuance of restricted share awards under a new equity incentive program for certain employees of our EC Source business. The remaining $24 million of growth in general and administrative costs resulted from increases in labor expense, bonus expense, ongoing technology initiatives, acquisition-related transaction costs and other administrative costs to support growth in our business. As a percentage of revenue, general and administrative costs increased by approximately 80 basis points.

Interest expense, net. Interest expense, net of interest income, was $46 million, or 1.1% of revenue in 2013, as compared with $37 million, or 1.0% of revenue in 2012, an increase of $9 million. The increase was largely attributable to $7 million of incremental interest expense on our outstanding senior notes. In March 2013, we issued $400 million aggregate principal amount of 4.875% senior notes and repurchased and redeemed $150 million aggregate principal amount of our 7.625% senior notes. Additionally, higher average outstanding balances on equipment notes payable and capital lease obligations in 2013 contributed $2.0 million of incremental interest expense.

Loss on extinguishment of debt. We incurred approximately $5.6 million of debt extinguishment costs in 2013 in connection with the repurchase and redemption of $150 million aggregate principal amount of our 7.625% senior notes. This amount is composed of $4.1 million of early payment premiums and $1.5 million of unamortized deferred financing costs.

Other (income) expense, net. Other income, net, was $6 million in 2013, as compared with $8 million of other expense, net, in 2012. The change was driven largely by $3 million of legal settlement charges recorded in connection with the Sintel legal matter in 2013 as compared with $10 million in 2012, a decrease of $7 million. In addition, gains on sales of equipment increased, from $1 million in 2012 to $7 million in 2013.

Income taxes. Income tax expense was $93 million in 2013 as compared with $76 million in 2012, an increase of approximately $16 million. The increase was primarily attributable to higher income, partially offset by a lower effective tax rate. Our effective tax rate decreased to 38.5% in 2013 from 39.5% in 2012.

Loss from discontinued operations. Loss from discontinued operations, net of tax, was $6 million in 2013 as compared with $9 million in 2012, a reduction of $3 million. During the third quarter of 2013, we completed the sale of Globetec and recorded losses on disposal and impairment charges of $4 million, net of tax, as compared with $8 million, net of tax, in 2012. In addition, operating losses, net of tax, for the Globetec operation were $2 million in 2013 as compared with $5 million in 2012, a reduction of $3 million. These changes were offset by a $4 million reduction in net income from discontinued operations from DirectStar, which was sold in June of 2012.

Analysis of EBITDA by segment Communications Segment. EBITDA for our Communications segment was $248 million, or 12.6% of revenue in 2013, compared to $192 million, or 10.8% of revenue in 2012, a $56 million, or 29% increase. Higher revenue contributed $24 million of incremental EBITDA. As a percentage of revenue, EBITDA increased approximately 180 basis points, or approximately $32 million, primarily as a result of improvements in contract pricing of wireless services, as well as better project efficiencies and utilization of resources.

Oil and Gas Segment. EBITDA for our Oil and Gas segment was $216 million, or 13.3% of revenue in 2013, compared to $99 million, or 10.4% of revenue in 2012, an increase of $116 million, or 117%. Higher revenues contributed $89 million of incremental EBITDA. As a percentage of revenue, EBITDA improved by 290 basis points, or approximately $28 million. EBITDA margins in 2013 benefited from higher margin long-haul pipeline activities, as well as improved contract pricing and project efficiencies on project work. Additionally, in 2012, we incurred approximately $36 million of project losses on two oil and gas pipeline projects, which suppressed 2012's EBITDA margins.

Electrical Transmission Segment. EBITDA for our Electrical Transmission segment was $41 million, or 9.6% of revenue in 2013, compared to $39 million, or 12.4% of revenue in 2012, an increase of $3 million, or 7%. Higher revenues contributed $11 million of incremental EBITDA. EBITDA margins, however, decreased by 280 basis points, or approximately $9 million. The decrease in EBITDA margins was driven primarily by higher costs associated with a few projects.

Power Generation and Industrial Segment. EBITDA for our Power Generation and Industrial segment was negative $16 million in 2013, compared to EBITDA of $32 million, or 4.8% of revenue in 2012, a decrease of $48 million. The decrease in EBITDA is due to higher costs associated with certain projects, as well as under-utilization of operating and overhead capacity in 2013 due to the decrease in revenue. Despite the current year reduction in wind project activity, the Power Generation and Industrial segment maintained its labor and equipment infrastructure in anticipation of growth in 2014, which resulted in low levels of overhead cost utilization in 2013.

Other Segment. EBITDA from Other businesses was $0.5 million, or 3.9% of revenue in 2013, compared to $2 million of EBITDA, or 11.7% of revenue in 2012. The decrease is primarily attributable to lower revenue.

Corporate Segment. EBITDA for our Corporate segment was negative $61 million in 2013, compared to negative $42 million in 2012. In 2013, we recorded a loss on extinguishment of debt of approximately $6 million in connection with the repurchase and redemption of our 7.625% senior notes. Other cost increases in 2013 as compared with 2012 include $9 million of incremental non-cash stock-based compensation expense and $1 million of incremental acquisition-related transaction costs. Offsetting these cost increases is a reduction of $7 million in legal settlement charges. We recorded $3 million of legal settlement charges in connection with the Sintel matter in 2013, as compared with $10 million in 2012. The remaining $11 million variance resulted from increases in bonus expense, bad debt expense and other administrative costs to support growth in the business.

33-------------------------------------------------------------------------------- Table of Contents Comparison of Years Ended December 31, 2012 and 2011 Revenue. Our revenue was $3.7 billion in 2012 as compared with $2.8 billion in 2011, an increase of $895 million, or 31.6%. Revenue grew in all of our reportable segments, with Power Generation and Industrial revenue increasing by $448 million or 204%, Oil and Gas revenue increasing by $185 million, or 24%, Electrical Transmission revenue increasing by $114 million, or 57% and Communications revenue increasing by $138 million, or 8%. Organic revenue growth totaled $725 million, or 26%. Acquisitions contributed $171 million of the year over year increase in revenue. A discussion of revenue by segment follows below.

Communications Segment. Communications revenue was $1.8 billion in 2012, compared to $1.6 billion in 2011, an increase of $138 million, or 8.4%.

Communications revenue was favorably affected by demand for our wireless and wireline services as well as from higher utility service and install-to-the home activity, which increased by $33 million, $46 million and $59 million, respectively. Organic revenue growth totaled $75 million, or 4.6%. Acquisitions contributed $62 million of the year over year increase in revenue.

Oil and Gas Segment. Oil and Gas revenue was $959 million in 2012, compared to $774 million in 2011, an increase of $185 million, or 23.9%. Midstream shale and petroleum pipeline activities increased by approximately $226 million, partially offset by decreases of $20 million in long-haul and $21 million in pipeline facility and other project work. Organic revenue increased by $129 million, or 17% versus the prior year. Acquisitions contributed $56 million of the year over year increase in revenue.

Electrical Transmission Segment. Electrical Transmission revenues were $312 million in 2012, as compared with $198 million in 2011, an increase of $114 million, or 57.4%. Transmission and distribution activities increased by $120 million, while substation activities decreased by $6 million. Acquisitions contributed $52 million of the year over year increase in Electrical Transmission revenues.

Power Generation and Industrial Segment. Power Generation and Industrial revenues were $668 million in 2012, compared to $220 million in 2011, an increase of $448 million, or 204%. The increase in revenue was driven largely by growth in renewable energy activities. Wind revenues were favorably affected by customers seeking to complete projects under the federal production tax credit program, which required that qualified facilities be placed in service by December 31, 2012.

Other Segment. Revenue from Other businesses was $17 million in 2012, compared to $5 million in 2011, an increase of $12 million, or 242%. The increase resulted from a new project in our international division to secure a fiber optic circuit and build a central office facility.

Costs of revenue, excluding depreciation and amortization. Costs of revenue, excluding depreciation and amortization, totaled $3.2 billion in 2012, as compared with $2.5 billion, or 86.9% of revenue in both years, a $779 million, or 31.7% increase. The increase was primarily driven by higher revenue. Costs of revenue, excluding depreciation and amortization, as a percentage of revenue was flat, despite $36 million of project losses on two oil and gas pipeline projects in 2012 as compared with $19 million in 2011. Year over year costs of revenue, excluding depreciation and amortization was also affected by a charge of approximately $6 million that we recorded in 2011 related to our multi-employer pension plans.

Depreciation and amortization. Depreciation and amortization was $92 million, or 2.5% of revenue in 2012, as compared with $74 million, or 2.6% of revenue in 2011, an increase of approximately $18 million, or 24%. The increase in depreciation and amortization was driven primarily by growth in our Oil and Gas segment, which typically requires a higher level of capital investment, as well as from growth in our Electrical Transmission segment. Acquisition-related depreciation and amortization contributed $5 million of the year over year increase in expense. See Note 15 - Segments and Related Information in the notes to the audited consolidated financial statements, which is incorporated herein by reference, for details of depreciation and amortization expense and capital spending by reportable segment.

General and administrative expenses. General and administrative expenses were $158 million, or 4.2% of revenue in 2012 as compared with $133 million, or 4.7% of revenue in 2011, an increase of $25 million, or 19%. Acquisitions contributed $8 million of incremental general and administrative costs. Organic growth in general and administrative expense of $16 million was due to increases in labor expense, bonus expense, ongoing technology initiatives and other administrative costs to support growth in our business. As a percentage of revenue, general and administrative costs decreased by approximately 50 basis points.

Interest expense, net. Interest expense, net of interest income, was $37 million, or 1.0% of revenue in 2012, as compared with $34 million, or 1.2% of revenue in 2011. The increase of $3 million included approximately $1.4 million of incremental interest expense on our credit facility resulting from higher average outstanding balances, as well as approximately $1 million of incremental discount accretion from our 2011 senior convertible notes.

Gain on remeasurement of equity interest in acquiree. We recognized a $29 million gain on remeasurement upon our acquisition of EC Source's remaining equity interests during the second quarter of 2011.

Other expense, net. Other expense, net, was $8 million in 2012, driven by a legal settlement charge of $10 million in connection with the Sintel legal matter, partially offset by gains on sales of assets. In 2011, gains and losses on sales of assets largely offset one another.

Income taxes. Income tax expense was $76 million in 2012, as compared with $62 million in 2011, an increase of $14 million, which is due in large part to higher income, as well as an increase in our effective tax rate. Our effective tax rate on income from continuing operations increased to 39.5% in 2012 from 38.8% in 2011.

(Loss) income from discontinued operations. Loss from discontinued operations, net of tax, was $9 million in 2012, as compared with $9 million of income from discontinued operations, net of tax, in 2011. The $18 million variance was driven, in part, by estimated losses on disposal of $8 million, net of tax, that we recognized in 2012 in connection with our decision to sell Globetec. In addition, DirectStar, which was sold in 34-------------------------------------------------------------------------------- Table of Contents June of 2012, contributed $4 million of net income from discontinued operations in 2012 as compared with $14 million in 2011, a reduction of $10 million.

Analysis of EBITDA by segment Communications Segment. EBITDA for our Communications segment was $192 million, or 10.8% of revenue in 2012, compared to $154 million, or 9.4% of revenue in 2011, an increase of $38 million, or 24.4%. Higher revenue contributed $15 million of incremental EBITDA. As a percentage of revenue, EBITDA increased approximately 140 basis points, or approximately $23 million, primarily as a result of better project efficiencies and utilization of resources.

Oil and Gas Segment. EBITDA for our Oil and Gas segment was $99 million in 2012, compared to $80 million, or 10.4% of revenue in both years, an increase of $19 million, or 24.0%. The increase in EBITDA is primarily attributable to the increase in revenue. In 2012, we incurred approximately $36 million of project losses on two oil and gas pipeline projects, as compared with $19 million in 2011, which suppressed EBITDA margins in both years. Year over year EBITDA results were also affected by a charge of approximately $6 million that we recorded in 2011 related to our multi-employer pension plans.

Electrical Transmission Segment. EBITDA for our Electrical Transmission segment was $39 million, or 12.4% of revenue in 2012, compared to $29 million, or 14.5% of revenue in 2011, an increase of $10 million, or 34.9%. Higher revenues contributed $14 million of incremental EBITDA. EBITDA margins, however, decreased by 210 basis points, or approximately $4 million. The decrease in EBITDA margins was driven primarily by higher costs associated with several projects.

Power Generation and Industrial Segment. EBITDA for our Power Generation and Industrial segment was $32 million, or 4.8% of revenue in 2012, compared to negative EBITDA of $3 million in 2011, an increase of $35 million. Higher revenue contributed $22 million of incremental EBITDA. As a percentage of revenue, EBITDA increased approximately 620 basis points, or approximately $14 million. The improvement in EBITDA margins is primarily attributable to the significant increase in revenue, which improved our level of overhead cost utilization. Despite low levels of project activity in 2011, the Power Generation and Industrial segment maintained its capacity levels in anticipation of expected revenue growth in 2012, which resulted in low levels of overhead cost utilization in 2011.

Other Segment. EBITDA from Other businesses was $2 million, or 11.7% of revenue in 2012, compared to $0.4 million of EBITDA in 2011, or 5.5% of revenue, an increase of $1.7 million. The increase is primarily attributable to increased revenues, as described above.

Corporate Segment. EBITDA for our Corporate segment was negative $42 million in 2012, compared to EBITDA of $8 million in 2011, a net change of $50 million. In 2011, we recorded a $29 million non-cash gain on remeasurement of our equity investment in EC Source and in 2012, we recorded $10 million of legal settlement charges in connection with the Sintel matter in 2012. The remaining $11 million variance resulted from increases in insurance and other administrative costs to support growth in the business.

Foreign Operations We have operations in Canada as well as in parts of Latin America. See Note 15 - Segments and Related Information in the notes to the audited consolidated financial statements, which is incorporated herein by reference.

Non-U.S. GAAP Financial Measures As appropriate, we supplement our reported U.S. GAAP financial information with certain non-U.S. GAAP financial measures, including earnings from continuing operations before interest, income taxes, depreciation and amortization ("EBITDA"). In addition, we have presented "Adjusted EBITDA," as well as adjusted net income from continuing operations ("Adjusted Net Income From Continuing Operations") and adjusted diluted earnings per share from continuing operations ("Adjusted Diluted Earnings Per Share From Continuing Operations ").

All of these "adjusted" non-U.S GAAP measures exclude non-cash stock-based compensation expense, Sintel legal settlement charges, the loss on debt extinguishment from the repurchase and redemption of our 7.625% senior notes, the gain on remeasurement of our equity interest in EC Source and a multi-employer pension plan withdrawal charge. See Note 11 - Stock-Based Compensation and Other Employee Benefit Plans, Note 16 - Commitments and Contingencies, Note 9 - Debt and Note 3 - Acquisitions in the notes to the audited consolidated financial statements, which notes are incorporated herein by reference. The definitions of EBITDA and Adjusted EBITDA above are not the same as in our 2013 Credit Facility or in the indentures governing our notes; therefore, EBITDA and Adjusted EBITDA as presented in this discussion should not be used for purposes of determining our compliance with related covenants.

We use EBITDA, Adjusted EBITDA, Adjusted Net Income From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations to evaluate our performance, both internally and as compared with our peers, because these measures exclude certain items that may not be indicative of our core operating results, as well as items that can vary widely across different industries or among companies within the same industry. Additionally, these measures provide a baseline for analyzing trends in our underlying business. Management also considers EBITDA and Adjusted EBITDA as indicators of our ability to generate cash to service debt, fund capital expenditures and expand our business, but management does not consider the presented non-U.S. GAAP financial measures as measures of our liquidity. While EBITDA and Adjusted EBITDA are measures of our ability to generate cash, these measures exclude the cash impact of changes in our assets and liabilities as well as interest and income taxes. Net cash provided by operating activities in the consolidated statement of cash flows accounts for these changes in our assets and liabilities.

We believe these non-U.S. GAAP financial measures provide meaningful information and help investors understand our financial results and assess our prospects for future performance. Because non-U.S. GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-U.S. GAAP financial measures having the same or similar names. These financial measures should not 35-------------------------------------------------------------------------------- Table of Contents be considered in isolation from, as substitutes for, or alternative measures of, reported net income from continuing operations, diluted earnings per share from continuing operations and net cash provided by operating activities, and should be viewed in conjunction with the most comparable GAAP financial measures and the provided reconciliations thereto. We believe these non-U.S. GAAP financial measures, when viewed with our U.S. GAAP results and the provided reconciliations, provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net income from continuing operations, in dollar and percentage of revenue terms, for the periods indicated (dollar amounts in millions). The table below may contain slight summation differences due to rounding.

For the Years Ended December 31, EBITDA Reconciliation - Continuing Operations: 2013 2012 2011 Net income from continuing operations $ 147.7 3.4 % $ 116.6 3.1 % $ 97.5 3.4 % Interest expense, net 46.4 1.1 % 37.4 1.0 % 34.5 1.2 % Provision for income taxes 92.5 2.1 % 76.1 2.0 % 61.8 2.2 % Depreciation and amortization 140.9 3.3 % 92.0 2.5 % 74.2 2.6 % EBITDA - Continuing Operations $ 427.6 9.9 % $ 322.1 8.6 % $ 267.9 9.5 % Non-cash stock-based compensation expense 12.9 0.3 % 4.4 0.1 % 3.6 0.1 % Loss on debt extinguishment 5.6 0.1 % - - - - Sintel legal settlement 2.8 0.1 % 9.6 0.3 % - - Gain from remeasurement of equity interest in acquiree - - - - (29.0 ) (1.0 )% Multi-employer pension plan withdrawal charge - - - - 6.4 0.2 % Adjusted EBITDA - Continuing Operations $ 448.9 10.4 % $ 336.1 9.0 % $ 248.9 8.8 % The following table presents a reconciliation of EBITDA and Adjusted EBITDA to net cash provided by operating activities for total MasTec (in millions): 36-------------------------------------------------------------------------------- Table of Contents For the Years Ended December 31, Total EBITDA Reconciliation: 2013 2012 2011 EBITDA, Continuing operations $ 427.6 $ 322.1 $ 267.9 EBITDA, Discontinued operations (8.8 ) (13.0 ) 15.8 EBITDA, Total MasTec $ 418.8 $ 309.0 $ 283.7 Reconciliation to Adjusted EBITDA and to Net Cash Provided by Operating Activities, Total MasTec: Non-cash stock-based compensation expense 12.9 4.4 3.6 Loss on debt extinguishment 5.6 - - Sintel legal settlement 2.8 9.6 - Gain from remeasurement of equity interest in acquiree - - (29.0 ) Multi-employer pension plan withdrawal charge - - 6.4 Adjusted EBITDA, Continuing operations $ 448.9 $ 336.1 $ 248.9 Adjusted EBITDA, Discontinued operations (8.8 ) (13.0 ) 15.8 Adjusted EBITDA, Total MasTec $ 440.1 $ 323.1 $ 264.6 Interest expense (46.5 ) (37.4 ) (34.5 ) Provision for income taxes (90.1 ) (71.6 ) (68.0 ) Payments for call premiums on extinguishment of debt (4.1 ) - - Sintel legal settlement (2.8 ) (9.6 ) - Multi-employer pension plan withdrawal charge - - (6.4 ) Adjustments to reconcile net income to net cash provided by operating activities, excluding non-cash EBITDA adjustments (a) 25.3 24.3 56.2 Change in assets and liabilities, net of assets acquired and liabilities assumed (121.5 ) (56.3 ) (191.2 ) Net cash provided by operating activities, Total MasTec $ 200.4 $ 172.5 $ 20.7 (a) Non-cash EBITDA adjustments include (i) depreciation and amortization expense in all years; (ii) non-cash stock-based compensation expense in all years; (iii) in 2013, a $1.5 million write-off of deferred financing costs on redeemed debt, and (iv) in 2011, a $29.0 million gain on remeasurement of our equity interests in EC Source.

Adjusted Net Income From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations The table below reconciles Adjusted Net Income From Continuing Operations and Adjusted Diluted Earnings Per Share From Continuing Operations with reported net income from continuing operations and reported diluted earnings per share from continuing operations, the most directly comparable U.S. GAAP financial measures. Adjustments have been tax effected using the effective tax rate from continuing operations for the respective periods.

37-------------------------------------------------------------------------------- Table of Contents For the Years Ended December 31, 2013 2012 2011 Net Income Net Income Diluted Net Income Diluted From Diluted From Earnings Per From Earnings Per Continuing Earnings Per Continuing Share, Continuing Share, Operations Share, Operations (in Continuing Operations (in Continuing (in Continuing millions) Operations millions) Operations millions) Operations Reported U.S GAAP measure $ 147.7 $ 1.74 $ 116.6 $ 1.42 $ 97.5 $ 1.13 Non-cash stock-based compensation expense (a) 8.0 0.09 2.7 0.03 2.2 0.03 Loss on debt extinguishment (b) 3.5 0.04 - - - - Sintel legal settlement (c) 1.7 0.02 5.8 0.07 - - Gain on remeasurement of equity interest in acquiree (d) - - - - (17.8 ) (0.20 ) Multi-employer pension plan withdrawal charge (e) - - - - 3.9 0.05Adjusted non-U.S. GAAP measure $ 160.8 $ 1.90 $ 125.1 $ 1.53 $ 85.8 $ 1.00 (a) Represents the after-tax expense and corresponding diluted per share impact related to non-cash stock-based compensation expense.

(b) Represents the after-tax expense and corresponding diluted per share impact related to loss on debt extinguishment associated with the repurchase and redemption of our 7.625% senior notes.

(c) Represents the after-tax expense and corresponding diluted per share impact related to Sintel legal settlement charges.

(d) Represents the after-tax gain and corresponding diluted per share impact from the non-cash gain on remeasurement of our equity investment in EC Source.

(e) Represents the after-tax charge and corresponding diluted per share impact related to our withdrawal from a multi-employer pension plan.

Financial Condition, Liquidity and Capital Resources Our primary sources of liquidity are cash flows from continuing operations, availability under our credit facility and our cash balances. Our primary liquidity needs are for working capital, income taxes, capital expenditures, insurance collateral in the form of cash and letters of credit, earn-out obligations and debt service. We also evaluate opportunities for strategic acquisitions and/or investments from time to time that may require cash, and may consider opportunities to either repurchase, refinance or retire outstanding debt or repurchase outstanding shares of our common stock in the future.

Capital Expenditures. We estimate that we will spend approximately $100 million in 2014 on capital expenditures, and, in addition, we expect to incur between $90 million and $100 million of equipment purchases under capital lease or other financing arrangements. For the year ended December 31, 2013, we spent approximately $126 million on capital expenditures, or $110 million net of asset disposals, and incurred approximately $111 million of equipment purchases under capital lease and other financing arrangements. Actual capital expenditures can increase or decrease from estimates depending upon business activity levels. We will continue to evaluate lease versus buy decisions to meet our equipment needs and, based on this evaluation, our capital expenditures may increase or decrease in the future.

Acquisition-Related Contingent Consideration. In most of our recent acquisitions, we have agreed to make future earn-out payments to the sellers, which are contingent upon the future earnings performance of the acquired businesses. Certain earn-out payments may be paid either in cash or, under specific circumstances, MasTec common stock, or a combination thereof, at our option. The estimated total value of earn-out obligations recorded as liabilities as of December 31, 2013 is approximately $177 million. Of this amount, $65 million represented the liability for earn-out obligations that had already been earned. The remainder, $112 million, is management's estimate of potential earn-out obligations that are contingent upon future performance.

Potential future earn-out obligations for acquisitions after January 1, 2009 are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in earnings as a component of other income or expense, in accordance with U.S. GAAP. Earn-outs for acquisitions completed prior to January 1, 2009 are recorded as additional goodwill as earned. During the years ended December 31, 2013, 2012 and 2011, we made cash payments of $19 million, $34 million and $45 million, respectively, related to earn-out obligations.

Income Taxes. Cash tax payments were $80 million, $59 million and $28 million for the years ended December 31, 2013, 2012 and 2011. Our cash tax payments increased for the years ended December 31, 2013 and 2012 as compared with the respective prior years primarily as a result of higher taxable income and earnings.

Working Capital. We need working capital to support seasonal variations in our business, primarily due to the impact of weather conditions on external construction and maintenance work and the spending patterns of our customers, both of which influence the timing of associated spending to support related customer demand. Our business is typically slower in the first quarter of each calendar year and we generally experience seasonal working capital needs from approximately April through October to support growth in accounts receivable, and to a lesser extent, inventory. Working capital needs tend to increase when we commence large amounts of work due to the fact that payroll and certain other costs, including inventory, are required to be paid before the receivables resulting from work performed are billed and collected. Timing of project close-outs can contribute to changes in unbilled revenue. Accounts receivable balances increased from $877 million as of December 31, 2012 to $1.1 billion as of December 31, 2013 due to higher revenues as well as an increase in days sales outstanding, as discussed within the Summary of Financial Condition, Liquidity and Capital Resources below. Inventory balances have decreased from $84 million as of December 31, 2012 to $70 million as of December 31, 2013.

Our billing terms are generally net 30 days, and some of our contracts allow our customers to retain a portion of the contract amount (from 2% to 15%) until the job is completed. For certain customers, we maintain inventory to meet the material requirements of the contracts. Occasionally, certain of our customers pay us in advance for a portion of the materials we purchase for their projects, or allow us to pre-bill them for materials purchases 38-------------------------------------------------------------------------------- Table of Contents up to specified amounts. Vendor terms are generally 30 days. Our agreements with subcontractors often contain a "pay-if-paid" provision, whereby our payments to subcontractors are made only after we are paid by our customers.

Convertible Notes - Settlement. Our senior convertible notes, which had an outstanding principal amount of $215 million as of December 31, 2013, mature in 2014. We expect to refinance the principal amount of these notes on a long-term basis, either from borrowings under our 2013 Credit Facility or through other sources of available funding. As a result, their carrying values as of December 31, 2013 have been presented within long-term debt in the audited consolidated financial statements. As of December 31, 2013, our common stock trading price was higher than the conversion prices of our 2011 Convertible Notes, of which $202.3 million aggregate principal amount was outstanding as of December 31, 2013. Currently, we intend to settle the principal amounts of our 2011 Convertible Notes upon any conversion thereof in cash, and we intend to settle any premium value, which is the value of any excess of the actual share price over the conversion prices of the 2011 Convertible Notes, in shares.

Notwithstanding our present intention to settle conversions of our 2011 Convertible Notes in cash, we cannot assure you that we will be able to do so due to restrictions under our 2013 Credit Facility; however, as of December 31, 2013, these restrictions would not have limited our ability to settle the 2011 Convertible Notes in cash. See Summary of Financial Condition, Liquidity and Capital Resources below for discussion pertaining to our 2013 Credit Facility.

Summary of Financial Condition, Liquidity and Capital Resources We anticipate that funds generated from operations, borrowings under our 2013 Credit Facility and our cash balances will be sufficient to meet our working capital requirements, required income tax payments, debt service obligations, anticipated capital expenditures, insurance collateral requirements, earn-out obligations and letters of credit for at least the next twelve months.

Sources and Uses of Cash As of December 31, 2013, we had $480 million in working capital, defined as current assets less current liabilities, as compared to $336 million as of December 31, 2012, an increase of $145 million. Our working capital has increased, primarily as a result of higher activity levels, as discussed in the "Comparison of Fiscal Year Results" section above. Specifically, accounts receivable balances have increased, offset in part by increases in accounts payable and accrued expenses. Total cash and cash equivalents of $23 million as of December 31, 2013 decreased by $4 million from total cash and cash equivalents of $27 million as of December 31, 2012.

Sources and uses of cash are summarized below (in millions): For the Years Ended December 31, 2013 2012 2011 Net cash provided by operating activities $ 200.4 $ 172.5 $ 20.7 Net cash used in investing activities $ (263.2 ) $ (94.3 ) $ (101.8 ) Net cash provided by (used in) financing activities $ 59.0 $ (71.8 ) $ (76.4 ) Operating Activities. Cash flow from operations is primarily influenced by demand for our services, operating margins and the type of services we provide, but can also be influenced by working capital needs such as the timing of billings and collections of receivables and the settlement of payables and other obligations. A portion of working capital assets is typically converted to cash in the first quarter. Conversely, working capital needs generally increase from April through October due to the seasonality of our business. Cash provided by operating activities for the year ended December 31, 2013 increased to $200 million from $173 million in 2012, an increase of $28 million, partially as a result of net income increasing by $34 million. The impact on cash provided by operating activities of changes in non-cash adjustments was an increase of $59 million, driven largely by an increase in depreciation and amortization of $48 million. Net changes in assets and liabilities had a negative impact on cash provided by operating activities of $65 million, related largely to the use of cash for working capital, primarily accounts receivable and billings in excess of costs and earnings.

Days sales outstanding net of billings in excess of costs and earnings for our continuing operations was 80 as of December 31, 2013 as compared with 74 as of December 31, 2012. Days sales outstanding net of billings in excess of costs and earnings is calculated as: accounts receivable, net, less billings in excess of costs and earnings, divided by average daily revenue for the most recently completed quarter as of the balance sheet date. The increase in days sales outstanding is largely attributable to timing of collections on certain projects. Changes in project and customer mix have also contributed to the increase in days sales outstanding. We do not currently anticipate collection issues related to our outstanding accounts receivable balances, and we continue to bill and collect outstanding amounts in a timely manner.

Investing Activities. Net cash used in investing activities increased by $169 million to $263 million in 2013 from $94 million of cash used in investing activities in 2012. The increase in cash used in investing activities was largely driven by a reduction in cash proceeds from disposed businesses of $101 million, due to $98 million of net proceeds received from the sale of our DirectStar business in 2012. Payments for current year acquisitions were $149 million, a $29 million increase in cash used in investing activities as compared with 2012. Additionally, our capital expenditures increased in 2013. We spent $126 million in 2013 on capital expenditures, or $110 million net of asset disposals, as compared with capital expenditures of $72 million, net of asset disposals, in 2012, a $38 million increase. Capital expenditures have increased to support growth, primarily in our Oil and Gas segment, which generally requires higher levels of capital investment, as well as from growth in our Electrical Transmission segment.

Financing Activities. Cash provided by financing activities for the year ended December 31, 2013 was $59 million, as compared with cash used in financing activities of $72 million in the prior year, an increase of $131 million.

Proceeds from the issuance of our $400 million aggregate principal amount of 4.875% senior notes (the "4.875% Senior Notes") in March 2013, were partially offset by the repurchase and redemption of our $150 million principal amount of 7.625% senior notes (the "7.625% Senior Notes"). Additionally, net repayments of outstanding balances on our 2013 Credit Facility were $175 million higher than net repayments in 2012 on our previous credit facility, which we also refer to as our 2011 Credit Facility.

39-------------------------------------------------------------------------------- Table of Contents Cash provided from financing activities for the year ended December 31, 2013 also benefited from a decrease of $75 million in cash used for purchases of treasury stock in 2012.

Credit Facility As amended in the fourth quarter of 2013, we have a $750 million senior secured revolving credit facility, also referred to as our 2013 Credit Facility, maturing in October 2018, of which up to $100 million may be borrowed in Canadian dollars, and under which up to $450 million is available for letters of credit and up to $75 million is available for swing line loans. See discussion in Note 9 - Debt in the notes to the audited consolidated financial statements, which is herein incorporated by reference, for terms and conditions associated with our 2013 Credit Facility. Interest on outstanding revolving loans under our 2013 Credit Facility accrues at variable rates based, at our option, on a eurocurrency rate, as defined in the 2013 Credit Facility, plus a margin, or a base rate, as defined in the 2013 Credit Facility, plus a margin. As of December 31, 2013, we had $53 million of outstanding revolving loans under our 2013 Credit Facility with a weighted average interest rate of 2.14% and $134.8 million of outstanding letters of credit. Our remaining borrowing capacity of $562.1 million as of December 31, 2013 was available for loans or up to $315.2 million of new letters of credit.

Based upon current availability under our 2013 Credit Facility, our liquidity and our anticipated cash flow, we believe we will be in compliance with the 2013 Credit Facility's terms and conditions for the next twelve months. We are dependent upon borrowings and letters of credit under the 2013 Credit Facility to fund our operations. Should we be unable to comply with the terms and conditions of the 2013 Credit Facility, we would be required to obtain modifications to the 2013 Credit Facility or obtain an alternative source of financing to continue to operate, neither of which may be available to us on commercially reasonable terms, or at all.

Issuance of 4.875% Senior Notes and Repurchase and Redemption of 7.625% Senior Notes In March 2013, we issued $400 million of 4.875% Senior Notes due March 15, 2023 in a registered public offering, and we repurchased and redeemed our 7.625% Senior Notes. See Note 9 - Debt in the notes to the audited consolidated financial statements, which is incorporated herein by reference, for additional information.

Senior Convertible Notes As of December 31, 2013, we had outstanding $202.3 million aggregate principal amount of senior convertible notes that we issued in 2011, which we refer to as our 2011 Convertible Notes. We also had outstanding as of December 31, 2013 $12.6 million aggregate principal amount of senior convertible notes that we issued in 2009, which we refer to as our 2009 Convertible Notes. For details of the terms pertaining to our senior convertible notes, including their conversion terms, see Note 2 - Earnings Per Share and discussion under "Senior Convertible Notes" in Note 9 - Debt in the notes to the audited consolidated financial statements, which notes are incorporated herein by reference.

Due to the optional cash settlement feature of the 2011 Convertible Notes and our intent to settle the principal amount thereof in cash, the 13.0 million conversion shares underlying the outstanding principal amount of the 2011 Convertible Notes are not required to be included in our diluted share count.

Notwithstanding our present intention to settle the principal amount of the 2011 Convertible Notes in cash, we may be restricted from doing so under certain provisions of our 2013 Credit Facility, which restrict the repurchase or prepayment of certain unsecured indebtedness. If we were unable to settle conversions of the 2011 Convertible Notes in accordance with our stated intent to settle principal amounts due in cash with either existing cash balances or through our 2013 Credit Facility, we could be required to obtain additional funding or settle such conversions by issuing shares of our common stock, which would be dilutive to our existing shareholders.

Acquisition Debt In connection with certain acquisitions, we have entered into or assumed certain debt and/or capital lease obligations. As of December 31, 2013, $9.8 million of acquisition-related debt remained outstanding.

Debt Guarantees and Covenants The 4.875% Senior Notes, 2011 Convertible Notes and 2009 Convertible Notes are, and through March 29, 2013, the 7.625% Senior Notes were, fully and unconditionally guaranteed on an unsecured, unsubordinated, joint and several basis by certain existing and future 100%-owned direct and indirect domestic subsidiaries that are guarantors of our 2013 Credit Facility or other outstanding indebtedness. See Note 19 - Supplemental Guarantor Condensed Consolidating Financial Information in the notes to the audited consolidated financial statements, which is incorporated herein by reference. We were in compliance with all provisions and covenants contained in our outstanding debt instruments as of December 31, 2013.

Contractual Payment Obligations The following table sets forth our contractual payment obligations as of December 31, 2013 during the periods indicated below (in millions): 40-------------------------------------------------------------------------------- Table of Contents More than Less than 1 - 3 3 - 5 5 Years and Contractual Obligations Total 1 Year Years Years Thereafter 2013 Credit Facility (a) $ 53.0 $ - $ - $ 53.0 $ - 4.875% Senior Notes 400.0 - - - 400.0 Senior convertible notes (b) (c) 215.0 - - 215.0 - Notes payable for equipment 26.9 10.0 16.2 0.7 - Earn-out obligations (d) 64.7 64.7 - - - Capital leases 126.0 41.3 59.1 24.8 0.8 Operating leases 145.6 54.3 68.8 17.2 5.3 Obligations under multi-employer pension plan (e) 5.4 1.2 2.4 1.8 - Interest (f) 222.6 31.8 54.6 51.6 84.6 Total $ 1,259.2 $ 203.3 $ 201.1 $ 364.1 $ 490.7 (a) Represents outstanding revolving loans on our 2013 Credit Facility as of December 31, 2013.

(b) Amount is composed of $105.3 million principal amount of 2011 4.0% senior convertible notes, $9.6 million principal amount of 2009 4.0% senior convertible notes, $97.0 million principal amount of 2011 4.25% senior convertible notes and $3.0 million principal amount of 2009 4.25% senior convertible notes.

(c) The $215.0 million principal amount of senior convertible notes maturing in 2014, which the Company expects to refinance on a long-term basis, is classified as long-term debt as of December 31, 2013. The repayment schedule above reflects the projected repayment of the entire amounts in the 3 - 5 year period.

(d) Under certain acquisition agreements, we have agreed to pay the sellers earn-outs based on the performance of the businesses acquired. Certain of these earn-out payments may be made in either cash or, under certain circumstances, MasTec common stock, or a combination thereof, at our option.

Due to the contingent nature of these earn-out payments, we have only included earn-out obligations that we assume will be paid in cash and have been earned as of December 31, 2013.

(e) Represents withdrawal liability as of December 31, 2013 and excludes normal contributions required under our collective bargaining agreements.

(f) Represents expected future interest payments on debt and capital lease obligations. With the exception of our 2013 Credit Facility, all of our debt instruments are fixed rate interest obligations.

Off-balance sheet arrangements As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business. Our significant off-balance sheet transactions include liabilities associated with non-cancelable operating leases, letter of credit obligations, surety and performance and payment bonds entered into in the normal course of business, self-insurance liabilities, liabilities associated with multi-employer pension plans and liabilities associated with certain indemnification and guarantee arrangements. We do not have any material off-balance sheet financing arrangements with variable interest entities. Refer to Note 16 - Commitments and Contingencies in the notes to the audited consolidated financial statements, which is incorporated herein by reference, for current period details pertaining to our off-balance sheet arrangements.

Impact of Inflation The primary inflationary factors affecting our operations are labor and fuel costs, and to a lesser extent, material costs. The price of fuel is subject to unexpected fluctuations due to events outside of our control, including geopolitical events and fluctuations in global supply and demand. Significant fuel price increases could adversely impact our operating results in the future.

We closely monitor inflationary factors and any impact they may have on our operating results or financial condition.

Recently Issued Accounting Pronouncements See Note 1 - Business, Basis of Presentation and Significant Accounting Policies in the notes to the audited consolidated financial statements, which is incorporated herein by reference.

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