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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 June 30, 1999
Commission File Number 001-08106
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 August 13, 1999, MasTec, Inc. had 28,084,960 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 and Six Months Ended June 30, 1999 and 1998 ... 3
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 ....................................... 4
Unaudited Consolidated Statement of Changes in
Shareholders' Equity for the Six Months
Ended June 30, 1999 ......................................... 5
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998 ............. 6
Notes to Consolidated Financial Statements (Unaudited) ...... 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition ..................................... 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk... 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ......... 23
Item 6. Exhibits and Reports on Form 8-K ............................ 23
SIGNATURES ........................................................... 24
2
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998(1) 1999 1998(1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue ...................................................... $ 238,688 $ 246,106 $ 445,484 $ 432,201
Costs of revenue ............................................. 178,269 186,228 340,366 339,194
Depreciation and amortization ................................ 13,867 10,935 26,514 19,164
General and administrative expenses .......................... 20,542 28,932 39,933 67,431
--------- --------- --------- ---------
Operating income ......................................... 26,010 20,011 38,671 6,412
Interest expense ............................................. (7,311) (7,072) (13,542) (12,128)
Interest income .............................................. 3,633 1,956 5,742 3,389
Other income, net ............................................ 178 1,171 301 1,414
--------- --------- --------- ---------
Income (loss) before provision for income taxes, equity in ... 22,510 16,066 31,172 (913)
earnings of unconsolidated companies and minority interest
Provision for income taxes ................................... (9,279) (6,113) (12,949) (803)
Equity in earnings of unconsolidated companies ............... -- 333 -- 755
Minority interest ............................................ (1,054) (892) (1,694) (1,745)
--------- --------- --------- ---------
Net income (loss) ............................................ $ 12,177 $ 9,394 $ 16,529 $ (2,706)
========= ========= ========= =========
Weighted average common shares outstanding ................... 27,698 27,816 27,513 27,746
Basic earnings (loss) per share .............................. $ 0.44 $ 0.34 $ 0.60 $ (0.10)
Weighted average common shares outstanding ................... 28,162 28,157 27,958 27,746
Diluted earnings (loss) per share ............................ $ 0.43 $ 0.33 $ 0.59 $ (0.10)
</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>
June 30, December 31,
1999 1998 (1)
---------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................... $ 27,264 $ 19,864
Accounts receivable, unbilled revenue and retainage, net .... 258,573 283,590
Inventories ................................................. 17,774 12,658
Assets held for sale ........................................ 68,917 57,238
Other current assets ........................................ 25,818 59,601
--------- ---------
Total current assets ................................... 398,346 432,951
Property and equipment, net ..................................... 147,469 137,382
Investments in unconsolidated companies ......................... 5,893 5,886
Intangibles, net ................................................ 155,438 140,461
Other assets .................................................... 15,236 18,806
--------- ---------
Total assets ........................................... $ 722,382 $ 735,486
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt .................................. $ 10,935 $ 11,143
Accounts payable and accrued expenses ....................... 75,244 84,372
Other current liabilities ................................... 55,931 87,417
--------- ---------
Total current liabilities .............................. 142,110 182,932
--------- ---------
Other liabilities ............................................... 44,599 37,592
--------- ---------
Long-term debt .................................................. 314,404 310,689
--------- ---------
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock ................................................ 2,797 2,738
Capital surplus ............................................. 160,678 149,479
Retained earnings ........................................... 73,006 56,477
Foreign currency translation adjustments .................... (15,212) (4,421)
--------- ---------
Total shareholders' equity ............................. 221,269 204,273
--------- ---------
Total liabilities and shareholders' equity ............. $ 722,382 $ 735,486
========= =========
</TABLE>
(1) Does not include financial condition of the Company's Spanish
operations, which were sold effective December 31, 1998.
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>
Foreign
Common Stock 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 16,529 16,529
Foreign currency translation (10,791) (10,791)
adjustments
Stock issued 588 59 11,199 11,258
==========================================================================================================
Balance June 30, 1999 27,970 $ 2,797 $ 160,678 $ 73,006 $ (15,212) $ 221,269
==========================================================================================================
</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>
Six Months Ended
June 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $ 16,529 $ (2,706)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization .................................. 26,514 19,164
Minority interest .............................................. 1,694 1,745
Loss (gain) on sale of assets .................................. 3,573 (183)
Equity in earnings of unconsolidated companies ................. -- (755)
Changes in assets and liabilities net of effect of acquisitions:
Accounts receivables, unbilled revenue and retainage, net .... 7,774 (15,145)
Inventories and other current assets ......................... (5,735) (471)
Other assets ................................................. 3,280 (3,290)
Accounts payable and accrued expenses ........................ (13,855) 7,289
Other current liabilities .................................... (22,595) 9,784
Other liabilities ............................................ 5,045 (6,832)
--------- ---------
Net cash provided by operating activities ........................... 22,224 8,600
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................................. (36,680) (32,680)
Cash paid for acquisitions (net of cash acquired) and ............ (12,140) (62,540)
contingent consideration
Investment in unconsolidated companies held for sale ............. (7,398) (2,730)
Repayments (advances) of notes receivable ........................ 18,667 (7,910)
Proceeds from sale of international subsidiary ................... 15,914 --
Proceeds from sale of assets ..................................... 9,979 1,190
--------- ---------
Net cash used in investing activities ............................... (11,658) (104,670)
--------- ---------
Cash flows from financing activities:
(Repayments) proceeds, net from revolving credit facilities ...... (1,392) (4,875)
Proceeds from Senior Notes ....................................... -- 199,724
Proceeds (repayments) of debt .................................... 966 (55,826)
Net proceeds (payments) for common stock issued (repurchased) .... 108 (4,545)
Financing costs .................................................. -- (4,993)
--------- ---------
Net cash (used in) provided by financing activities ................. (318) 129,485
--------- ---------
Net increase in cash and cash equivalents ........................... 10,248 33,415
Effect of translation on cash ....................................... (2,848) 18
Cash and cash equivalents - beginning of period ..................... 19,864 6,063
--------- ---------
Cash and cash equivalents - end of period ........................... $ 27,264 $ 39,496
========= =========
</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, except share amounts)
(Unaudited)
Supplemental disclosure of non-cash investing and financing activities:
During the six months ended June 30, 1999, MasTec completed certain
acquisitions which have been accounted for as purchases. The fair value of the
net assets acquired totaled $3,478 and was comprised primarily of $6,986 of
accounts receivable, $2,125 of property and equipment, $677 of other assets and
$266 in cash, offset by $6,576 of assumed liabilities. The excess of the
purchase price over the fair value of net assets acquired was $7,750 and was
allocated to goodwill. MasTec also issued 527,597 shares of common stock with a
value of $11,314 related to the payment of contingent consideration from earlier
acquisitions. Of the $11,314, $2,314 was recorded as a reduction of other
current liabilities and $9,000 as additional goodwill.
During the six months ended June 30, 1998, MasTec completed certain
acquisitions which have been accounted for as purchases. The fair value of the
net assets acquired totaled $28,499 and was comprised primarily of $31,669 of
accounts receivable $25,847 of property and equipment, $6,889 of other assets
and $3,756 in cash, offset by $35,906 of assumed liabilities. The excess of the
purchase price over the net assets acquired was $42,670 and 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
June 30, 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" 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
audited financial statements and notes thereto included in our 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 our future results of
operations for the entire year.
Our comprehensive income (loss) for the six months ended June 30, 1999 and
1998 was $5.7 million and $(3.2) million, respectively. The components of
comprehensive income (loss) are net income (loss) and foreign currency
translation adjustments.
NOTE 2 - ACQUISITIONS AND INVESTING ACTIVITIES
During 1999, we acquired Directional Advantage Boring, Inc., Central
Trenching, Inc. and Queens Network Cable Corp., three telecommunications
infrastructure service providers. These acquisitions have been accounted for
under the purchase method of accounting. The most significant adjustments to the
balance sheet resulting from these acquisitions are disclosed in the
supplemental disclosure of non-cash investing and financing activities in the
accompanying statement of cash flows.
NOTE 3 - DEBT
Debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
Revolving credit facility, weighted average rate of 6.87% at June 30, .... $ 107,694 $ 106,300
1999 and 7.06% at December 31, 1998
Other bank facilities at LIBOR plus 1.25% (6.44% at June 30, 1999 and ..... 7,342 6,206
6.31% at December 31, 1998)
Notes payable for equipment, at interest rates from 7.5% to 8.5% due ...... 6,735 6,145
in installments through the year 2000
Notes payable for acquisitions, at interest rates from 7.0% to 8.0% ....... 3,805 3,431
due in installments through February 2000
Senior Notes, 7.75% due February 2008 ..................................... 199,763 199,750
--------- ---------
Total debt ................................................................ 325,339 321,832
Less current maturities ................................................... (10,935) (11,143)
--------- ---------
Long-term debt ............................................................ $ 314,404 $ 310,689
========= =========
</TABLE>
8
<PAGE>
We have 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, 2001. We are 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 our
subsidiaries. Interest under the Credit Facility accrues at rates based, at our
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 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 certain 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 we 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 and six months ended
June 30, 1999 and 1998, certain information about segment results of operations
and segment assets (in thousands):
<TABLE>
<CAPTION>
Three Months External Internal External International Other (2) Consolidated
1999 Telecommunications Network Energy (1)
Networks Services Networks
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 167,642 $ 19,003 $ 38,186 $ 13,525 $ 331 $ 238,687
Operating income (loss) 25,316 773 3,174 1,776 (5,029) 26,010
Depreciation and 8,882 598 3,262 753 372 13,867
amortization
Three Months External Internal External International Other (2) Consolidated
1998 Telecommunications Network Energy (1)
Networks Services Networks
- -------------------------------------------------------------------------------------------------------------------------
Revenue $ 108,900 $ 21,571 $ 32,480 $ 81,032 $ 2,123 $ 246,106
Operating income (loss) 16,092 (1,193) 3,549 6,477 (4,914) 20,011
Depreciation and 6,460 434 2,251 1,221 569 10,935
amortization
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months External Internal External International Other (2) Consolidated
1999 Telecommunications Network Energy (1)
Networks Services Networks
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 296,520 $ 40,306 $ 75,136 $ 32,100 $ 1,422 $ 445,484
Operating income (loss) 38,777 1,359 6,225 2,570 (10,260) 38,671
Depreciation and 16,816 1,213 6,097 1,628 760 26,514
amortization
Total assets 377,028 53,396 87,780 105,228 98,950 722,382
Capital expenditures 29,571 451 6,473 - 185 36,680
Six Months External Internal External International Other (2) Consolidated
1998 Telecommunications Network Energy (1)
Networks Services Networks
- -------------------------------------------------------------------------------------------------------------------------
Revenue $ 180,764 $ 39,199 $ 48,629 $ 156,725 $ 6,884 $ 432,201
Operating income (loss) 20,164 (5,183) 4,318 (4,054) (8,833) 6,412
Depreciation and 11,266 781 3,892 2,117 1,108 19,164
amortization
Total assets 282,615 60,116 79,108 325,160 74,625 821,622
Capital expenditures 22,495 1,092 6,155 1,667 1,271 32,680
</TABLE>
(1) International for 1998 includes the results of the Company's Spanish
operations which were sold effective December 31, 1998.
(2) Consists of non-network construction operations and corporate expenses.
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 our 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
We are committed to provide not more than $25.0 million in vendor financing
to a telecommunications customer in connection with the sale of our services. As
of June 30, 1999, we had $19.3 million outstanding under this agreement. Amounts
due under the financing arrangement are payable in full by September 24, 1999.
10
<PAGE>
We have a $24.0 million investment in a PCS wireless system in Paraguay
which is held for sale and are committed to spend an additional $10.0 million to
complete the system over the next six months. The terms of the license granted
by the Paraguayan telecommunications regulatory agency to our local subsidiary
to develop the system required the accomplishment of certain milestones by May
10, 1999. Due to the failure of the agency to allot necessary radio frequencies
to us and the failure of the local telephone company to enter into an
interconnection agreement with us, we were unable to accomplish the milestones.
We filed a request for an extension with the regulatory agency, which the agency
denied. We have appealed the agency's decision and we are awaiting the agency's
response. In addition, the local subsidiary is under a preliminary investigation
for alleged improper conduct by certain of its employees in connection with the
license. We believe that the agency's actions are unlawful and that the
allegations are baseless.
Included in assets held for sale at June 30, 1999 is approximately $34.0
million of investments in Argentina and Ecuador, which have defaulted on their
debt obligations. We do not guarantee any of their indebtedness.
We are monitoring our investments in Argentina, Ecuador and Paraguay and
have determined that the carrying values of these assets as of June 30, 1999
have not been impaired. There can be no assurance that future transactions or
events will not result in a permanent impairment of these assets.
We sold 87% of our Spanish operations effective December 31, 1998 for $27.2
million in cash payable in four installments and $25.0 million of assumed debt.
Currently, $12.5 million of the cash purchase price plus accrued interest has
not been paid when due, however we expect to receive payment of the remaining
balance in 1999.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Except for historical information, 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. 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.
GENERAL
We are one of the preeminent end-to-end telecommunications and energy
infrastructure service providers in North America, enabling our
telecommunications, energy and corporate customers to connect to their
customers. We have grown significantly in the past five years through internal
growth and by means of 35 domestic acquisitions to expand our customer and
geographic base and to broaden our service offerings. During 1998, we organized
our operations around our customer base and developed MasTec as a brand name. We
are currently emphasizing internal growth although we intend to continue to grow
through selected acquisitions following a disciplined model to take advantage of
consolidation opportunities in the fragmented telecommunications industry in the
United States.
We also are focusing on North America and have de-emphasized our
international operations and investments. Pursuant to this strategy, we have
disposed of our Spanish operations effective December 31, 1998, which we
purchased in April 1996, and which generated a loss of $18.9 million for 1998.
In August 1997, we formed a joint venture in Brazil to provide primarily
external network services in anticipation of the privatization of the Brazilian
telephone company. Currently, our international operations are limited to Brazil
and comprise approximately 7% of our revenue for the six months ended June 30,
1999. We continue to evaluate strategic alternatives for our remaining
international operations and investments.
None of our customers accounts for more than 10% of our domestic revenue
and our top 10 customers combined account for less than 40% of our domestic
revenue.
We report our operations in four segments: External Telecommunications
Networks, External Energy Networks, Internal Networks, and International.
External Telecommunication Networks represents our core business and is divided
into six service lines: central switching and transmission, long haul services,
local loops, broadband, wireless and intelligent transportation systems.
International operations are currently confined to Brazil where we operate a 51%
joint venture which we consolidate net of a 49% minority interest after tax.
12
<PAGE>
Our primary types of contracts with our customers include:
/bullet/ design and installation contracts for specific projects,
/bullet/ master service agreements for all specified design, installation and
maintenance services within a defined geographic territory, and
/bullet/ turnkey agreements for comprehensive design, engineering,
installation, procurement and maintenance services.
The majority of our contracts whether master service agreements or
contracts for specific projects provide that we will furnish a specified unit of
service for a specified unit of price. For example, we contract to install cable
for a specified rate per foot. We recognize revenue as the related work is
performed. Turnkey agreements are invoiced both on a unit and deferred unit
basis. A small percentage of our work is performed under
percentage-of-completion contracts. Under this method, revenue is recognized on
a cost-to-cost method based on the percentage of total cost incurred to date in
proportion to total estimated cost to complete the contract. Customers are
billed with varying frequency--weekly or monthly or upon milestones.
We perform the majority of our services under master services agreements,
which typically are exclusive service agreements to provide all of the
customer's network requirements up to a specified dollar amount per job within
certain geographic areas. These contracts are generally for two to three years
but are typically subject to termination at any time upon 90 to 180 days prior
notice to us. Each master service agreement contemplates hundreds of individual
projects generally valued at less than $100,000 each. These master services
agreement are typically awarded on a competitive bid basis, although customers
are sometimes willing to negotiate contract extensions beyond their original
terms without opening them up to bid. Master service agreements are invoiced on
a unit basis where invoices are submitted as work is completed. We currently
have 89 master service agreements across all segments.
Direct costs include operations payroll and benefits, subcontractor costs,
materials not provided by our customers, fuel, equipment rental and insurance.
Our customers generally supply materials such as cable, conduit and telephone
equipment, although on certain turnkey projects, we supply these materials.
General and administrative costs include all costs of our management personnel,
rent, utilities, travel and business development efforts and back office
administration such as financial services, insurance administration,
professional costs and clerical and administrative overhead.
Many of our contracts require performance and payment bonds. Contracts
generally include payment provisions under which 5% to 10% is withheld from
payment until the contract work has been completed. We typically agree to
indemnify our customers against certain claims and warrant the quality of our
services for specified time periods, usually one year.
RESULTS OF OPERATIONS
North America
The following tables set forth income statement data and its related
percentage of revenue for our North American operation for the three and six
months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------- -----------------------------------------------
1999 1998 1999 1998
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 225,162 100.0% $165,074 100.0% $ 413,384 100.0% $275,476 100.0%
Costs of revenue 169,305 75.2% 122,670 74.3% 316,381 76.5% 212,840 77.3%
Depreciation and amortization 13,114 5.8% 9,714 5.9% 24,886 6.0% 17,047 6.2%
General and administrative 18,510 8.2% 19,156 11.6% 36,016 8.8% 35,123 12.7%
expenses
=========== ========= ========== ========= =========== ======== =========== =========
Operating income $ 24,233 10.8% $ 13,534 8.2% 36,101 8.7% $ 10,466 3.8%
=========== ========= ========== ========= =========== ======== =========== =========
</TABLE>
13
<PAGE>
Three Months Ended June 30, 1999 Operating Income
Compared to Three Months Ended June 30, 1998 Operating Income
The following table sets for the revenue and change in revenue by North
American operating segments, in dollar and percentage terms (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30, Change
----------------------------- -------------------------------
1998 1999 $ %
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
External Telecommunications Networks $ 108,900 $ 167,642 $ 58,742 53.9%
External Energy Networks 32,480 38,186 5,706 17.6
Internal Network Services 21,571 19,003 (2,568) (11.9)
Other 2,123 331 (1,792) (84.4)
============== ============= =============
$ 165,074 $ 225,162 $ 60,088 36.4%
============== ============= =============
</TABLE>
Our North American revenue was $225.2 million for the three months ended
June 30, 1999, compared to $165.1 million for the same period in 1998,
representing an increase of $60.1 million or 36.4%. The increase in North
American revenue was due primarily to revenue generated from internal growth
across both of our external networks segments, due to increased demand by long
haul, local loop and broadband customers. Internal growth, as adjusted for
acquisitions, approximated 30.0% for the three months ended June 30, 1999.
Revenue from our internal networks segment declined due to a decision to scale
back business development efforts to better manage growth.
Our North American costs of revenue were $169.3 million or 75.2% of revenue
for the three months ended June 30, 1999, compared to $122.7 million or 74.3% of
revenue for the same period in 1998. The reduced gross margin resulted from an
increase in revenue derived from the sale of materials, which result in lower
margins.
Depreciation and amortization expense was $13.1 million or 5.8% of revenue
for the three months ended June 30, 1999, compared to $9.7 million or 5.9% of
revenue for the same period in 1998. The increased depreciation and amortization
expense resulted from our investment in our fleet to support revenue growth and
from intangibles related to acquisitions consummated in 1998 and 1999.
General and administrative expenses were $18.5 million or 8.2% of revenue
for the three months ended June 30, 1999, compared to $19.2 million or 11.6% of
revenue for the same period in 1998. The decline in general and administrative
expenses as a percent of revenue for the three months ended June 30, 1999 was
due primarily to increased revenue, corporate overhead reductions and improved
receivables collection, which reduced the need for additional bad debt reserves
when compared to the same period in 1998.
Operating income was $24.2 million or 10.8% of revenue for the three months
ended 1999, compared to $13.5 million or 8.2% of revenue for the same period in
1998. The following table sets forth operating income and change in operating
income by North American operating segments, in dollar and percentage terms (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30, Change
----------------------------- -------------------------------
1998 1999 $ %
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
External Telecommunications Networks $ 16,092 $ 25,316 $ 9,224 57.3%
External Energy Networks 3,549 3,174 (375) (10.6)
Internal Network Services (1,193) 773 1,966 164.8
Other (4,914) (5,030) (116) (2.4)
============== ============= =============
$ 13,534 $ 24,233 $ 10,699 79.1
============== ============= =============
</TABLE>
14
<PAGE>
Six Months Ended June 30, 1999 Operating Income
Compared to Six Months Ended June 30, 1998 Operating Income
The following table sets forth revenue and change in revenue by North
American operating segments, in dollar and percentage terms (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
----------------------------- -------------------------------
1998 1999 $ %
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
External Telecommunications Networks $ 180,764 $ 296,520 $ 115,756 64.0%
External Energy Networks 48,629 75,136 26,507 54.5
Internal Network Services 39,199 40,306 1,107 2.8
Other 6,884 1,422 (5,462) (79.3)
============== ============= =============
$ 275,476 $ 413,384 $ 137,908 50.1%
============== ============= =============
</TABLE>
Our North American revenue was $413.4 million for the six months ended June
30, 1999, compared to $275.5 million for the same period in 1998, representing
an increase of $137.9 million or 50.1%. The fastest growing operating segment is
our external telecommunications networks segment primarily due to the increased
demand for bandwith by end-users which has spurred increased network
construction and upgrades by our customers. As a result of poor performance in
our internal network services segment during 1998, we scaled back our business
development efforts to better manage growth. During the six month period ended
June 30, 1999, we completed a total of three acquisitions, all in our external
telecommunication networks segment, in comparison to five acquisitions in the
same segment, two in our external energy networks segment and two in our
internal network services segment during the six months ended June 30, 1998.
Internal growth for North America, as adjusted for acquisitions, approximated
41.4% for the six months ended June 30, 1999 and was primarily driven by growth
in external telecommunications networks. There can be no assurance that our
internal growth will continue at the same rate for the remainder of the year.
Our North American costs of revenue were $316.4 million or 76.5% of revenue
for the six months ended June 30, 1999, compared to $212.8 million or 77.3% of
revenue for the same period in 1998. The improved margins resulted from better
pricing in our external telecommunications networks segment due to increased
demand for our services, as well as a shift to higher margin work within the
segment during the first quarter of 1999, when compared to the same period in
1998. Margins within our internal network services segment also improved due to
better management. The increase in margins was offset by increased revenue
derived from the sale of materials on turnkey projects, which result in lower
margins. Additionally, adverse weather conditions impacted productivity during
1998 as opposed to 1999 where weather was not a negative factor.
Depreciation and amortization expense was $24.9 million or 6.0% of revenue
for the six months ended June 30, 1999, compared to $17.0 million or 6.2% of
revenue for the same period in 1998. The increased depreciation and amortization
expense resulted from our investment in our fleet to support revenue growth and
from intangibles related to acquisitions consummated in 1998 and 1999.
General and administrative expenses were $36.0 million or 8.8% of revenue
for the six months ended June 30, 1999, compared to $35.1 million (which
included a $4.0 million provision for bad debts related to our internal network
services segment) or 12.7% of revenue (11.3% of revenue, excluding bad debt) for
the same period in 1998. The decline in general and administrative expenses as a
percent of revenue for the six months ended June 30, 1999 was due primarily to
our ability to support higher revenue with a reduced administrative base. We
intend to continue to pursue efficiencies in our administrative functions.
15
<PAGE>
Operating income was $36.1 million or 8.7% of revenue for the six months
ended 1999, compared to $10.5 million or 3.8% of revenue for the same period in
1998. The following table sets forth operating income and change in operating
income by North American operating segments, in dollar and percentage terms (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
----------------------------- -------------------------------
1998 1999 $ %
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
External Telecommunications Networks $ 20,164 $ 38,777 $ 18,613 92.3%
External Energy Networks 4,318 6,225 1,907 44.2
Internal Network Services (5,183) 1,359 6,542 126.2
Other (8,833) (10,260) (1,427) (16.2)
============== ============= =============
$ 10,466 $ 36,101 $ 25,635 244.9
============== ============= =============
</TABLE>
CALA
The following tables set forth for the periods indicated our CALA
operations in dollar and percentage terms (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------- -----------------------------------------------
1999 1998 1999 1998
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 13,525 100.0% $ 35,155 100.0% $ 32,100 100.0% $ 64,905 100.0%
Costs of revenue 8,964 66.3% 29,481 83.9% 23,985 74.7% 54,517 84.0%
Depreciation and amortization 753 5.6% 656 1.9% 1,628 5.1% 939 1.5%
General and administrative 2,032 15.0% 1,836 5.2% 3,917 12.2% 4,237 6.5%
expenses
=========== ========= ========== ========= =========== ======== =========== =========
Operating income $ 1,776 13.1% $ 3,182 9.0% 2,570 8.0% $ 5,212 8.0%
=========== ========= ========== ========= =========== ======== =========== =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 OPERATING INCOME
COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 OPERATING INCOME
The CALA region is comprised almost entirely of our Brazilian operations
whose functional currency is the Brazilian reais.
CALA revenue was $13.5 million for the three months ended June 30, 1999,
compared to $35.2 million for the same period in 1998, representing a decrease
of $21.6 million or 61.5%. 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$23.2 million reais during the three months ended
June 30, 1999, compared to R$38.7 million reais for the same period in 1998,
representing a decrease of 40.0%. The average currency exchange rate increased
to 1.76 reais per US dollar for the period ended June 30, 1999 compared to 1.14
reais per US dollars for the same period in 1998. The decline in reais revenue
is due mainly to the overall economic situation in Brazil and the resulting
delays in telephony infrastructure spending. Due to recent economic conditions
in Brazil, it is uncertain when, if at all, previous levels of telephony
infrastructure spending will re-commence.
CALA costs of revenue was $9.0 million or 66.3% of revenue for the three
months ended June 30, 1999, compared to $29.5 million or 83.9% of revenue for
the same period in 1998. The decrease was as a result of a change order paid by
a significant customer in the quarter. Margins are not anticipated to remain at
this level.
Depreciation and amortization expense was $0.8 million or 5.6% of revenue
for the three months ended June 30, 1999 compared to $0.7 million or 1.9% 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.
16
<PAGE>
General and administrative expenses were $2.0 million or 15.0% of revenue
for the three months ended June 30, 1999, compared to $1.8 million or 5.2% of
revenue for the same period in 1998. General and administrative expenses were
R$1.7 million reais or 7.3% of reais revenue during the three months ended June
30, 1999, compared to R$1.8 million reais or 4.6% 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 to a reduction in
work performed.
SIX MONTHS ENDED JUNE 30, 1999 OPERATING INCOME
COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 OPERATING INCOME
Approximately 95.3% of the CALA region operations were derived from our
Brazilian operations whose functional currency is the Brazilian reais. The
remaining CALA operations were conducted primarily in Mexican pesos and U.S.
dollars.
Our CALA revenue was $32.1 million for the six months ended June 30, 1999,
compared to $64.9 million for the same period in 1998, representing a decrease
of $32.8 million or 50.5%. 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$49.9 million reais during the six months ended June
30, 1999, compared to R$72.3 million reais for the same period in 1998,
representing a decrease of 30.9%. The decline in revenue is due mainly to the
overall economic situation in Brazil and the resulting delays in telephony
infrastructure spending. Due to recent economic conditions in Brazil, it is
uncertain when, if at all, previous levels of telephony infrastructure spending
will re-commence.
Our CALA costs of revenue was $24.0 million or 74.7% of revenue for the six
months ended June 30, 1999, compared to $54.5 million or 84.0% of revenue for
the same period in 1998. The decrease was as a result of a change order paid by
a significant customer in the quarter. Margins are anticipated to return to
historical levels.
Depreciation and amortization expense was $1.6 million or 5.1% of revenue
for the six months ended June 30, 1999 compared to $0.9 million or 1.5% 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 $3.9 million or 12.2% of revenue
for the six months ended June 30, 1999, compared to $4.2 million or 6.5% of
revenue for the same period in 1998. General and administrative expenses were
R$3.1 million reais or 6.1% of reais revenue during the six months ended June
30, 1999, compared to R$4.3 million reais or 5.9% 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 to a reduction in
work performed.
17
<PAGE>
SPAIN
The following tables set forth for the periods indicated our Spanish
operations, which were sold effective December 31, 1998, in dollar and
percentage terms (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
--------------------- --------------------
<S> <C> <C> <C> <C>
Revenue .................................................. $ 45,877 100.0% $ 91,820 100.0%
Costs of revenue ......................................... 34,077 74.3% 71,837 78.2%
Depreciation and amortization ............................ 565 1.2% 1,178 1.3%
General and administrative expenses ...................... 7,939 17.3% 28,070 30.6%
-------- -------- -------- --------
Operating income (loss) .............................. 3,296 7.2% (9,265) (10.1)%
Interest expense ......................................... (854) (1.9)% (1,798) (2.0)%
Other income (loss)....................................... 707 1.5% 899 1.0%
-------- -------- -------- --------
income (loss) before benefit from income taxes, equity ... 3,149 6.8% (10,164) (11.1)%
in earnings of unconsolidated companies and minority
interest
(Provision) benefit from income taxes .................... (1,066) (2.3)% 2,834 3.1%
Equity in earnings of unconsolidated companies ........... 311 0.7% 382 0.4%
Minority interest ........................................ 43 0.1% 44 0.1%
-------- -------- -------- --------
Net income (loss) ........................................ $ 2,437 5.3% (6,904) (7.5)%
======== ======== ======== ========
</TABLE>
Effective December 31, 1998, MasTec sold 87% of its Spanish operations.
COMBINED RESULTS - NORTH AMERICA AND CALA ONLY
The following table sets forth for the periods indicated certain combined
income statement data for North America and CALA only and the related percentage
of combined revenue.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- --------------------------------------
1999 1998(1) 1999 1998(1)
---------------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income $ 26,010 10.9% $ 16,715 8.3% $ 38,671 8.7% $ 15,677 4.6%
Interest expense (7,311) (3.1)% (6,218) (3.1)% (13,542) (3.0)% (10,330) (3.1%)
Interest income 3,633 1.5% 1,956 1.0% 5,742 1.3% 3,389 1.0%
Other income, net 178 0.1% 464 0.3% 301 - 515 0.2%
----------- -------- ----------- ------------------- ------------------- ---------
Income before provision for income taxes,
equity in earnings of unconsolidated
companies and minority interest 22,510 9.4% 12,917 6.5% 31,172 7.0% 9,251 2.7%
Provision for income taxes (9,279) (3.9)% (5,047) (2.5)% (12,949) (2.9)% (3,637) (1.1)%
Equity in earnings of unconsolidated
companies and minority interest (1,054) (0.4)% (913) (0.5%) (1,694) (0.4)% (1,416) (0.4)%
----------- -------- ----------- ------------------- ------------------- ---------
Net income $ 12,177 5.1% $ 6,957 3.5% $ 16,529 3.7% $ 4,198 1.2%
=========== ======== =========== =================== =================== =========
</TABLE>
(1) Adjusted to exclude MasTec's Spanish operations which were sold effective
December 31, 1998.
18
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999
COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
For a discussion of revenue, costs of revenue, depreciation and
amortization and general and administrative expenses, see "North America" and
"CALA" above.
Interest income for the three months ended June 30, 1999 includes interest
accrued and collected from a customer financing arrangement. Interest income for
the three months ended June 30, 1998 was mainly comprised of interest earned on
temporary foreign investments.
Reflected in other income net for the three months ended June 30, 1999 are
the following transactions. MasTec sold assets held for sale with a book value
of approximately $9.7 million for approximately $6.1 million, recognizing a loss
on sale of approximately $3.6 million. Offsetting the loss from disposal of
assets held for sale was a fee of $3.5 million collected from a customer related
to a financing arrangement.
Our effective tax rate for North American operations and CALA operations
approximates 42.0% and 33.0% respectively, for the three months ended June 30,
1999.
SIX MONTHS ENDED JUNE 30, 1999
COMPARED TO SIX MONTHS ENDED JUNE 30, 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 $13.5 million or 3.0% of revenue for the six months
ended June 30, 1999, compared to $10.3 million or 3.1% of revenue for the same
period in 1998. The increase in interest expense was due primarily to increased
indebtedness resulting from the issuance of the Senior Notes in early 1998, as
well as increased average outstanding balances on MasTec's revolving line of
credit used to support growth.
Interest income includes interest of $3.9 million earned and collected from
a customer to which we extended financing for our services.
Reflected in other income, net for the six months ended June 30, 1999, are
the following transactions. MasTec sold assets held for sale with a book value
of approximately $9.7 million for approximately $6.1 million recognizing a loss
on sale of approximately $3.6 million. Offsetting the loss from disposal of
non-core assets was a fee of $3.5 million collected from a telecommunications
customer related to a vendor financing arrangement.
Our effective tax rate for North American operations and CALA operations
approximates 42.0% and 33.0% respectively, for the six months ended June 30,
1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are for working capital, capital expenditures,
acquisitions and investments, and debt service. Our primary sources of liquidity
are cash flows from operations, borrowings under revolving lines of credit and
the proceeds from the sale of assets held for sale.
Net cash provided by operating activities was $22.2 million for the six
months ended June 30, 1999, compared to $8.6 million for the same period in
1998.
Our working capital at June 30, 1999, excluding assets held for sale of
$68.9 million, was $187.3 million compared to $192.8 million at December 31,
1998. Our North American working capital as of June 30, 1999 was $159.1 million,
comprised primarily of $236.0 million in accounts receivable, $29.4 million in
inventories and other current assets and $8.0 million in cash, net of $114.3
million in current liabilities.
We are committed to provide not more than $25.0 million in vendor financing
to an external telecommunications network services customer in connection with
the sale of our services. As of June 30, 1999, we had $19.3 million outstanding
under this agreement. Amounts due under the financing arrangement are payable in
full by September 24, 1999.
19
<PAGE>
We have 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 Credit Facility mature on June 9,
2001. We are 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 contains 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 we 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.
During 1999, we acquired three external telecommunications network services
providers for $11.1 million in cash and $2.4 million in notes and invested $36.7
million primarily in our fleet to support revenue growth which were financed
from cash provided by operations and from financing activities. We have also
sold certain assets and investments for which we have received approximately
$25.9 million in cash, $15.9 million of which was attributable to the sale of
our Spanish operations. We anticipate 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 our working
capital requirements for the foreseeable future. However, to the extent that we
should desire to increase our financial flexibility and capital resources or
choose or be required to fund future capital commitments from sources other than
operating cash or from borrowings under its existing Credit Facility. We may
consider raising additional capital by increasing the 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
us on acceptable terms, or at all.
We have a $24.0 million investment in a PCS wireless system in Paraguay
which is held for sale and are committed to spend an additional $10.0 million to
complete the system over the next six months. The terms of the license granted
by the Paraguayan telecommunications regulatory agency to our local subsidiary
to develop the system required the accomplishment of certain milestones by May
10, 1999. Due to the failure of the agency to allot necessary radio frequencies
to us and the failure of the local telephone company to enter into an
interconnection agreement with us, we were unable to accomplish the milestones.
We filed a request for an extension with the regulatory agency, which the agency
denied. We have appealed the agency's decision and we are awaiting the agency's
response. In addition, the local subsidiary is under a preliminary investigation
for alleged improper conduct by certain of its employees in connection with the
license. We believe that the agency's actions are unlawful and that the
allegations are baseless.
Included in assets held for sale at June 30, 1999 is approximately $34.0
million of investments in Argentina and Ecuador, which have defaulted on their
debt obligations. We do not guarantee any of their indebtedness.
We are monitoring our investments in Argentina, Ecuador and Paraguay and
have determined that the carrying values of these assets as of June 30, 1999
have not been impaired. There can be no assurance that future transactions or
events will not result in a permanent impairment of these assets.
We sold 87% of our Spanish operations effective December 31, 1998 for $27.2
million in cash payable in four installments and $25.0 million of assumed debt.
Currently, $12.5 million of the cash purchase price plus accrued interest has
not been paid when due, however we expect to receive payment of the remaining
balance in 1999.
20
<PAGE>
YEAR 2000
The Year 2000 computer issue is primarily the result of computer programs
using two digits rather than four to define the applicable year. Any of our
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.
We have undertaken a Year 2000 project, which includes an assessment of
telecommunications equipment, computer equipment, software, database, data
services, network infrastructure, and telephone equipment. Our Year 2000 plan
addresses the Year 2000 issue in five phases: (1) inventory and assessment; (2)
impact analysis and implementation planning; (3) implementation and testing; (4)
on-going and monitoring; and (5) contingency planning to assess reasonably
likely worst case scenarios. As each phase is completed, project progress will
be tracked against planned targets, and resource adjustments made as necessary.
At this time, we have completed the inventory and assessment phase of the
information systems and embedded devices. MasTec has also completed impact
analysis and implementation planning, and it is in the process of implementation
and testing and on-going monitoring its information systems and embedded
devices. All critical systems and software are being remedied and testing should
be completed by October 1999. The project is estimated to be complete by the end
of 1999, prior to any anticipated impact on our operating systems. We believe
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, we do
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. Our Year 2000 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 our 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 our
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 our systems and operations.
We will utilize both internal and external resources to complete and test
the Year 2000 project. Through June 30, 1999, related costs incurred were not
material, and we do 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.
Risk Relating to the Company's Failure to Become Year 2000 Compliant. We
continue to enhance its contingency plans, including the identification of its
most likely worst case scenarios. Currently, the most likely sources of risk to
us include: i) interruptions to our customers' operations which could prevent
them from utilizing our services and paying for the services when rendered; ii)
failure of our suppliers' operations which could result in our inability to
obtain equipment, materials and supplies to meet the demands of our customers;
and iii) inability to conduct ongoing operations in the normal course of
business due to systems failure.
21
<PAGE>
The risks described above could materially and adversely affect our
business, results of operations and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
we are unable to determine at this time what our most reasonable and likely
worst case scenario would be or whether the consequences of Year 2000 failures
will have a material adverse impact on our results of operations, liquidity, or
financial condition. As we complete all of the phases of our Year 2000
compliance plan, which is anticipated to be completed during October 1999, we
expect to have a better understanding of our most likely worst case scenarios
and on that date will tailor our contingency plans accordingly.
Contingency Plans. Our Year 2000 efforts are ongoing and our overall plan,
as well as the consideration of contingency plans, will continue to evolve as
new information becomes available. Contingency plans for Year 2000-related
interruptions are being developed and will include emergency backup and recovery
procedures for lost data, billing and collection procedures, identification of
alternate suppliers and increasing inventory levels of critical supplies and
equipment. These activities are intended to provide a means of managing risk,
but cannot eliminate the potential for disruption due to third-party failure. We
are currently considering what our final contingency plans will be in the event
that we are not able to convert all of our existing and acquired systems to be
Year 2000 compliant by the end of 1999. We currently plan to complete all
contingency plans by October 1999.
SEASONALITY
Our North America operations have historically been seasonally weaker in
the first and fourth quarters of the year and have produced stronger results in
the second and third quarters. This seasonality is primarily the result of
customer budgetary constraints and preferences and the effect of winter weather
on external network activities. Certain U.S. customers tend to complete budgeted
capital expenditures before the end of the year and defer additional
expenditures until the following budget year. Revenue, in a local currency, from
our Brazilian operation is not expected to fluctuate seasonally.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The primary inflationary factor affecting our operations is increased labor
costs. We have not experienced significant increases in labor costs to date.
Competition for qualified personnel could increase labor costs for us in the
future. Our international operations may, at times in the future, be exposed to
high inflation in certain foreign countries. During 1998, we generated
approximately 17.5% of its total revenue (excluding revenue generated from
MasTec's Spanish operations which were sold in December 1998) from international
operations that are susceptible to currency devaluation. We anticipate that
revenue from international operations will be less significant to operations in
the foreseeable future due to our current intentions to dispose of them,
however, the likelihood and extent of further devaluation and deteriorating
economic conditions in Brazil and other Latin American countries and the
resulting impact on our results of operations, financial position and cash flows
cannot now be determined.
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.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The annual meeting of shareholders of MasTec was held on May 25, 1999. The
holders of MasTec's common stock, $0.10 par value, were entitled to elect two
Class I directors to serve until 2002 and until their successors are elected and
qualified. Proxies for 24,247,126 shares of the 27,341,385 entitled to vote were
received.
The following table sets forth the names of the two persons elected at the
annual meeting to serve as directors until 2002 and the number of votes cast for
or against respect to each person.
Class I Director For Against
---------------- ---------- ---------
Jorge Mas 24,217,282 29,844
Joel-Tomas Citron 24,219,994 27,132
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No.* Description
27 Financial Data Schedule
- ---------------------
* Exhibit filed with the Securities and Exchange Commission. MasTec agrees to
provide this exhibit supplementally upon request.
23
<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: August 16, 1999 /s/ CARMEN M. SABATER
---------------------
Carmen M. Sabater
Senior Vice President
Chief Financial Officer
(Principal Financial Officer)
Date: August 16, 1999 /s/ ARLENE VARGAS
-----------------
Arlene Vargas
Vice President and Controller
(Principal Accounting Officer)
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 27,264
<SECURITIES> 0
<RECEIVABLES> 264,547
<ALLOWANCES> 5,974
<INVENTORY> 17,774
<CURRENT-ASSETS> 398,346
<PP&E> 225,915
<DEPRECIATION> 78,446
<TOTAL-ASSETS> 722,382
<CURRENT-LIABILITIES> 142,110
<BONDS> 199,763
0
0
<COMMON> 2,797
<OTHER-SE> 218,472
<TOTAL-LIABILITY-AND-EQUITY> 722,382
<SALES> 445,484
<TOTAL-REVENUES> 445,484
<CGS> 340,366
<TOTAL-COSTS> 66,447
<OTHER-EXPENSES> (301)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,542
<INCOME-PRETAX> 31,172
<INCOME-TAX> 12,949
<INCOME-CONTINUING> 16,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,529
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.59
</TABLE>
