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UNITED STATES
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 March 31, 1999
Commission File Number 0-3797
MASTEC, INC.
(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 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.
As of May 11, 1999, MasTec, Inc. had 27,362,785 shares of common stock,
$0.10 par value, outstanding.
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<PAGE>
MasTec, Inc.
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and
March 31, 1998................................................... 3
Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
and December 31, 1998............................................ 4
Unaudited Consolidated Statement of Changes in
Shareholders' Equity for the Three Months
Ended March 31, 1999............................................. 5
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and
March 31, 1998................................................... 6
Notes to Consolidated Financial Statements (Unaudited) .......... 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.......................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................. 16
Signatures ............................................................. 17
2
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998 (1)
---------- ----------
<S> <C> <C>
Revenue ............................................................ $ 206,797 $ 186,095
Costs of revenue ................................................... 162,097 152,966
Depreciation and amortization ...................................... 12,647 8,229
General and administrative expenses ................................ 19,391 38,499
---------- ----------
Operating income (loss) ........................................ 12,662 (13,599)
Interest expense ................................................... (6,231) (5,056)
Interest income .................................................... 2,109 1,433
Other income, net .................................................. 123 243
---------- ----------
Income (loss) before (provision) benefit for income taxes, equity in 8,663 (16,979)
earnings of unconsolidated companies and minority interest
(Provision) benefit for income taxes ............................... (3,670) 5,311
Equity in earnings of unconsolidated companies ..................... -- 422
Minority interest .................................................. (640) (853)
========== ==========
Net income (loss) .................................................. $ 4,353 $ (12,099)
========== ==========
Weighted average common shares outstanding ......................... 27,328 27,677
Basic earnings (loss) per share .................................... $ 0.16 $ (0.44)
Weighted average common shares outstanding ......................... 27,755 27,677
Diluted earnings (loss) per share .................................. $ 0.16 $ (0.44)
</TABLE>
(1) 1998 results include the Company's Spanish operations which were sold
effective December 31, 1998.
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ...................................... $ 25,560 $ 19,864
Accounts receivable, unbilled revenue and retainage, net ....... 253,075 284,575
Inventories .................................................... 15,816 13,423
Assets held for sale ........................................... 54,168 49,973
Other current assets ........................................... 36,869 59,601
---------- ----------
Total current assets ...................................... 385,488 427,436
Property and equipment, net ........................................ 147,190 142,897
Investments in unconsolidated companies ............................ 5,886 5,886
Intangibles, net ................................................... 138,537 140,461
Other assets ....................................................... 18,199 18,806
---------- ----------
Total assets .............................................. $ 695,300 $ 735,486
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt ..................................... $ 12,395 $ 11,143
Accounts payable and accrued expenses .......................... 67,329 84,372
Other current liabilities ...................................... 61,642 87,417
---------- ----------
Total current liabilities ................................. 141,366 182,932
---------- ----------
Other liabilities .................................................. 32,716 37,592
---------- ----------
Long-term debt ..................................................... 323,250 310,689
---------- ----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock ................................................... 2,742 2,738
Capital surplus ................................................ 149,589 149,479
Retained earnings .............................................. 60,830 56,477
Foreign currency translation adjustments ....................... (15,193) (4,421)
---------- ----------
Total shareholders' equity ................................ 197,968 204,273
---------- ----------
Total liabilities and shareholders' equity ................ $ 695,300 $ 735,486
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Foreign
------------------ Currency
Capital Retained Translation
Shares Amount Surplus Earnings Adjustments Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 ...... 27,382 $ 2,738 $ 149,479 $ 56,477 $ (4,421) $ 204,273
Net income ..................... - - - 4,353 - 4,353
Foreign currency translation
adjustments .................... - - - - (10,772) (10,772)
Stock issued ................... 40 4 110 - - 114
==================================================================================================
Balance March 31, 1999 27,422 $ 2,742 $ 149,589 $ 60,830 $(15,193) $ 197,968
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 4,353 $ (12,099)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ................................. 12,647 8,229
Minority interest ............................................. 640 853
Equity in earnings of unconsolidated companies ................ -- (422)
Loss on sale of assets ........................................ -- 104
Changes in assets and liabilities net of effect of acquisitions:
Accounts receivables, unbilled revenue and retainage, net ... 7,801 (761)
Inventories and other current assets ........................ 11,728 (2,314)
Other assets ................................................ (3,106) (10,003)
Accounts payable and accrued expenses ....................... (4,903) 1,902
Other current liabilities ................................... (19,602) 2,038
Other liabilities ........................................... (5,387) (7,218)
---------- ----------
Net cash provided by (used in) operating activities ................ 4,171 (19,691)
---------- ----------
Cash flows from investing activities:
Capital expenditures ............................................ (15,813) (16,458)
Cash paid for acquisitions (net of cash acquired) and ........... (2,956) (44,605)
contingent consideration
Investment in unconsolidated companies held for sale ............ (2,685) (1,346)
Proceeds from sale of assets .................................... 11,372 487
---------- ----------
Net cash used in investing activities .............................. (10,082) (61,922)
---------- ----------
Cash flows from financing activities:
Proceeds (repayments), net from revolving credit facilities .... 16,615 78,786
Proceeds from Senior Notes ...................................... -- 199,724
Debt repayments ................................................. (3,102) (95,722)
Proceeds from issuance of common stock ......................... 114 1,586
Financing costs ................................................. -- (4,993)
---------- ----------
Net cash provided by financing activities .......................... 13,627 179,381
---------- ----------
Net increase in cash and cash equivalents .......................... 7,716 97,768
Effect of translation on cash ...................................... (2,020) (37)
Cash and cash equivalents - beginning of period .................... 19,864 6,063
---------- ----------
Cash and cash equivalents - end of period .......................... $ 25,560 $ 103,794
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Supplemental disclosure of non-cash investing and financing activities:
On February 26, 1999, MasTec acquired certain assets from Directional
Advantage Boring, Inc., headquartered in Minnesota, in a transaction accounted
for as a purchase. The fair value of the assets acquired amounted to $600.
During the three months ended March 31, 1998, MasTec completed certain
acquisitions which have been accounted for as a purchase. The fair value of the
net assets acquired amounted to $34,293. The $21,549 excess of the purchase
price over the net assets acquired was allocated to goodwill.
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
(Unaudited)
Note 1 - Basis for Presentation of Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of MasTec,
Inc. ("MasTec") 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
audited financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1998. The balance sheet data
as of December 31, 1998 was derived from audited financial statements 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, results
of operations and cash flows for the quarterly periods presented. The results of
operations for the periods presented are not necessarily indicative of future
results of operations of MasTec for the entire year. During the second quarter
of 1998, the Company's management applied purchase accounting to two 1997
acquisitions previously accounted for using pooling-of-interests. The change in
accounting resulted in an increase to capital surplus and intangible assets of
$53 million. As a result, first quarter results in 1998 include amortization
expense of $333,000 related to the change in accounting method.
MasTec's comprehensive loss for the three months ended March 31, 1999 and
1998 was $6.4 million and $11.7 million, respectively. The components of
comprehensive loss are net income (loss) and foreign currency translation
adjustments.
Note 2 - Acquisitions and Investing Activities
During the quarter ended March 31, 1999, MasTec acquired certain assets
from Directional Advantage Boring, Inc., headquartered in Minnesota. This
acquisition has been accounted for under the purchase method of accounting. The
most significant adjustments to the balance sheet resulting from the acquisition
are disclosed in the supplemental disclosure of non-cash investing and financing
activities in the accompanying statement of cash flows. Subsequent to March 31,
1999, MasTec completed two additional external network services acquisitions and
has also signed a letter of intent to acquire an internal network services
company.
Note 3 - Debt
Debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Revolving credit facility, weighted average rate of 7.02% at March 31, ... $ 119,267 $ 106,300
1999 and 7.06% at December 31, 1998
Other bank facilities at LIBOR plus 1.25% (6.44% at March 31, 1999 and .... 7,933 6,206
6.31% at December 31, 1998)
Notes payable for equipment, at interest rates from 7.5% to 8.5% due ...... 6,752 6,145
in installments through the year 2000
Notes payable for acquisitions, at interest rates from 7.0% to 8.0% ....... 1,937 3,431
due in installments through February 2000
Senior Notes, 7.75% due February 2008 ..................................... 199,756 199,750
---------- ----------
Total debt ................................................................ 335,645 321,832
Less current maturities ................................................... (12,395) (11,143)
---------- ----------
Long-term debt ............................................................ $ 323,250 $ 310,689
========== ==========
</TABLE>
8
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
(Unaudited)
MasTec has a revolving line of credit with a group of banks (as amended,
the "Credit Facility") that provides for borrowings up to an aggregate amount of
$165.0 million. Amounts outstanding under the revolving credit facility mature
on June 9, 2000. Upon written request by MasTec and at the bank's sole
discretion, the maturity date of the Credit Facility may be extended for
successive annual periods up to a final maturity date of June 9, 2002. MasTec is
required to pay an unused facility fee ranging from .25% to .50% per annum on
the facility, depending upon certain financial covenants.
The Credit Facility is secured by a pledge of shares of certain of MasTec's
subsidiaries. Interest under the Credit Facility accrues at rates based, at
MasTec's option, on the agent bank's Base Rate plus a margin of up to .50%
depending on certain financial covenants or 1% above the overnight federal funds
effective rate, whichever is higher, or its LIBOR Rate (as defined in the Credit
Facility) plus a margin of 1.00% to 2.25%, depending on certain financial
covenants.
On January 30, 1998, MasTec issued $200.0 million, 7.75% senior
subordinated notes (the "Senior Notes") due in February 2008 with interest due
semi-annually. The net proceeds were used primarily for acquisitions and other
corporate purposes.
The Credit Facility and the Senior Notes contain customary events of
default and covenants which prohibit, among other things, making investments in
excess of a specified amount, incurring additional indebtedness in excess of a
specified amount, paying dividends in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens, prepaying
other indebtedness, including the Senior Notes, and engaging in certain mergers
or combinations without the prior written consent of the lenders. The Credit
Facility also provides that MasTec must maintain certain financial ratio
coverage, requiring, among other things minimum ratios at the end of each fiscal
quarter of debt to earnings and earnings to interest expense.
Note 4 - Operations by Segments and Geographic Areas
The following table set forth, for the three months ended March 31, 1999
and 1998, certain information about segment results of operations and segment
assets (in thousands).
<TABLE>
<CAPTION>
External Internal External
Network Network Network
1999 Services Services Power International Other(1) Consolidated
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $128,878 $ 21,303 $ 36,950 $ 18,575 $ 1,091 $206,797
Operating income (loss) .. 13,461 586 3,051 794 (5,230) 12,662
Depreciation and
amortization ......... 7,934 615 2,835 875 388 12,647
Total assets ............. 315,629 57,126 92,122 49,187 181,236 695,300
Capital expenditures ..... 10,978 165 4,051 542 77 15,813
</TABLE>
9
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
External Internal External
Network Network Network International
1998 Services Services Power (2) Other(1) Consolidated
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $ 71,864 $ 17,628 $ 16,149 $ 75,693 $ 4,761 $186,095
Operating income (loss) .. 4,072 (3,990) 769 (10,531) (3,919) (13,599)
Depreciation and
amortization ......... 4,806 347 1,641 896 539 8,229
Total assets ............. 218,277 56,400 47,766 266,879 251,318 840,640
Capital expenditures ..... 14,653 543 797 465 - 16,458
</TABLE>
(1) Consists of non-core construction operations and corporate expenses.
(2) International for 1998 includes the results of the Company's Spanish
operations which were sold effective December 31, 1998.
There are no significant transfers between geographic areas and segments.
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. Consolidated
operating income is net of corporate general and administrative expenses. Total
assets are those assets used in MasTec's operations in each segment. Corporate
assets include cash and cash equivalents, investments in unconsolidated
companies, assets held for sale and notes receivable.
Note 5 - Commitments and Contingencies
MasTec is currently providing financing to a customer in connection with
the sale of its services. As of March 31, 1999, MasTec had $48.9 million
outstanding under this agreement which was due April 30, 1999. In exchange for
certain additional consideration, MasTec extended the financing agreement
through June 30, 1999 and received $27.0 million in reduction of the outstanding
balance.
MasTec has committed to continue developing a PCS cellular phone system in
Paraguay. MasTec anticipates investing approximately $10.0 million for the
development of this system over the next nine months. Commercial operation of
the system was required to be initiated no later than May 10, 1999. MasTec has
filed a request for extension of this date. MasTec expects that the PCS system
will be operational within the next six months.
MasTec's current and future operations and investments in certain foreign
countries are generally subject to greater risks of monetary, 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. During January 1999 the Brazilian government
allowed its currency to trade freely against other currencies resulting in an
immediate devaluation of the Brazilian reais. The impact on the devaluation on
an operation depends on the devaluation's effect on the local economy and the
ability of an operation to raise prices and/or reduce expenses. Additionally,
the economies of other countries in Latin America could be adversely impacted by
Brazil's economic and monetary problems. The likelihood and extend of further
devaluation and deteriorating economic conditions in Brazil and other Latin
America countries and the resulting impacts on MasTec's results of operations,
financial position and cash flows cannot now be determined. Further, economic
conditions in these countries may make it more difficult for these operations to
satisfy debt service and other obligations. MasTec is monitoring conditions in
these countries to determine their impact, if any, on MasTec's results of
operations, financial position and cash flows. MasTec also monitors its currency
exchange risk but currently does not hedge against this risk. There can be no
assurance that currency exchange fluctuations or other economic events will not
adversely affect MasTec's results of operations, financial position and cash
flows.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Reference is made to cautionary statements contained in this Quarterly
Report and in Mastec's other filings with the Securities and Exchange Commission
regarding any forward-looking statements contained in this Quarterly Report.
Except for historical information contained herein, the matters discussed below
are forward looking statements made pursuant to the safe harbor provisions for
forward-looking statement described in the Private Securities Litigation Reform
Act of 1995.
Overview
MasTec is one of the preeminent builders of internal and external voice,
video, data, internet and other computer and communications networks for leading
telecommunications service providers, cable television operators, Fortune 500
corporations and power companies. MasTec designs, installs, constructs and
maintains aerial, underground and buried copper, coaxial and fiber optic cable
networks as well as wireless antenna networks ("external network services").
Clients for MasTec's external network services include major domestic and
international telecommunication service providers, incumbent and competitive
local exchange carriers, cable television operators, long-distance carriers and
wireless phone companies. MasTec also provides external network services to the
electric power industry ("power") that are similar to the services it provides
to telecommunications customers. Additionally, MasTec designs, installs and
maintains integrated local and wide area networks and provides systems
integration and other value added services ("internal network services") for
corporate customers and other organizations with multiple locations.
Results of Operations
Revenue is generated primarily from external and internal network services.
Services are provided to telephone companies, public utilities, cable television
operators, other telecommunications providers, governmental agencies and private
businesses. Costs of revenue include operations payroll and employee benefits,
subcontractor costs and expenses, materials not supplied by the customer, fuel,
equipment rental and insurance. General and administrative expenses include
management salaries and benefits, rent, travel, telephone and utilities,
professional fees and clerical and administrative overhead.
The following tables set forth income statement data and its related
percentage of revenue by geographic region for the three months ended March 31,
1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
North America 1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Revenue ................................ $188,222 100.0% $110,402 100.0%
Costs of revenue ....................... 147,076 78.1% 90,170 81.7%
Depreciation and amortization .......... 11,772 6.3% 7,333 6.6%
General and administrative expenses .... 17,506 9.3% 15,967 14.5%
========= ======== ========= ========
Operating income (loss) ................ $ 11,868 6.3% $ (3,068) (2.8)%
========= ======== ========= ========
</TABLE>
Three Months Ended March 31, 1999 Operating Income Compared to Three Months
Ended March 31, 1998 Operating Loss
MasTec's North American revenue was $188.2 million for the three months
ended March 31, 1999, compared to $110.4 million for the same period in 1998,
representing an increase of $77.8 million or 70.5%. The increase in North
American revenue was due primarily to revenue generated from internal growth and
to favorable weather conditions during the three months ended March 31, 1999
when compared to the same period in 1998.
MasTec's North American costs of revenue were $147.1 million or 78.1% of
revenue for the three months ended March 31, 1999, compared to $90.2 million or
81.7% of revenue for the same period in 1998, representing an increase of $56.9
million or 63.1%. The improved margins resulted from MasTec's ability to perform
work at attractive margins in certain extended geographic areas due to favorable
weather conditions during the three months ended March 31, 1999, when compared
to the same period in 1998.
11
<PAGE>
Depreciation and amortization expense was $11.8 million or 6.3% of revenue
for the three months ended March 31, 1999, compared to $7.3 million or 6.6% of
revenue for the same period in 1998. The increased depreciation and amortization
expense resulted from MasTec's investment in its fleet to support revenue growth
and from intangibles related to acquisitions consummated in 1998.
General and administrative expenses were $17.5 million or 9.3% of revenue
for the three months ended March 31, 1999, compared to $16.0 million or 14.5% of
revenue for the same period in 1998, representing an increase of $1.5 million or
9.6%. The decline in general and administrative expenses as a percent of revenue
for the three months ended March 31, 1999 was due primarily to increased
revenue. During the three months ended March 31, 1998, MasTec recorded $4.0
million related to integration costs and provision for bad debts.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
CALA 1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Revenue ................................ $ 18,575 100.0% $ 29,750 100.0%
Costs of revenue ....................... 15,021 80.9% 25,036 84.2%
Depreciation and amortization .......... 875 4.7% 283 1.0%
General and administrative expenses .... 1,885 10.1% 2,401 8.0%
========= ======== ========= ========
Operating income ....................... $ 794 4.3% $ 2,030 6.8%
========= ======== ========= ========
</TABLE>
Three Months Ended March 31, 1999 Operating Income Compared to Three Months
Ended March 31, 1998 Operating Income
Approximately 85% of the CALA region operations were comprised of MasTec's
Brazilian operations whose functional currency is the Brazilian reais. The
remaining CALA operations were conducted primarily in Mexican pesos and U.S.
dollars.
MasTec's CALA revenue was $18.6 million for the three months ended March
31, 1999, compared to $29.8 million for the same period in 1998, representing a
decrease of $11.2 million 37.6%. MasTec's CALA revenue decreased primarily due
to the devaluation of the Brazilian reais and to a reduction in work performed.
The CALA region had revenue of R$26.8 million reais during the three months
ended March 31, 1999, compared to R$33.5 million reais for the same period in
1998, representing a decrease of 20%.
MasTec's CALA costs of revenue was $15.0 million or 80.9% of revenue for
the three months ended March 31, 1999, compared to $25.0 million or 84.2% of
revenue for the same period in 1998, representing a decrease of $10.0 million or
40.0%. Costs of revenue were 80.9% of revenue in 1999, compared to 84.2% in
1998.
Depreciation and amortization expense was $0.9 million or 4.7% of revenue
for the three months ended March 31, 1999 compared to $0.3 million or 1.0% of
revenue for the same period in 1998. Depreciation and amortization relates
primarily to an intangible asset resulting from one acquisition completed in
early 1998 that is being amortized over a five year period.
General and administrative expenses were $1.9 million or 10.1% of revenue
for the three months ended March 31, 1999, compared to $2.4 million or 8.0% of
revenue for the same period in 1998, representing a decrease of $0.5 million or
20.8%. General and administrative expenses were R$2.0 million reais or 7.5% of
reais revenue during the three months ended March 31, 1999, compared to R$2.2
million reais or 6.6% of reais revenue for the same period in 1998. The increase
in general and administrative expenses as a percentage of revenue in both dollar
and reais terms was due primarily to costs of establishing an infrastructure to
support anticipated additional work following the privatization of Telebras,
which took place in July 1998, as well as decreased revenue resulting from
reduction in work performed. Due to recent economic conditions in Brazil, it is
uncertain when, if at all, such additional work will materialize.
12
<PAGE>
<TABLE>
<CAPTION>
Spain Three Months Ended
March 31, 1998
------------------
<S> <C> <C>
Revenue ...................................................... $ 45,943 100.0%
Costs of revenue ............................................. 37,760 82.2%
Depreciation and amortization ................................ 613 1.3%
General and administrative expenses .......................... 20,131 43.8%
--------- --------
Operating loss ........................................... (12,561) (27.3%)
Interest expense ............................................. (944) (2.1%)
Other income ................................................. 192 0.4%
--------- --------
Loss before benefit from income taxes, equity in earnings
of unconsolidated companies and minority interest ........ (13,313) (29.0%)
Benefit from income taxes .................................... 3,900 8.5%
Equity in earnings of unconsolidated companies ............... 71 0.2%
Minority interest ............................................ 1 0.0%
--------- --------
Net loss ..................................................... $ (9,341) (20.3%)
========= ========
</TABLE>
Effective December 31, 1998, MasTec sold 87% of its Spanish operations.
Consolidated Results
The following table sets forth for the three months ended March 31, 1999
and 1998 certain consolidated income statement data and its related percentage
of consolidated revenue.
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------
1999 1998 (1)
-------------------- ---------------------
<S> <C> <C> <C> <C>
Operating income (loss) ......................................... $ 12,662 6.1% $ (1,038) (0.7)%
Interest expense ................................................ (6,231) (3.0%) (3,915) (2.8)%
Interest income ................................................. 2,109 1.0% 1,236 0.9%
Other income, net ............................................... 123 0.1% 51 0.0%
--------- -------- --------- --------
Income (loss) before (provision) benefit for income taxes, equity
in earnings (losses) of unconsolidated companies and minority
interest ..................................................... 8,663 4.2% (3,666) (2.6%)
(Provision) benefit for income taxes ............................ (3,670) (1.8%) 1,411 1.0%
Equity in earnings (losses) of unconsolidated companies and
minority interest ............................................ (640) (0.3%) (503) (0.4%)
--------- -------- --------- --------
Net income (loss) $ 4,353 2.1% $ (2,758) (2.0%)
========= ======== ========= ========
</TABLE>
(1) Adjusted to exclude MasTec's Spanish operations which were sold effective
December 31, 1998.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
For a discussion of revenue, costs of revenue, depreciation and
amortization and general and administrative expenses, see "North America" and
"CALA" above.
Interest expense was $6.2 million for the three months ended March 31,
1999, compared to $3.9 million for the same period in 1998, representing an
increase of $2.3 million or 59.0%. The increase in interest expense was due
primarily to increased indebtedness resulting from the issuance of the Senior
Notes in early 1998, the proceeds of which were used primarily for acquisitions
13
<PAGE>
and to fund international operations investments. See Note 3 of Notes to
Consolidated Financial Statements.
Financial Condition, Liquidity and Capital Resources
MasTec's primary liquidity needs are for working capital, capital
expenditures, acquisitions and investments, and debt service. MasTec's primary
sources of liquidity are cash flows from operations, borrowings under revolving
lines of credit and the proceeds from the sale of investments and other assets
held for sale.
Net cash provided by operating activities was $4.2 million for the three
months ended March 31, 1999, compared to net cash used in operating activities
of $19.7 million for the same period in 1998.
Working capital at March 31, 1999, excluding the below described items was
$98.3 million for domestic operations compared to $83.1 million at December 31,
1998. Excluded for purposes of calculating working capital as of March 31, 1999,
were current assets consisting of $49.2 million related to a customer financing
and $54.2 million of assets held for sale.
During the three months ended March 31, 1999, MasTec made capital
expenditures of $15.8 million, primarily for machinery and equipment used in the
production of revenue, compared to $16.5 million for the same period in 1998.
MasTec invested cash in one acquisition $0.3 million and paid $2.7 million as
additional consideration for acquisitions made in previous years. MasTec also
funded $2.7 million for construction of its PCS system in Paraguay. MasTec
anticipates investing an additional $10.0 million for the development of this
system for the remainder of 1999. Commercial operation of the system was
required to be initiated no later than May 10, 1999. MasTec has filed a request
for extension of this date. MasTec expects that the PCS system will be
operational within the next six months.
MasTec is currently providing financing to a customer in connection with
the sale of its services. As of March 31, 1999, MasTec had $48.9 million
outstanding under this agreement due April 30, 1999. In exchange for certain
additional consideration, MasTec extended the financing agreement through June
30, 1999 and received $27.0 million in reduction of the outstanding balance.
In December 1998, MasTec increased its existing credit facility from $125.0
million to $165.0 million (as amended, the "Credit Facility") with a group of
financial institutions led by BankBoston, N.A. Amounts outstanding under the
Credit Facility mature on June 9, 2000. Upon written request by MasTec at the
bank's sole discretion, the maturity date of the Credit Facility may be extended
for successive annual periods up to a final maturity date of June 9, 2002.
MasTec is required to pay an unused facility fee ranging from .25% to .50% per
annum on the facility, depending upon certain financial covenants.
The Credit Facility and the Senior Notes contain customary events of
default and covenants which prohibit, among other things, making certain
investments in excess of a specified amount, incurring additional indebtedness
in excess of a specified amount, paying dividends in excess of a specified
amount, making capital expenditures in excess of a specified amount, creating
liens, prepaying other indebtedness, including the Senior Notes, and engaging in
certain mergers or combinations without the prior written consent of the
lenders. The Credit Facility also provides that MasTec must maintain certain
financial ratio coverages, requiring, among other things minimum ratios at the
end of each fiscal quarter of debt to earnings and earnings to interest expense.
MasTec expects to finance its current working capital needs, capital
expenditures, acquisitions and investments, debt service obligations and other
commitments from cash generated from operations, borrowings under its existing
Credit Facility and the sale of other assets. During 1999, MasTec has acquired
certain external network services contractors for $9.1 million in cash and $1.1
million in notes. The acquisitions were financed from cash provided by
operations and from financing activities. MasTec has also signed a letter of
intent to acquire an internal network services company. MasTec has also divested
14
<PAGE>
certain assets held for sale for approximately $1.9 million. MasTec anticipates
that available cash, cash flows from operations and from the sale of assets and
investments and borrowing availability under the Credit Facility will be
sufficient to satisfy MasTec's liquidity and working capital requirements for
the foreseeable future; however, to the extent that MasTec should desire to
increase its financial flexibility and capital resources or require or choose to
fund future capital commitments from sources other than operating cash or from
borrowings under its existing Credit Facility, MasTec may consider raising
additional capital by increasing its Credit Facility or through the offering of
equity and/or debt securities in the public or private markets. There can be no
assurance, however, that additional capital will be available to MasTec on
acceptable terms, or at all.
MasTec's current and future operations and investments in certain foreign
countries are generally subject to greater risks of monetary, 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. During January 1999 the Brazilian government
allowed its currency to trade freely against other currencies resulting in an
immediate devaluation of the Brazilian reais. The impact on the devaluation on
an operation depends on the devaluation's effect on the local economy and the
ability of an operation to raise prices and/or reduce expenses. Additionally,
the economies of other countries in Latin America could be adversely impacted by
Brazil's economic and monetary problems. The likelihood and extent of further
devaluation and deteriorating economic conditions in Brazil and other Latin
America countries and the resulting impacts on MasTec's results of operations,
financial position and cash flows cannot now be determined. Further, economic
conditions in these countries may make it more difficult for these operations to
satisfy debt service and other obligations. Mastec is monitoring conditions in
these countries to determine their impact, if any, on MasTec's results of
operations, financial position and cash flows. MasTec also monitors its currency
exchange risk but currently does not hedge against this risk. There can be no
assurance that currency exchange fluctuations or other economic events will not
adversely affect MasTec's results of operations, financial position and cash
flows.
Year 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of MasTec's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure,
disruption of operations and/or a temporary inability to conduct normal business
activities.
MasTec has undertaken a Year 2000 project which includes an assessment of
telecommunications equipment, computer equipment, software, database, data
services, network infrastructure, and telephone equipment. MasTec's Year 2000
plan addresses the Year 2000 issue in four phases: (1) inventory and assessment;
(2) impact analysis and implementation planning; (3) implementation and testing;
and (4) on-going and monitoring. As each phase is completed, project progress
will be tracked against planned targets, and resource adjustments made as
necessary. At this time, a majority of MasTec's information systems and embedded
devices have been inventoried and assessed, and MasTec has begun impact analysis
and implementation planning, as well as some implementation and testing. The
project is estimated to be complete by the end of 1999, prior to any anticipated
impact on MasTec's operating systems. MasTec believes that with upgrades to
existing software, conversions to new software and replacement of certain
products and equipment, the Year 2000 issue will not pose significant
operational problems. Based on its current assessment efforts, MasTec does not
believe that Year 2000 issues will have a material adverse effect on its
financial condition or results of operations. If, however, necessary upgrades,
replacements and conversions are not made or are not completed on a timely
basis, the Year 2000 issue may have a material adverse effect on MasTec's
business, financial condition and results of operations. MasTec's Year 2000
15
<PAGE>
issues and any potential business interruptions, costs, damages or losses
related thereto, are dependent, to a certain degree, upon the Year 2000
readiness of third parties such as vendors and suppliers. As part of MasTec's
Year 2000 efforts, formal communications with all significant vendors,
suppliers, banks and clients are being pursued to determine the extent to which
related interfaces with MasTec's systems are vulnerable if these third parties
fail to remediate their Year 2000 issues. There cannot be any assurance that any
such third parties will address any Year 2000 issues that they have or that such
third parties' systems will not materially adversely affect MasTec's systems and
operations.
MasTec continues to assess the Year 2000 issue with respect to internal
business systems, and has initiated the implementation of corrective measures to
address the issue. MasTec is evaluating the need for contingency planning at
this time of its system and embedded devices. The assessment of third parties
external to MasTec is underway, and may reveal the need for contingency planning
based on the progress and findings of the Year 2000 project.
MasTec will utilize both internal and external resources to complete and
test the Year 2000 project. Through March 31, 1999, related costs incurred were
not material, and MasTec does not expect that the total cost of its Year 2000
project will be material to its financial position or results of operations.
Project costs and the targeted completion date will be based on management's
best estimates, which will be derived from utilizing numerous assumptions of
future events, including the continued availability of certain resources, the
ability to locate and correct all relevant computer codes, third party
modification plans and other factors. There can be no assurance these estimates
will be achieved or that the actual results will not differ materially from
those anticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 3 and 5 of Notes to Consolidated Financial Statements for
disclosure about market risk.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 14, 1999, MasTec filed a Current Report on Form 8-K dated
December 31, 1998 with the Securities and Exchange Commission reporting
information under Item 2, Acquisition or Disposition of Assets.
16
<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.
Date: May 14, 1999 /s/ CARMEN M. SABATER
---------------------
Carmen M. Sabater
Senior Vice President - Director of Finance
(Principal Financial Officer)
Date: May 14, 1999 /s/ ARLENE VARGAS
-----------------
Arlene Vargas
Vice President and Controller
(Principal Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 25,560
<SECURITIES> 0
<RECEIVABLES> 269,013
<ALLOWANCES> 15,938
<INVENTORY> 15,816
<CURRENT-ASSETS> 385,488
<PP&E> 223,580
<DEPRECIATION> 76,390
<TOTAL-ASSETS> 695,300
<CURRENT-LIABILITIES> 141,366
<BONDS> 199,756
0
0
<COMMON> 2,742
<OTHER-SE> 195,226
<TOTAL-LIABILITY-AND-EQUITY> 197,968
<SALES> 206,797
<TOTAL-REVENUES> 206,797
<CGS> 162,097
<TOTAL-COSTS> 32,038
<OTHER-EXPENSES> (123)
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<INTEREST-EXPENSE> 6,231
<INCOME-PRETAX> 8,663
<INCOME-TAX> 3,670
<INCOME-CONTINUING> 4,353
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,353
<EPS-PRIMARY> 0.16
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</TABLE>
