SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 0-3797
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0829355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
Former name, former address and former fiscal year, if changed since last report
Not Applicable
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class of Common Stock November 13, 1998
$ 0.10 par value 27,447,272
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
<PAGE>
<TABLE>
MasTec, Inc.
Index
<CAPTION>
<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 - Condensed Consolidated Statements of Income
for the Three and Nine Month Periods Ended September 30, 1998 and 1997.....................3
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997......................................................................4
Condensed Consolidated Statement of Shareholders' Equity for
the Nine Month Period Ended September 30, 1998.............................................5
Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended September 30, 1998 and 1997...............................6
Notes to Condensed Consolidated
Financial Statements ......................................................................8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition.............................................13
PART II OTHER INFORMATION.........................................................................21
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Page 2 of 22
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<TABLE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $288,606 $184,562 $720,807 $456,204
Costs of revenue 218,513 142,874 557,707 337,913
Depreciation and amortization 11,830 5,737 30,994 14,044
General and administrative expenses 31,974 19,179 99,406 54,366
------- ------- ------- -------
Operating income 26,289 16,772 32,700 49,881
Interest expense 7,788 2,579 19,916 8,034
Interest and dividend income 2,621 420 6,010 1,212
Other income, net 1,053 773 2,467 1,712
Income before provision for income
taxes, equity in earnings
of unconsolidated companies, _______ _______ _______ _______
and minority interest 22,175 15,386 21,261 44,771
Provision for income taxes 8,966 6,097 9,769 16,624
Equity in earnings of unconsolidated companies 803 961 1,558 2,277
Minority interest (599) (1,752) (2,344) (1,813)
------- ------- ------- -------
Net income $ 13,413 $ 8,498 $ 10,706 $ 28,611
======= ======= ======= =======
Basic earnings per share:
Weighted average common shares outstanding 27,428 26,825 27,640 26,093
Earnings per share $ 0.49 $ 0.32 $ 0.39 $ 1.10
======= ======= ======= =======
Diluted earnings per share:
Weighted average common shares outstanding 27,672 27,552 28,010 26,680
Earnings per share $ 0.48 $ 0.31 $ 0.38 $ 1.07
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 22
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MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,283 $ 6,063
Accounts receivable-net and unbilled revenue 426,257 346,596
Inventories 16,104 8,746
Other current assets 37,355 32,791
------- -------
Total current assets 493,999 394,196
------- -------
Property and equipment-net 145,632 86,109
Investments in unconsolidated companies 69,316 48,160
Other assets 185,417 101,759
------- -------
TOTAL ASSETS $894,364 $630,224
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 77,924 $ 54,562
Accounts payable 197,113 166,596
Other current liabilities 70,237 48,950
------- -------
Total current liabilities 345,274 270,108
------- -------
Other liabilities 42,069 41,924
------- -------
Long-term debt 280,872 94,495
------- -------
Common stock 2,733 2,758
Capital surplus 144,336 154,013
Retained earnings 81,098 70,392
Accumulated translation adjustment (2,018) (3,466)
------- -------
Total shareholders' equity 226,149 223,697
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $894,364 $630,224
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 22
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<TABLE>
<CAPTION>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY
for the nine months ended September 30, 1998
(in thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Common Stock Accumulated
Issued Capital Retained Translation
Shares Amount Surplus Earnings Adjustment Total
- - -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 27,580 $ 2,758 $ 154,013 $ 70,392 $ (3,466) $ 223,697
Net income 10,706 10,706
Cumulative effect of translation 1,448 1,448
Stock issued 411 41 3,859 3,900
Repurchase of common stock (657) (66) (13,536) (13,602)
- - -------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 27,334 $ 2,733 $ 144,336 $ 81,098 $ (2,018) 226,149
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 22
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<TABLE>
<CAPTION>
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------
1998 1997
---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 10,706 $ 28,611
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 2,344 1,813
Depreciation and amortization 30,994 14,044
Equity in earnings of unconsolidated companies (1,558) (2,277)
Gain on sale of assets (246) (632)
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable-net and unbilled revenue (31,829) 19,321
Inventories and other current assets 5,293 (735)
Other assets (16,374) (910)
Accounts payable and accrued expenses (1,407) (30,241)
Income taxes 18,760 2,422
Other current liabilities 4,616 (1,393)
Other liabilities (6,398) (2,255)
-------- -------
Net cash provided by operating activities 14,901 27,768
-------- -------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired (74,946) (21,523)
(Advances) repayment of notes receivable (30,794) 1,345
Capital expenditures (57,460) (15,761)
Investment in unconsolidated companies (20,853) (4,165)
Proceeds from sale of assets 3,623 9,788
-------- -------
Net cash used in investing activities (180,430) (30,316)
-------- -------
Cash flows from financing activities:
Proceeds (repayments) from revolving credit facilities 24,393 36,704
Proceeds from Notes 199,724 1,728
Financing costs (4,993) (587)
Debt repayments (35,766) (41,183)
Net (payments) proceeds for common stock(repurchased)issued (9,677) 4,081
-------- -------
Net cash provided by financing activities 173,681 743
-------- -------
Net increase (decrease) in cash and cash equivalents 8,152 (1,805)
Effect of translation on cash 68 (361)
Cash and cash equivalents - beginning of period 6,063 4,754
-------- -------
Cash and cash equivalents - end of period $ 14,283 $ 2,588
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 15,366 $ 7,266
Income taxes $ 32,349 $ 10,437
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6 of 22
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<TABLE>
<CAPTION>
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Supplemental disclosure of non-cash investing and financing activities:
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Acquisitions:
Fair value of assets acquired:
Accounts receivable $ 32,568 $ 36,416
Inventories 2,462 919
Deferred and refundable income taxes 1,024 -
Other current assets 520 1,362
Property and equipment 26,414 20,222
Other assets 3,029 1,700
------- --------
Total non-cash assets 66,017 60,619
------- --------
Liabilities 18,802 21,035
Debt 17,746 12,523
------- --------
Total liabilities assumed 36,548 33,558
------- --------
Net non-cash assets acquired 29,469 27,061
Cash acquired 4,644 2,900
------- --------
Fair value of net assets acquired 34,113 29,961
Excess over fair value of assets acquired 54,106 70,959
------- --------
Purchase price $ 88,219 $ 100,920
======= ========
Note payable issued for acquisitions $ 8,629 $ 130
Cash paid and common stock issued for acquisitions 79,590 90,895
Contingent consideration - 9,895
------- --------
Purchase price $ 88,219 $ 100,920
======= ========
Property acquired through financing arrangements $ - $ 413
======= ========
<FN>
In 1997, the Company issued approximately 1,621,000 shares of Common Stock
for domestic acquisitions of which 250,000 shares were issued from treasury
stock at a cost of approximately $1.6 million.
In 1997, the Company converted a note receivable and accrued interest thereon
totaling $29 million into stock of a company.
In 1998, the Company issued approximately 136,000 shares of stock primarily as
payment for contingent consideration related to 1997 acquisitions. In addition,
the Company issued approximately 40,000 shares as bonuses to certain employees
and fees to directors.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 7 of 22
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. CONSOLIDATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
MasTec, Inc. ("MasTec" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. They do
not include all information and notes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report on Form 10-K and Form 8-K filed September 8, 1998, for the year ended
December 31, 1997. The year end condensed balance sheet data was derived from
the Form 8-K but does not include all disclosures required by generally accepted
accounting principles. The financial information furnished reflects all
adjustments, consisting only of normal recurring accruals which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The results of
operations are not necessarily indicative of future results of operations or
financial position of MasTec. Certain prior year amounts have been reclassified
to conform to the current presentation.
During the second quarter of 1998, the Company applied purchase accounting
to two 1997 acquisitions previously accounted for using pooling-of-interests.
The change occurred due to transactions with management of the acquired
companies which occurred in the second quarter of 1998 and the potential for
future consideration that may have required the use of purchase accounting (see
Note 8). The change in accounting resulted in an increase to capital surplus and
intangible assets of $53 million. No other significant changes to previously
reported balance sheet amounts were recorded. The resulting goodwill is being
amortized over 40 years. As a result, third quarter and nine month results in
1998 include amortization expense of $333,000 and $1 million, respectively,
related to additional amortization expense from the change in accounting method.
For both the third quarter and nine month period in 1997, amortization expense
of approximately $200,000 is included in operating results.
2. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in
general purpose financial statements for the year ended December 31, 1998. The
table below sets forth "comprehensive income" as defined by SFAS No. 130 for the
three and nine month period ended September 30:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S><C> <C> <C> <C> <C>
Net income $ 13,413 $ 8,498 $ 10,706 $ 28,611
Other comprehensive income:
Unrealized translation gain (loss) 1,906 (850) 1,448 (751)
------ ----- ------ ------
Comprehensive income $ 15,319 $ 7,648 $ 12,154 $ 27,860
====== ===== ====== ======
</TABLE>
Page 8 of 22
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
3. ACQUISITIONS
During the nine months ended September 30, 1998, the Company completed
certain acquisitions which have been accounted for under the purchase method of
accounting. Accordingly, the results of operations have been included in the
Company's condensed consolidated financial statements from the respective
acquisition dates. If the acquisitions had been made at the beginning of 1998 or
1997, pro forma results of operations would not have differed materially from
actual results. Acquisitions made in 1998 were M.E. Hunter, Inc. of Atlanta,
Georgia, C & S Directional Boring, Inc. of Purcell, Oklahoma, Office
Communications Systems, Inc. of Inglewood, California, Phasecom Systems, Inc. of
Toronto, Canada, P&E Electric Company, Inc. of Nashville, Tennessee,
Lessard-Nyren Utilities, Inc. of Hugo, Minnesota, Electronic Equipment
Analyzers, Inc. of Raleigh, North Carolina, Cotton and Taylor of Las Vegas,
Nevada, Stackhouse, Inc. of Goldsboro, North Carolina, Martin Telephone
Contractors, Inc. of Cades, South Carolina, ten telecommunications
infrastructure and utility contractors with operations primarily in the western,
northern and southeastern United States as well as Canada. Additionally, the
Company made four international acquisitions of telecommunications
infrastructure contractors: CIDE Engenharia Ltda. of Brazil, Acietel Mexicana,
S.A. of Mexico, Artcom Services, Inc. of Puerto Rico and Proyco Ltda. of
Colombia.
Intangible assets of approximately $ 152 million resulting from
acquisitions since 1996 are included in other long-term assets and principally
consist of the excess acquisition cost over the fair value of the net assets
acquired (goodwill). Goodwill associated with acquisitions is being amortized on
a straight-line basis over a range of 15-40 years. The Company periodically
reviews goodwill to assess recoverability.
4. DEBT
<TABLE>
<CAPTION>
Debt is comprised of the following (in thousands):
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Revolving Credit Facility, at LIBOR plus 1.50% (7.16% at September 30, 1998
and 6.96% at December 31, 1997) $ 71,500 $ 83,010
Revolving Credit Facility, at MIBOR plus 0.30 (5.60% at December 31, 1997) - 10,894
Other bank facilities, denominated in Spanish pesetas, at interest rates from
4.75% to 6.75% at September 30, 1998 and 5.65% to 6.75% at December
31, 1997 due in 1999 43,470 17,438
Other bank facilities denominated in Brazilian reals at a weighted average
rate of 27.7% at September 30, 1998 3,457 -
Other bank facility at LIBOR plus 1.25% (6.91% at September 30, 1998) 5,000 -
Notes payable for equipment, at interest rates from 7.5% to 8.5% due in
installments through the year 2000 9,913 14,500
Notes payable for acquisitions, at interest rates from 7% to 8% due in
installments through February 2000 25,714 23,215
Senior subordinated notes, 7.75% due 2008 199,742
------- -------
Total debt 358,796 149,057
Less current maturities 77,924 54,562
------- -------
Long-term debt $ 280,872 $ 94,495
======= =======
</TABLE>
Page 9 of 22
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
The Company has a $125.0 million revolving credit facility, (the "Credit
Facility") from a group of financial institutions led by BankBoston, N.A.
maturing on June 9, 2000. The Credit Facility is collateralized by the stock of
the Company's principal domestic subsidiaries and a portion of the stock of
Sintel, S.A., the Company's Spanish subsidiary ("Sintel").
Additionally, the Company has several credit facilities denominated in
Spanish Pesetas. At September 30, 1998 and December 31, 1997, the Company had
$67.9 million (9.6 billion Pesetas) and $50.6 million (7.7 billion Pesetas),
respectively, of debt denominated in Pesetas, including $24.4 million and $22.3
million, respectively, remaining under the acquisition debt incurred to acquire
Sintel. The Company has paid a portion of the December 31, 1997 installment of
the acquisition debt. Management expects to settle this obligation in connection
with the proposed sale of its Sintel subsidiary (see Note 8).
On January 30, 1998, the Company sold $200.0 million, 7.75% senior
subordinated notes (the "Notes") due in 2008 with interest due semi-annually.
The Credit Facility and Notes contain certain covenants that, among other
things, restrict the payment of dividends and limit the Company's ability to
incur additional debt, create liens, dispose of assets, merge or consolidate
with another entity or make other investments or acquisitions. These covenants
also require the Company to maintain minimum amounts of shareholders' equity and
to meet certain financial ratio coverages, among others, minimum ratios at the
end of each fiscal quarter of debt to earnings before interest, taxes,
depreciation and amortization and earnings to interest expense.
5. OPERATIONS BY GEOGRAPHIC AREAS
The Company's principal source of revenue is the provision of
telecommunications infrastructure construction services in North America, Spain
and the Caribbean and Latin American region (CALA), primarily Brazil.
Significant CALA operations commenced on August 1, 1997 with the acquisition of
MasTec Inepar.
<TABLE>
<CAPTION>
As of September 30,
1998 1997
---- ----
<S> <C> <C>
Revenue
North America $ 474,379 $ 265,858
Spain 151,409 155,348
CALA 95,019 34,998
------- -------
Total $ 720,807 $ 456,204
======= =======
Operating income (loss)
North America (1) 33,324 34,800
Spain (2) (6,158) 9,941
CALA 5,534 5,140
------- -------
Total $ 32,700 $ 49,881
======= =======
Identifiable assets
North America $ 399,017 $ 170,404
Spain 141,233 175,932
CALA 80,062 36,139
Corporate 274,052 209,817
------- -------
Total $ 894,364 $ 592,292
======= =======
<FN>
(1) North American operations were impacted by several factors
including special charges of $4.0 million in the first quarter
of 1998.
(2) Operating loss in 1998 is due to severance charges totaling
$13.4 million recorded in the first quarter of 1998.
</FN>
</TABLE>
Page 10 of 22
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
There are no material transfers between geographic areas. Operating income
consists of revenue less operating expenses, and does not include interest
expense, interest and other income, equity in earnings of unconsolidated
companies, minority interest and income taxes. Domestic operating income is net
of corporate general and administrative expenses. Identifiable assets of
geographic areas are those assets used in the Company's operations in each area.
Corporate assets include cash and cash equivalents, investments in
unconsolidated companies, real estate held for sale, notes receivable and
goodwill of which approximately $152 million is included in other assets. The
Company expects to broaden its segment disclosure to provide additional
information on product lines pursuant to FASB Statement No. 131 Disclosures
about Segments of an Enterprise and Related Information.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from the provision
of telecommunications infrastructure services to Telefonica, S.A.
("Telefonica"), BellSouth Telecommunications Corp. ("BellSouth") and the
operating companies of Telecomunicacoes Brasileiras S.A. ("Telebras"). For the
nine months ended September 30, 1998, approximately 14%, 13% and 7% of the
Company's revenue was derived from services performed for Telefonica, Telebras,
and BellSouth, respectively. During the nine months ended September 30, 1997,
the Company derived 27%, 13% and 7% of its revenue from Telefonica, BellSouth
and Telebras, respectively. Although the Company's strategic plan envisions
diversification of its customer base, the Company anticipates that it will
continue to derive a significant portion of its revenue in the future from
certain of these customers (see Note 8).
7. COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors, and National Beverage
Corporation ("NBC"), the Company's then-largest stockholder. The complaint
alleges, among other things, that the Company's Board of Directors and NBC
breached their respective fiduciary duties in approving certain transactions.
In November 1993, Mr. Kahn filed a class action and derivative complaint
against the Company, the then members of its Board of Directors, and Jorge L.
Mas, Jorge Mas and Juan Carlos Mas, the principal shareholders of the Company.
The 1993 lawsuit alleges, among other things, that the Company's Board of
Directors and NBC breached their respective fiduciary duties by approving the
terms of the acquisition of the Company by the Mas family, and that the Mas
family had knowledge of the fiduciary duties owed by NBC and the Company's Board
of Directors and knowingly and substantially participated in the breach of these
duties. The lawsuit also claims derivatively that each member of the Company's
Board of Directors engaged in mismanagement, waste and breach of fiduciary
duties in managing the Company's affairs prior to the acquisition by the Mas
family.
There has been no activity in either of these lawsuits in more than a year.
The Company believes that the allegations in each of the lawsuits are without
merit and intends to defend these lawsuits vigorously.
In November 1997, Church & Tower, Inc. a subsidiary of the Company ("Church
and Tower") filed a lawsuit against Miami-Dade County (the "County") in Florida
state court alleging breach of contract and seeking damages exceeding $3.0
million in connection with the County's refusal to pay amounts due to Church &
Tower under a multi-year agreement to perform road restoration work for the
Miami-Dade Water and Sewer Department ("MWSD"), a department of the County, and
the County's wrongful termination of the agreement. The County has refused to
pay amounts due to Church & Tower under the agreement until alleged overpayments
under the agreement have been resolved, and has counterclaimed against the
Company seeking damages that the Company believes will not exceed $2.1 million.
The Company believes that any amounts due to the County under the existing
agreement are not material and may be recoverable in whole or in part from
Church & Tower subcontractors who actually performed the work and whose bills
were submitted directly to the County.
Page 11 of 22
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
The Company is a party to other pending legal proceedings arising in the
normal course of business, none of which the Company believes is material to the
Company's financial position or results of operations.
The Company continues to pursue a strategy of growth through acquisitions
and internal expansion. During 1998, the Company completed 14 acquisitions for
$88.2 million in cash and seller financing. Additionally, the Company believes
that there are significant business opportunities available to it that may
require the Company to provide customer financing in connection with the sale of
its services. As of September 30, 1998, the Company had entered into financing
agreements to provide financing to two customers. As of September 30, 1998, the
Company had $19.8 million outstanding under these agreements. The Company
anticipates that it will provide an additional $20.0 million of financing under
these agreements over the next 12 months.
The Company has committed to continue developing a PCS cellular phone
system in Paraguay of which the Company owns 90%. The Company anticipates
investing approximately $20.0 million for the development of this system over
the next 12 months.
8. SUBSEQUENT EVENTS
In October 1998, the Company announced an agreement to sell its Spanish
subsidiary Sintel to a group of investors led by Inversiones Ibersuizas S.A., a
Spanish investment firm. The agreement is for a fixed purchase price plus the
assumption of all of Sintel's consolidated debt. The agreement includes all of
Sintel's affiliates, including its operations in Spain, Argentina, Chile,
Colombia, Peru, Puerto Rico and Venezuela. The closing of the agreement is
subject to satisfactory due diligence and a number of other contingencies. Until
all of the contingencies are met, there can be no assurance that the transaction
will close. The closing is anticipated to occur before December 31, 1998.
The Company is negotiating with management personnel at certain of the
Company's subsidiaries acquired in 1997 for the continuation of their employment
and/or consulting services for five years from the date of definitive
agreements. In addition, pre-existing non-competition and non-solicitation
agreements are proposed to be modified and to be extended to a term of ten years
from the date of the definitive agreements. As consideration for these
agreements, the Company proposes to pay certain compensation for the employees'
employment and non-competition agreements, including cash compensation, stock
and option awards and certain other compensation. The Company also proposes to
repurchase shares of the Company's common stock issued in connection with the
1997 acquisitions and owned by certain of these employees in three transactions
over the next thirteen months. In total these agreements, if concluded, will
require cash payments (including for the repurchase of the common stock) of $35
million in 1998, $32 million in two installments in 1999 and $3.2 million in
2000, 2001 and 2002. The definitive agreements are still subject to further
negotiation and to final Board approval. There can be no assurance that
definitive agreements will be executed, or if executed, that they will be at the
terms described above.
Page 12 of 22
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Certain statements in this Quarterly Report are forward-looking, such as
statements regarding the Company's future growth and profitability. These
forward looking statements are based on the Company 's current expectations and
are subject to a number of risks and uncertainties that could cause actual
results in the future to significantly differ from results expressed or implied
in any forward-looking statements included in this Quarterly Report. These risks
and uncertainties include, but are not limited to, the Company's relationship
with key customers, implementation of the Company's growth strategy, and
seasonality. These and other risks are detailed in this Quarterly Report and in
other documents filed by the Company with the Securities and Exchange
Commission.
Overview
MasTec is one of the largest contractors specializing in the build-out of
telecommunications and other utilities infrastructure. The Company's business
consists of the design, installation and maintenance of the outside physical
plant for telephone and cable television communications systems and of
integrated voice, data and video local and wide area networks inside buildings,
and the installation of central office telecommunications equipment. The Company
also provides infrastructure construction services to the electric power
industry and other public utilities.
During the nine months ended September 30, 1998, the Company's North
American operations were affected by a number of factors including severe
weather conditions experienced during the first quarter of 1998, among other
things, and performance issues in two divisions.
In March 1998, Sintel entered into an agreement with its unions to resolve
a labor dispute. As a result of the agreement reached, the Company recorded a
severance charge related to operational personnel and administrative personnel
of $1.9 million and $11.5 million, respectively. The total charge of $13.4
million negatively impacted the Company's operating margins in the first quarter
of 1998. On October 16, 1998, the Company announced an agreement to sell its
Spanish subsidiary and its affiliates in Argentina, Chile, Colombia, Peru,
Puerto Rico and Venezuela to focus on operations in North America.
In July 1998, the Brazilian government privatized the Telebras wireline and
wireless telephone companies. As a result of the privatization, the Company
anticipates that it will increase its sales in the CALA region. However, global
deregulation and consolidation within the telecommunications industry may delay
or depress capital spending among telecommunications providers as they assess
their new business plans and strategies and focus on administrative and
operational issues associated with their acquisitions or alliances.
Page 13 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Three Months Ended September 30, 1998 compared to
Three Months Ended September 30, 1997
Results of Operations
Revenue is generated primarily from telecommunications and other utilities
infrastructure services. Infrastructure services are provided to telephone
companies, public utilities, cable television operators, other
telecommunications providers, governmental agencies and private businesses.
Costs of revenue includes subcontractor costs and expenses, materials not
supplied by the customer, fuel, equipment rental, insurance, operations payroll
and employee benefits. General and administrative expenses include management
salaries and benefits, rent, travel, telephone and utilities, professional fees
and clerical and administrative overhead.
The following table sets forth certain historical consolidated financial
data and supplemental information as a percentage of revenue by geographic
region for the three months ended September 30, 1998 and 1997 (in thousands
unless otherwise indicated).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
North America: 1998 1997
- - ------------- ---- ----
Revenue $ 198,903 100.0% $ 105,424 100.0%
Costs of Revenue 147,045 73.9% 78,096 74.1%
Depreciation and amortization 9,447 4.7% 5,137 4.9%
General and administrative expenses 19,553 9.8% 9,412 8.9%
----------------------- -----------------------
Operating income 22,858 11.5% 12,779 12.1%
Interest expense 5,822 2.9% 1,814 1.7%
Interest and dividend income and other income, net, equity
in unconsolidated companies and minority interest 926 0.5% 885 0.8%
----------------------- -----------------------
Income from operations before
provision for income taxes 17,962 9.0% 11,850 11.2%
Provision for income taxes 6,960 3.5% 4,900 4.6%
======================= =======================
Net income $ 11,002 5.5% $ 6,950 6.6%
======================= =======================
CALA:
- - ----
Revenue $ 30,114 100.0% $ 34,998 100.0%
Costs of Revenue 25,093 83.3% 29,733 85.0%
Depreciation and amortization 1,791 5.9% - 0.0%
General and administrative expenses 2,908 9.7% 125 0.4%
----------------------- -----------------------
Operating income 322 1.1% 5,140 14.7%
Interest expense 750 2.5% - 0.0%
Interest and dividend income and other income, net, equity
in unconsolidated companies and minority interest 1,515 5.0% (1,695) -4.8%
----------------------- -----------------------
Income from operations before
provision for income taxes 1,087 3.6% 3,445 9.8%
Provision for income taxes 759 2.5% 1,723 4.9%
----------------------- -----------------------
Net income $ 328 1.1% $ 1,722 4.9%
======================= =======================
Spain:
- - -----
Revenue $ 59,589 100.0% $ 44,140 100.0%
Costs of Revenue 46,375 77.8% 35,045 79.4%
Depreciation and amortization 592 1.0% 600 1.4%
General and administrative expenses 9,513 16.0% 9,642 21.8%
----------------------- -----------------------
Operating income 3,109 5.2% (1,147) -2.6%
Interest expense 1,216 2.0% 765 1.7%
Interest and dividend income and other income, net, equity
in unconsolidated companies and minority interest 1,437 2.4% 1,212 2.7%
----------------------- -----------------------
Income (loss) from operations before
provision for income taxes 3,330 5.6% (700) -1.6%
Provision for income taxes 1,247 2.1% (526) -1.2%
======================= =======================
Net income (loss) $ 2,083 3.5% $ (174) -0.4%
======================= =======================
</TABLE>
Page 14 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Revenue increased $104 million or 56% to $288.6 million in 1998 as compared
to $184.6 million in 1997. Revenue from North American operations increased
$93.5 million, or 89%, to $198.9 million in 1998 as compared to $105.4 million
in 1997. North American revenue growth was primarily generated by acquisitions
completed in the latter part of 1997 and during 1998. Revenue generated by the
combined Spanish and CALA regions (collectively referred to as "international"
operations) increased $10.6 million, or 13.4%, to $89.7 million in 1998 as
compared to $79.1 million in 1997 due primarily to acquisitions of entities in
Colombia and Puerto Rico. Revenues in the Company's CALA region were negatively
impacted by delays in the privatization of the Brazilian telecommunications
industry.
Gross profit (revenue less cost of revenue), excluding depreciation and
amortization, increased $28.4 million, or 68%, to $70.1 million, or 24.3% of
revenue in 1998 as compared to $41.7 million, or 22.6% of revenue in 1997. North
American gross margins (gross profit as a percentage of revenue) increased to
26.1% in 1998 from 25.9% in 1997. The increase in gross margins was due
primarily to acquisitions made in the third quarter of 1997 of work generating
higher margins. International gross margins increased to 20.3% in 1998 as
compared to 18.2% in 1997 primarily due to the completion of certain higher
margin contracts in 1998. Additionally, the Company's newly formed CALA region
reflected improved margins of 16.7% as compared to 15% in 1997. In the CALA
region, the Company typically operates in a project manager capacity, which
results in lower margins than the Company's North American operations because of
greater use of subcontractors.
Depreciation and amortization increased $6.1 million, or 107%, to $11.8
million in 1998 from $5.7 million in 1997. The increase in depreciation and
amortization was a result of increased amortization of intangibles associated
with acquisitions, as well as increased capital expenditures during 1998 to
support revenue growth. As a percentage of revenue, depreciation and
amortization was 4.1% and 3.1% of revenue for 1998 and 1997, respectively.
General and administrative expenses increased $12.8 million, or 67%, to $32
million, or 11.1% of revenue for 1998 from $19.2 million, or 10.4% of revenue
for 1997. The increase in dollar amount is primarily due to North American
general and administrative expenses which were $19.6 million, or 9.8% of North
American revenue in 1998, compared to $9.4 million, or 8.9% of domestic revenue
for 1997. The increase in dollar amount of domestic general and administrative
expenses stems primarily from acquired companies and an increase in the
allowance for doubtful accounts of $1 million in connection with management's
ongoing evaluation of the collectability of its receivables. International
general and administrative expenses increased $2.6 million, or 26.5%, to $12.4
million, or 13.8% of international revenue in 1998 from $9.8 million, or 12.4%
of international revenue for 1997. The increase in general and administrative
expenses resulted from the Company's expansion into the CALA region in August
1997. General and administrative expenses for the CALA region were approximately
$2.9 million.
The Company generated operating income of $26.3 million for 1998 compared
to $16.8 million for 1997 or 9.1% of revenue for both periods. Domestic
operating income declined to 11.5% of revenue in 1998 as compared to 12.1% in
1997 as a result of a $1 million increase in the allowance for doubtful
accounts. Favorably impacting 1998 operating income were acquisitions and
short-term projects with attractive pricing. International operating income
decreased to $3.4 million in 1998 from $4.0 million in 1997 due primarily to
increases in general and administrative expenses associated with the Company's
newly established Brazilian operation.
Interest expense increased $5.2 million or 200%, to $7.8 million for 1998
from $2.6 million in 1997 primarily due to the Company's $200.0 million bond
offering completed in February 1998. Offsetting the increase was lower interest
rates on Spanish borrowings. See "Financial Condition, Liquidity and Capital
Resources."
Interest and dividend income, other income, net, equity in earnings of
unconsolidated companies and minority interest increased to $3.9 million
compared to $402,000 during the 1997 period due to a significant increase in
interest income related to temporary short-term investments by the Company's
Brazilian operations.
Page 15 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
Nine Months Ended September 30, 1998 compared to
Nine Months Ended September 30, 1997
<CAPTION>
The following table sets forth certain historical consolidated
financial data and supplemental information as a percentage of revenue for the
nine months ended September 30, 1998 and 1997 (in thousands unless otherwise
indicated).
<S> <C> <C> <C> <C> <C>
North America: 1998 1997
- - ------------- ---- ----
Revenue $ 474,379 100.0% $ 265,858 100.0%
Costs of Revenue 359,885 75.9% 193,581 72.8%
Depreciation and amortization 26,494 5.6% 12,043 4.5%
General and administrative expenses 54,676 11.5% 25,434 9.6%
--------------------- ---------------------
Operating income 33,324 7.0% 34,800 13.1%
Interest expense 15,005 3.2% 4,506 1.7%
Interest and dividend income and other income, net, equity
in unconsolidated companies and minority interest 2,794 0.6% 1,533 0.6%
--------------------- ---------------------
Income from operations before
provision for income taxes 21,113 4.5% 31,827 12.0%
Provision for income taxes 8,348 1.8% 12,583 4.7%
===================== =====================
Net income $ 12,765 2.7% $ 19,244 7.2%
===================== =====================
CALA:
- - ----
Revenue $ 95,019 100.0% $ 34,998 100.0%
Costs of Revenue 79,610 83.8% 29,733 85.0%
Depreciation and amortization 2,730 2.9% - 0.0%
General and administrative expenses 7,145 7.5% 125 0.4%
--------------------- ---------------------
Operating income 5,534 5.8% 5,140 14.7%
Interest expense 1,516 1.6% - 0.0%
Interest and dividend income and other income, net, equity
in unconsolidated companies and minority interest 1,754 1.8% (1,695) -4.8%
--------------------- ---------------------
Income from operations before
provision for income taxes 5,772 6.1% 3,445 9.8%
Provision for income taxes 3,007 3.2% 1,723 4.9%
===================== =====================
Net income $ 2,765 2.9% $ 1,722 4.9%
===================== =====================
Spain:
- - -----
Revenue $ 151,409 100.0% $ 155,348 100.0%
Costs of Revenue 118,212 78.1% 114,599 73.8%
Depreciation and amortization 1,770 1.2% 2,001 1.3%
General and administrative expenses 37,585 24.8% 28,807 18.5%
--------------------- ---------------------
Operating income (6,158) -4.1% 9,941 6.4%
Interest expense 3,395 2.2% 3,528 2.3%
Interest and dividend income and other income, net, equity
in unconsolidated companies and minority interest 3,143 2.1% 3,550 2.3%
--------------------- ---------------------
(Loss) income from operations before
provision for income taxes (6,410) -4.2% 9,963 6.4%
Provision for income taxes (1,586) -1.0% 2,318 1.5%
===================== =====================
Net (loss) income $ (4,824) -3.2% $ 7,645 4.9%
===================== =====================
</TABLE>
Page 16 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Revenue increased $264.6 million, or 58%, to $720.8 million in 1998 as
compared to $456.2 million in 1997. North American revenue increased $208.5
million, or 78% from $265.9 million to $474.4 million. The increase in North
American revenue was primarily generated by acquisitions completed in the latter
part of 1997 and 1998. Revenue generated by international operations increased
$56.1 million, or 29.5%, to $246.4 million in 1998 as compared to $190.3 million
in 1997 due primarily to the inclusion of the Company's Brazilian operations
which contributed $95 million to 1998 results. The Company's Spanish revenue was
negatively impacted in 1998 by a reduction in the volume of work by its major
customer, Telefonica, whose investment focus has shifted to Latin America,
specifically Brazil. Revenues in the Company's CALA region were negatively
impacted by delays in the privatization of the Brazilian telecommunications
industry.
Gross profit (revenue less cost of revenue), excluding depreciation and
amortization, increased $44.8 million, or 38%, to $163.1 million, or 22.6% of
revenue in 1998 as compared to $118.3 million, or 25.9% of revenue in 1997.
North American gross margins (gross profit as a percentage of revenue) decreased
to 24.1% in 1998 from 27.2% in 1997. The decline in gross margins was related
to, among other things, pricing on certain contracts, some of which have
recently been re-negotiated. In addition, 1997 results were favorably impacted
by certain short-term projects with attractive pricing. Spanish gross margins
decreased to 21.9% in 1998 as compared to 26.2% in 1997 primarily due to the
increase in labor costs associated with its new labor agreement in Spain and a
$1.9 million charge for severance for direct labor personnel. The Company's
newly formed CALA operations reported an improved margin of 16.2% in 1998 as
compared to 15% in 1997. In the CALA region, the Company typically operates in a
project manager capacity, which results in lower margins than the Company's
North American operations since it subcontracts a larger proportion of its
work.
Depreciation and amortization increased $17 million, or 121%, to $31
million in 1998 from $14 million in 1997. The increase in depreciation and
amortization was a result of increased capital expenditures in 1998, as well as
depreciation and amortization associated with acquisitions. As a percentage of
revenue, depreciation and amortization was 4.3% and 3.1% of revenue for 1998 and
1997, respectively.
General and administrative expenses increased $45 million, or 83%, to $99.4
million, or 13.8% of revenue for 1998 from $54.4 million, or 11.9% of revenue
for 1997. The increase is primarily due to North American general and
administrative expenses which were $54.7 million, or 11.5% of North American
revenue in 1998, compared to $25.4 million, or 9.6% of North American revenue
for 1997. The increase in dollar amount of North American general and
administrative expenses is due primarily to acquisitions. North American general
and administrative expenses increased as a percentage of revenues due to
increases in the allowance for doubtful accounts as well as $4 million in
special charges recorded in the first quarter of 1998. General and
administrative expenses for international operations increased $15.8 million, or
55%, to $44.7 million, or 18.2% of international revenue in 1998 from $28.9
million, or 15.2% of international revenue for 1997. The increase in Spain's
general and administrative expenses was primarily due to severance charges of
$12.9 million associated with the agreement reached with the union to reduce
administrative personnel in excess of 200 people. General and administrative
expenses for the Company's CALA region were approximately $7.1 million. The
Company did not operate in this region until August 1997.
The Company generated operating income of $32.7 million or 4.5% of revenue
for 1998 compared to $49.9 million or 10.9% of revenue for 1997. Favorably
impacting 1997 operating income were short-term projects with attractive pricing
and terms. International operating income decreased to (624,000) from $15.1
million due primarily to the aforementioned severance charges recorded by the
Company's Spanish operations in 1998.
Interest expense increased $11.9 million or 149%, to $19.9 million for 1998
from $8.0 million in 1997, primarily due to the Company's $200.0 million bond
offering completed in February 1998. See - "Financial Condition, Liquidity and
Capital Resources."
Interest and dividend income, other income, net, equity in earnings of
unconsolidated companies and minority interest increased to $7.7 million
compared to $3.4 million in 1997 due to temporary short-term investments offset
by an increase in minority interest attributable to the Company's Brazilian
operations.
Page 17 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition, Liquidity and Capital Resources
The Company's primary liquidity needs are for working capital, to finance
acquisitions and construction projects and for capital expenditures and to
service the Company's indebtedness. The Company's primary sources of liquidity
have been cash flow from operations, borrowings under revolving lines of credit
and the proceeds from the sale of investments and non-core assets.
Net cash provided by operating activities for the 1998 period was $14.9
million, compared to $27.8 million in the 1997 period. This decrease was due to
a breakeven result in the first quarter of 1998 absent non-recurring charges and
fluctuations in working capital, particularly increases in accounts receivable
and unbilled revenue from Brazilian and North American operations.
As of September 30, 1998, working capital totaled $148.7 million, compared
to working capital of $124.1 million at December 31, 1997.
The Company invested cash, net of cash acquired, in acquisitions and
investments in unconsolidated companies totaling $95.8 million during 1998
compared to $25.7 million in 1997. During 1998, the Company made capital
expenditures of $57.5 million, primarily for machinery and equipment used in the
production of revenue, compared to $15.8 million in 1997. The increase in
capital expenditures was related to acquisitions, internal growth and expansion
into new contract areas.
The Company is negotiating with management personnel at certain of the
Company's subsidiaries acquired in 1997 for the continuation of their employment
and/or consulting services for five years from the date of definitive
agreements. In addition, pre-existing non-competition and non-solicitation
agreements are proposed to be modified and to be extended to a term of ten years
from the date of the definitive agreements. As consideration for these
agreements, the Company proposes to pay certain compensation for the employees'
employment and non-competition agreements, including cash compensation, stock
and option awards and certain other compensation. The Company also proposes to
repurchase shares of the Company's common stock issued in connection with the
1997 acquisitions and owned by certain of these employees in three transactions
over the next thirteen months. In total these agreements, if concluded, will
require cash payments (including for the repurchase of the common stock) of $35
million in 1998, $32 million in two installments in 1999 and $3.2 million in
2000, 2001 and 2002. The definitive agreements are still subject to further
negotiation and to final Board approval. There can be no assurance that
definitive agreements will be executed, or if executed, that they will be at the
terms described above.
The Company continues to pursue a strategy of growth through acquisitions
and internal expansion. During 1998, the Company completed 14 acquisitions for
$88.2 million in cash and seller financing. Additionally, the Company believes
that there are significant business opportunities available to it that may
require the Company to provide customer financing in connection with the sale of
its services. As of September 30, 1998, the Company had entered into financing
agreements to provide financing to two customers. As of September 30, 1998, the
Company had $19.8 million outstanding under these agreements. The Company
anticipates that it will provide an additional $20.0 million of financing under
these agreements over the next 12 months.
The Company has committed to continue developing a PCS cellular phone
system in Paraguay of which the Company owns 90%. The Company anticipates
investing approximately $20.0 million for the development of this system over
the next 12 months.
The Company expects to finance its working capital needs, capital
expenditures, debt service obligations and other commitments and contingencies
from cash generated from operations, the sale of investments and non-core
assets, borrowings under the existing Credit Facility, and funds from additional
borrowings or the issuance of additional debt or equity securities. There can be
no assurance that the Company will be able to obtain additional capital, borrow
additional funds in a timely manner or on favorable terms. Nor can there be any
assurances that the Company will be able to obtain additional financing. If the
Company is unable to do so, the Company may be required to delay or reduce its
proposed expenditures or sell additional assets in order to meet its future
obligations.
On October 16, 1998, the Company announced its intention to sell its
Spanish subsidiary and its affiliates in Argentina, Chile, Colombia, Peru,
Puerto Rico and Venezuela to focus on operations in North America. The proceeds
from the sale will be used for domestic acquisitions and internal expansion.
Page 18 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company announced a stock repurchase program in April 1998. Through
November 12, 1998, the Company had purchased a total of 657,000 shares with an
average price of $20.06. The Company may continue to purchase shares from time
to time. The Credit Facility restricts the amount of shares that the Company may
repurchase up to an additional $10.3 million.
In February 1998, the Company issued $200.0 million principal amount of
7.75% Senior Subordinated Notes (the "Notes") due 2008 with interest due
semi-annually. The Credit Facility and the Notes contain certain covenants
which, among other things, restrict the payment of dividends and limit the
Company's ability to incur additional debt, create liens, dispose of assets,
merge or consolidate with another entity or make other investments or
acquisitions. These covenants also require the Company to maintain minimum
amounts of shareholders' equity and to meet certain financial ratio coverages,
among others, minimum ratios at the end of each fiscal quarter of debt to
earnings before interest, taxes, depreciation and amortization and of earnings
to interest expense. See Note 4 of Notes to Condensed Consolidated Financial
Statements.
The Company conducts business in several foreign currencies that are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
Company does not enter into foreign exchange contracts. It is the Company's
intent to utilize foreign earnings in the foreign operations for an indefinite
period of time or until a decision to divest is made. See Note 8 to Condensed
Consolidated Financial Statements. In addition, the Company's results of
operations from foreign activities are translated into U.S. dollars at the
average prevailing rates of exchange during the period reported, which
average rates may differ from the actual rates of exchange in effect at the time
of the actual conversion into U.S. dollars.
The Company's current and future operations and investments in certain
foreign countries are generally subject to the risks of political, economic or
social instability, including the possibility of expropriation, confiscatory
taxation, hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment income, capital
and other assets. The Company cannot predict whether any of such factors will
occur in the future or the extent to which such factors would have a material
adverse effect on the Company's international operations.
Year 2000
The Company has been assessing the impact of the Year 2000 issue as it
relates to its information systems and vendor supplied application software,
hardware and non-information systems such as fax machines, alarm systems and
other miscellaneous systems. The Company and each of its operating subsidiaries
are in the process of implementing a readiness program with the objective of
having all of their significant business systems functioning properly before
January 1, 2000. Each operating system is in a different stage of its year 2000
readiness.
The first step of the Company's readiness program is to identify the
internal business systems of the Company and its operating subsidiaries that are
susceptible to system failures or processing errors. This effort is in process
and those business systems considered most critical to continuing operations are
being given the highest priority.
The Company expects to incur internal staff costs as well as consulting and
other expenses related to infrastructure to prepare the systems for the year
2000 testing and conversion of system applications which is expected to take
place over the remaining year and into 1999. Through normal, planned
enhancements of existing systems, development of new systems and upgrades to
operating systems and databases already covered by maintenance agreements, the
Company believes that the year 2000 compliance will be achieved over the next
year. The Company's vendor supplied application software is provided from
reputable companies that have year 2000 compliant software readily available.
Assuming that remediation projects can be implemented as planned, the Company
believes future costs relating to the Year 2000 issue, which will be expensed as
incurred, will not have a material adverse impact on the Company's business,
operations or financial condition.
The Company has also initiated formal communications with all of its
significant customers to determine the extent to which the Company's customer
interface systems are vulnerable to those third parties' failures to remediate
their own year 2000 issues. The Company believes that issues related to the year
2000 with respect to its customers will not have a material adverse impact since
most of the Company's customers are large commercial entities which are
addressing their own year 2000 issues.
Page 19 of 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Although the Company expects its critical systems to be compliant during
mid 1999, there are no assurances that these results will be achieved. Specific
factors that give rise to this uncertainty include a possible loss of technical
resources to perform the work, failure to identify all susceptible systems,
non-compliance by third parties whose systems and operations impact the Company,
and other similar uncertainties.
Page 20 of 22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 7 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Article 5 - Financial Data Schedules.
(b) Report on Form 8-K.
On September 8, 1998, the company filed a
Form 8-K Current Report dated May 28, 1998
reporting information under item 5 thereof
regarding the amendment of its Revolving
Credit Agreement, the application of
purchase accounting to two 1997 acquisitions
previously accounted for using
pooling-of-interests and the acquisition of
seven domestic and two international
companies. In addition, the Company
announced certain strategic alliances and
the purchase of a partnership holding 7.9
million shares of the Company's stock by the
Company's Chairman of the Board and his
brothers.
Page 21 of 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: November 13, 1998 /s/ Stephen D. Daniels
----------------------
Stephen D. Daniels
Senior Vice President-
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 22 of 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000015615
<NAME> MASTEC, INC.
<MULTIPLIER> 1000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.00
<CASH> 14,283
<SECURITIES> 0
<RECEIVABLES> 426,257
<ALLOWANCES> 0
<INVENTORY> 16,104
<CURRENT-ASSETS> 493,999
<PP&E> 145,632
<DEPRECIATION> 0
<TOTAL-ASSETS> 894,364
<CURRENT-LIABILITIES> 345,274
<BONDS> 0
0
0
<COMMON> 2,733
<OTHER-SE> 223,416
<TOTAL-LIABILITY-AND-EQUITY> 894,364
<SALES> 720,807
<TOTAL-REVENUES> 720,807
<CGS> 557,707
<TOTAL-COSTS> 688,107
<OTHER-EXPENSES> (7,691)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,916
<INCOME-PRETAX> 20,475
<INCOME-TAX> 9,769
<INCOME-CONTINUING> 10,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,706
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.38
</TABLE>
