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, 2000
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 3, 2000, MasTec, Inc. had 47,301,572 shares of common stock,
$0.10 par value, outstanding.
<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, 2000 and 1999......................... 4
Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
and December 31, 1999............................................... 5
Unaudited Consolidated Statement of Changes in
Shareholders' Equity for the Six Months
Ended June 30, 2000................................................. 6
Unaudited Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and 1999..................... 7
Notes to Consolidated Financial Statements (Unaudited) ............. 9
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 19
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders................ 19
Item 6. Exhibits and Reports on Form 8-K................................... 20
Signatures ............................................................... 21
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenue
North America $ 286,418 $ 225,163 $ 548,790 $ 413,384
International 11,279 13,525 21,601 32,100
------------- ------------- ------------- --------------
297,697 238,688 570,391 445,484
Costs of revenue 224,933 178,269 433,862 340,366
Depreciation 13,183 11,715 26,661 22,094
Amortization 2,675 2,152 6,176 4,420
General and administrative expenses 21,930 20,542 45,042 39,933
Interest expense 4,303 7,311 9,859 13,542
Interest income 1,054 3,633 2,267 5,742
Other income, net 4,873 178 5,253 301
------------- ------------- ------------- --------------
Income before provision for income taxes
and minority interest 36,600 22,510 56,311 31,172
Provision for income taxes (15,120) (9,279) (23,499) (12,949)
Minority interest (138) (1,054) 7 (1,694)
------------- ------------- ------------- --------------
Net income $ 21,342 $ 12,177 $ 32,819 $ 16,529
============= ============= ============= ==============
Weighted average common shares outstanding 46,823 41,547 45,314 41,270
Basic earnings per share 0.46 $ 0.29 $ 0.72 $ 0.40
Weighted average common shares outstanding 49,055 42,243 47,445 41,937
Diluted earnings per share 0.44 $ 0.29 $ 0.69 $ 0.39
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
June 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 40,153 $ 27,635
Cash in escrow 45,000 -
Accounts receivable, unbilled revenue
and retainage, net 283,759 251,576
Inventories 19,935 14,264
Assets held for sale 24,678 53,639
Other current assets 29,695 34,634
------------- -------------
Total current assets 443,220 381,748
Property and equipment, net 154,554 153,527
Investments in unconsolidated companies 17,687 18,006
Intangibles, net 182,991 151,556
Other assets 22,164 23,572
------------- -------------
Total assets $ 820,616 $ 728,409
============= =============
Liabilities and shareholders' equity
Current liabilities:
Current maturities of debt $ 4,642 $ 12,200
Accounts payable 66,273 74,408
Other current liabilities 67,735 71,882
------------- -------------
Total current liabilities 138,650 158,490
------------- -------------
Other liabilities 40,720 45,628
------------- -------------
Long-term debt 199,570 267,458
------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock 4,705 4,235
Capital surplus 319,165 167,387
Retained earnings 134,022 101,203
Foreign currency translation adjustments (16,216) (15,992)
------------- -------------
Total shareholders' equity 441,676 256,833
------------- -------------
Total liabilities and shareholders'
equity $ 820,616 $ 728,409
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
Common Stock Foreign
----------------------- Currency
Capital Retained Translation
Shares Amount Surplus Earnings Adjustments Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 42,350 $ 4,235 $ 167,387 $ 101,203 $ (15,992) $ 256,833
Net income 32,819 32,819
Foreign currency translation (224) (224)
adjustments
Stock issued 4,696 470 151,778 152,248
========================================================================================================
Balance June 30, 2000 47,046 $ 4,705 $ 319,165 $ 134,022 $ (16,216) $ 441,676
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Six Months Ended
June 30,
--------------------------------------
2000 1999
<S> <C> <C>
--------------- ---------------
Cash flows from operating activities:
Net income $ 32,819 $ 16,529
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 32,837 26,514
Minority interest (7) 1,694
(Gain) loss on sale of assets (7,349) 3,573
Changes in assets and liabilities net of effect of acquisitions:
Accounts receivables, unbilled revenue and retainage, net (25,920) 7,774
Inventories and other current assets (11,285) (5,735)
Other assets (6,831) 3,280
Accounts payable (14,534) (13,855)
Other current liabilities (9,000) (22,595)
Other liabilities (1,329) 5,045
---------------- ---------------
Net cash (used in) provided by operating activities (10,599) 22,224
---------------- ---------------
Cash flows from investing activities:
Capital expenditures (28,252) (36,680)
Cash paid for acquisitions (net of cash acquired) and (17,374) (12,140)
contingent consideration
Repayment of notes receivable, net 946 18,667
Investment in unconsolidated companies held for sale - (7,398)
Distribution to joint venture partner (4,900) -
Net proceeds from sale of assets 15,232 25,893
---------------- ---------------
Net cash used in investing activities (34,348) (11,658)
---------------- ---------------
Cash flows from financing activities:
Repayments, net for revolving credit facilities (75,446) (426)
Net proceeds from common stock issued 132,595 108
---------------- ---------------
Net cash provided by (used in) financing activities 57,149 (318)
---------------- ---------------
Net increase in cash and cash equivalents 12,202 10,248
Effect of translation on cash 316 (2,848)
Cash and cash equivalents - beginning of period 27,635 19,864
---------------- ---------------
Cash and cash equivalents - end of period $ 40,153 $ 27,264
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in thousands)
(Unaudited)
Supplemental disclosure of non-cash investing and financing activities:
During the six months ended June 30, 2000, we completed certain
acquisitions which have been accounted for as purchases. The fair value of the
net assets acquired totaled $1.0 million and was comprised primarily of $3.3
million of accounts receivable, $1.8 million of property and equipment, $0.5
million of other assets and $1.4 million in cash, offset by $6.0 million of
assumed liabilities. The excess of the purchase price over the net assets
acquired was $16.6 million and was allocated to goodwill. MasTec also issued
183,759 shares of common stock with a value of $14.9 million related to the
payment of contingent consideration from earlier acquisitions. Of the $14.9
million, $0.2 million was recorded as a reduction of other current liabilities
and $14.7 million as additional goodwill.
On June 30, 2000, we sold our PCS system in Latin America that was being
held for sale for $45.0 million. On July 5, 2000, we received the proceeds
related to the sale. Accordingly such proceeds have been reflected as cash in
escrow in the accompanying consolidated balance sheet.
During the six months ended June 30, 1999, we completed certain
acquisitions which have been accounted for as purchases. The fair value of the
net assets acquired totaled $3.5 million and was comprised primarily of $7.0
million of accounts receivable, $2.1 million of property and equipment, $0.7
million of other assets and $0.3 million in cash, offset by $6.6 million of
assumed liabilities. The excess of the purchase price over the fair value of net
assets acquired was $7.8 million and was allocated to goodwill. We also issued
527,597 shares of common stock with a value of $11.3 million related to the
payment of contingent consideration from earlier acquisitions. Of the $11.3
million, $2.3 million was recorded as a reduction of other current liabilities
and $9.0 million as additional goodwill.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis for Presentation of Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of MasTec,
Inc. 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 together with the audited financial
statements and notes thereto included in our annual report on Form 10-K for the
year ended December 31, 1999. The balance sheet data as of December 31, 1999 was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Certain reclassifications
have been made to conform to the 2000 presentation. 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 for the six months ended June 30, 2000 and 1999
was $32.6 million and $5.7 million, respectively. The components of
comprehensive income are net income and foreign currency translation
adjustments.
On June 19, 2000, we effected a three-for-two split of our common stock in
the form of a stock dividend to shareholders of record as of May 29, 2000. To
reflect the split, common stock was increased and capital surplus was decreased
by $1.6 million. All references in the consolidated financial statements to
shares and related prices, weighted average number of shares, per share amounts
and stock plan data have been adjusted to reflect the stock split on a
retroactive basis.
Note 2 - Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 "Revenue Recognition": (SAB 101), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 is applicable beginning with our fourth
quarter 2000 consolidated financial statements. Based on our current analysis of
SAB 101, we do not believe it will have a material impact on the financial
results of the Company.
Note 3 - Acquisitions, Investing and Divestitures Activities
During 2000, we have completed four acquisitions, two each in our external
communication services group and internal communication services group. 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.
On June 30, 2000, we sold our PCS system in Latin America which was held
for sale for a gain of $9.6 million. During the second quarter, we also recorded
a charge of $5.4 million comprised primarily of the write-off of two Latin
American operations.
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt
Debt is comprised of the following (in thousands):
<TABLE>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Revolving credit facility at LIBOR plus 1.25%, $ - $ 64,000
6.98% at December 31, 1999)
Other bank facilities (8.25% at June 30, 2000 and 7.32% at 2,434 7,707
December 31, 1999)
Notes payable for equipment, at interest rates from 7.5% to 8.5% 4,323 3,920
due in installments through the year 2002
Notes payable for acquisitions, at interest rates from 7.0% to 1,664 4,254
8.0% due in installments through February 2001
Senior Notes, 7.75% due February 2008 195,791 199,777
----------- ------------
Total debt 204,212 279,658
Less current maturities (4,642) (12,200)
----------- ------------
Long-term debt $ 199,570 $ 267,458
=========== ============
</TABLE>
We have a credit facility that provides for borrowings up to an aggregate
amount of $100.0 million, which we have reduced from $165.0 following our public
offering in March 2000. Amounts outstanding under the revolving credit facility
mature on June 9, 2002. 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.
We also have $200.0 million, 7.75% senior subordinated 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 5 - Operations by Segments and Geographic Areas
We currently derive a substantial portion of our revenue from providing
external communication services to Bell South Telecommunications, Inc. For the
six months ended June 30, 2000, approximately 10% of our domestic revenue was
derived from services performed for them.
The following table set forth, for the three months and six months ended
June 30, 2000 and 1999, certain information about segment results of operations
and segment assets (in thousands):
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months External Internal External International Other Consolidated
2000 Communication Communication Energy (2)
Services Services Networks
---------------------------------------------------------------------------------------------------------------------------
Revenue $ 209,018 $ 40,509 $ 36,891 $ 11,279 $ - $ 297,697
Depreciation 9,907 524 2,408 - 344 13,183
Amortization 1,189 307 202 977 - 2,675
Income before provision 31,025 4,615 3,486 4,214 (6,740) 36,600
for income taxes and
minority interest
Three Months External Internal External International Other Consolidated
1999 Communication Communication Energy (2)
Services Services Networks
---------------------------------------------------------------------------------------------------------------------------
Revenue $ 167,642 $ 19,003 $ 38,186 $ 13,526 $ 331 $ 238,688
Depreciation 7,934 348 3,061 - 372 11,715
Amortization 948 250 201 753 - 2,152
Income before provision 25,463 777 3,110 2,463 (9,303) 22,510
for income taxes and
minority interest
Six Months External Internal External International Other Consolidated
2000 Communication Communication Energy (1) (2)
Services Services Networks
---------------------------------------------------------------------------------------------------------------------------
Revenue $ 402,009 $ 72,527 $ 74,254 $ 21,601 $ - $ 570,391
Depreciation 19,528 991 5,349 - 793 26,661
Amortization 2,210 556 404 3,006 - 6,176
Income before provision 55,617 7,080 5,593 3,204 (15,183) 56,311
for income taxes and
minority interest
Capital expenditures 25,064 819 1,835 534 - 28,252
Total assets 449,182 90,933 81,769 89,414 109,318 820,616
Six Months External Internal External International Other Consolidated
1999 Communication Communication Energy (1) (2)
Services Services Networks
---------------------------------------------------------------------------------------------------------------------------
Revenue $ 296,520 $ 40,306 $ 75,136 $ 32,100 $ 1,422 $ 445,484
Depreciation 14,925 704 5,705 - 760 22,094
Amortization 1,891 509 392 1,628 - 4,420
Income before provision 38,524 1,370 6,167 3,532 (18,421) 31,172
for income taxes and
minority interest
Capital expenditures 29,571 451 6,473 - 185 36,680
Total assets 377,076 53,396 87,780 141,197 62,933 722,382
</TABLE>
(1) For the six months ended June 30, 2000 and 1999, reflects revenue,
depreciation, amortization, income before provision for income taxes and
minority interest and capital expenditures related to our Brazilian
operations. As of June 30, 2000 and 1999, total assets for Brazil
consisted of $50.4 million and $86.8 million, respectively and the
remainder relates to our interest in international assets not related to
our core business.
<PAGE>
(2) Consists of non-core construction and corporate operations, which includes
interest expense net of interest income of $8.2 million and $8.8 million
for the six months ended June 30, 2000 and 1999, respectively. For the
three months ended June 30, 2000 and 1999, the interest expense, net of
interest income was $3.5 million and $4.4 million, respectively.
There are no significant transfers between geographic areas and segments.
Total assets are those assets used in our operations in each segment. Corporate
assets include cash and cash equivalents, real estate assets held for sale and
notes receivable.
Note 6 - Commitments and Contingencies
In November 1997, we filed a lawsuit against Miami-Dade County in Florida
state court alleging breach of contract and seeking damages exceeding $3.0
million in connection with the county's refusal to pay amounts due us under a
multi-year agreement to perform road restoration work for the Miami-Dade Water
and Sewer Department ("MWSD"), a department of the county, and the county's
wrongful termination of the agreement. The County has refused to pay amounts due
to us under the agreement until alleged overpayments under the agreement have
been resolved, and has counterclaimed against us seeking unspecified damages. We
are vigorously pursuing this lawsuit.
We own minority interests in Argentina and Spain. Our investment in
Argentina is a minority interest with a carrying value of $17.9 million as of
June 30, 2000 in Supercanal Holding, S.A., a holding company of numerous cable
television operators in western Argentina ("Supercanal"). We also own an
indirect minority interest in and have made a $3.0 million working capital loan
to Sistemas e Instalaciones de Comunicacion, S.A. ("Sintel"), a Spanish
telecommunications infrastructure services provider.
Supercanal has defaulted on its third party debt and has filed a petition
under Argentine law seeking protection from its creditors. We do not guarantee
any of this indebtedness. In January 2000, the majority shareholder of
Supercanal approved a capital increase that would have required us to contribute
approximately $5.9 million to maintain our interest if the capital increase is
effected in full, but the capital increase has been enjoined by an Argentine
judge and we cannot determine whether or when the capital increase will be
effected.
During the second quarter of 2000, Sintel filed a petition under Spanish
law seeking protection from its creditors, including our working capital loan.
In July 2000, Sintel approved a capital increase that will require us to
contribute approximately $2.6 million to maintain our interest if the capital
increase is effected in full. Management is considering whether to subscribe to
the capital increase.
We have determined that the carrying value of these assets has not been
impaired, but we are monitoring investments to determine whether a charge is
warranted in the future.
Our current and future operations and investments in certain foreign
countries are generally subject to the risks of political, economic or social
instability, including the possibility of expropriation, confiscatory taxation,
hyper-inflation or other adverse regulatory or legislative developments, or
limitations on the repatriation of investment income, capital and other assets.
We cannot predict whether any of such factors will occur in the future or the
extent to which such factors would have a material adverse effect on our
international operations.
<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 statements described in the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on the Company's current
expectations and are subject to a number of risks, uncertainties and assumptions
relating to the Company's operations, financial condition and results of
operations. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may differ
significantly from results expressed or implied in any forward-looking
statements made by the Company in this Quarterly Report. These and other risks
are detailed in documents filed by the Company with the Securities and Exchange
Commission. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
General
We design, build, install, maintain and monitor internal and external
networks supporting the Internet, Internet-related applications, e-commerce and
other communications and energy facilities for leading telecommunications, cable
television, energy and other Fortune 500 companies. Based on revenue, we are the
largest end-to-end telecommunications and energy infrastructure service provider
in North America. We offer comprehensive network infrastructure solutions to a
diverse group of customers, enabling our customers to connect with their
customers. Currently, we operate from approximately 200 locations throughout
North America, which accounted for 96% of our revenue for the six months ended
June 30, 2000. Internationally we operate in Brazil through a 51% joint venture
which we consolidate net of a 49% minority interest after tax.
For the six months ended June 30, 2000, approximately 10.7% of our domestic
revenue was derived from services performed for BellSouth Telecommunications,
Inc. Our top 10 customers combined account for approximately 50% of our domestic
revenue in the quarter.
We report our operations in four segments:
- External Communication Services,
- External Energy Services,
- Internal Communication Services and
- International.
External Communication Services represents our core business and is divided
into five service lines:
- inter-exchange networks,
- local exchange networks,
- broadband networks, and
- intelligent transportation networks.
Internal Communication Services includes:
- switching and transmission services,
- structured cabling services,
- wireless networks, and
- monitoring services.
<PAGE>
Results of Operations
North America
The following table states for the periods indicated our North American
operations in dollar and percentage of revenue terms (in thousands):
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------- ----------------------------------------------
2000 1999 2000 1999
----------------------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 286,418 100.0% $ 225,162 100.0% $ 548,790 100.0% $ 413,384 100.0%
Costs of revenue 215,653 75.3% 169,305 75.2% 416,342 75.9% 316,381 76.5%
Depreciation 13,183 4.6% 11,715 5.2% 26,661 4.9% 22,094 5.3%
Amortization 1,698 0.6% 1,399 0.6% 3,170 0.6% 2,792 0.7%
General and administrative 20,582 7.2% 18,510 8.2% 42,260 7.7% 36,016 8.8%
expenses
</TABLE>
Three Months Ended June 30, 2000
Compared to Three Months Ended June 30, 1999
The following table sets forth the revenue and change in revenue by North
American operating segments, in dollar and percentage terms (in thousands):
<TABLE>
Three Months Ended
June 30, Change
----------------------------- -----------------------------
2000 1999 $ %
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
External Communication Services $ 209,018 $ 167,642 $ 41,376 24.7%
External Energy Services 36,891 38,186 (1,295) (3.4%)
Internal Communication Services 40,509 19,003 21,506 113.2%
Other - 331 (331) (100.0%)
============== ============= ============= -------------
$ 286,418 $ 225,162 $ 61,256 27.2%
============== ============= =============
</TABLE>
Our North American revenue was $286.4 million for the three months ended
June 30, 2000, compared to $225.2 million for the same period in 1999,
representing an increase of $61.3 million or 27.2% primarily all organic.
Revenue from our two combined segments offering services to the datacom world
increased by 33.7%. Of our three operating segments, the fastest growing is our
internal communication services primarily due to growth in services provided at
central office facilities resulting from regulatory co-location requirements to
open central office facilities to new competitors. Our external communication
services segment is also growing primarily due to the increased demand for
bandwidth by end-users which has spurred increased network construction and
upgrades by our customers. Our external energy segment decreased slightly due to
our focus on increasing profitability prior to any future growth. During the
three months ended June 30, 2000, we completed four acquisitions, two in our
external communications segment and two in our internal communication services
segment. This compares to two acquisitions for the three months ended June 30,
1999 in our external communication services segment.
Our North American costs of revenue was $215.7 million or 75.3% of revenue
for the three months ended June 30, 2000, compared to $169.3 million or 75.2% of
revenue for the same period in 1999. In 2000, margins decreased due to increased
training costs in our external communication services offset by increased value
added service offering in our internal communication services and inceased
efficiency in our energy segment.
<PAGE>
Depreciation expense was $13.2 million or 4.6% of revenue for the three
months ended June 30, 2000, compared to $11.7 million or 5.2% of revenue for the
same period in 1999. The increased depreciation expense resulted from our
investment in our fleet to support revenue growth. The decline as a percentage
of revenue was due to an increase in revenue from our internal communication
segment which is less capital intensive.
General and administrative expenses were $20.6 million or 7.2% of revenue
for the three months ended June 30, 2000, compared to $18.5 million or 8.2% of
revenue for the same period in 1999. The decline in general and administrative
expenses as a percentage of revenue for the three months ended June 30, 2000 was
due primarily to our ability to support higher revenue with a reduced
administrative base.
Six Months Ended June 30, 2000
Compared to Six Months Ended June 30, 1999
The following table sets forth the revenue and change in revenue by North
American operating segments, in dollar and percentage terms (in thousands):
<TABLE>
Six Months Ended
June 30, Change
----------------------------- -----------------------------
2000 1999 $ %
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
External Communication Services $ 402,009 $ 296,520 $ 105,489 35.6%
External Energy Services 74,254 75,136 (882) (1.2%)
Internal Communication Services 72,527 40,306 32,221 79.9%
Other - 1,422 (1,422) (100.0%)
============== ============= ============= -------------
$ 548,790 $ 413,384 $ 135,406 32.8%
============== ============= =============
</TABLE>
Our North American revenue was $548.8 million for the six months ended June
30, 2000, compared to $413.4 million for the same period in 1999, representing
an increase of $135.4 million or 32.8%, primarily all organic. Revenue from our
two combined segments offering services to the datacom world increased by 40.9%.
Of our three operating segments, the fastest growing is our internal
communication services primarily due to growth in services provided at central
office facilities resulting from regulatory co-location requirements to open
central office facilities to new competitors. Our external communication
services segment is also growing primarily due to the increased demand for
bandwidth by end-users which has spurred increased network construction and
upgrades by our customers. Our external energy segment remained relatively
constant due to our focus to increasing profitability prior to any future
growth. During the six months ended June 30, 2000, we completed four
acquisitions, two in our external communications segment and two in our internal
communications services segment. This compares to three acquisitions for the
six months ended June 30, 1999 in our external communication services segment.
Our North American costs of revenue were $416.3 million or 75.9% of revenue
for the six months ended June 30, 2000, compared to $316.4 million or 76.5% of
revenue for the same period in 1999. In 2000, margins improved due to increased
productivity in our external and internal communication services offset by a
slight decline in our energy segment due to poor weather conditions experienced
earlier in 2000.
Depreciation expense was $26.7 million or 4.9% of revenue for the six
months ended June 30, 2000, compared to $22.1 million or 5.3% of revenue for the
same period in 1999. The increased depreciation expense resulted from our
investment in our fleet to support revenue growth. The decline as a percentage
of revenue was due to an increase in revenue from our internal communication
segment which is less capital intensive.
General and administrative expenses were $42.3 million or 7.7% of revenue
for the six months ended June 30, 2000, compared to $36.0 million or 8.8% of
revenue for the same period in 1999. The decline in general and administrative
expenses as a percentage of revenue for the six months ended June 30, 2000 was
due primarily to our ability to support higher revenue with a reduced
administrative base.
<PAGE>
International
The following tables set forth for the periods indicated our Brazilian
operations in dollar and percentage terms (in thousands):
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------- ----------------------------------------------
2000 1999 2000 1999
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 11,279 100.0% $ 13,525 100.0% $ 21,601 100.0% $ 32,100 100.0%
Costs of revenue 9,280 82.3% 8,964 66.3% 17,520 81.1% 23,985 74.7%
Amortization 977 8.7% 753 5.6% 3,006 13.9% 1,628 5.1%
General and administrative 1,348 12.0% 2,032 15.0% 2,782 12.9% 3,917 12.2%
expenses
</TABLE>
Three Months Ended June 30, 2000
Compared to Three Months Ended June 30, 1999
Our International operations' functional currency is the Brazilian real.
Brazilian revenue was $11.3 million for the three months ended June 30,
2000, compared to $13.5 million for the same period in 1999, representing a
decrease of $2.2 million or 16.6%. Brazilian revenue decreased primarily due to
the completion of prior existing contracts. Brazil had revenue of R$19.6 million
reals during the three months ended June 30, 2000, compared to R$23.7 million
reals for the same period in 1999, representing a decrease of 17.3%. The average
currency exchange rate was 1.74 reals per US dollar for the period ended June
30, 2000 compared to 1.75 reals per US dollar for the same period in 1999.
Amortization expense was $1.0 million or 8.7% of revenue for the three
months ended June 30, 2000 compared to $0.8 million or 5.6% of revenue for the
same period in 1999. Amortization relates primarily to an intangible asset
resulting from one acquisition completed in early 1998 that was being amortized
over a five year period relative to the volume of work under specified contracts
but has been accelerated during 2000. As of June 30, 2000, almost the entire
balance has been amortized.
General and administrative expenses were $1.3 million or 12% of revenue for
the three months ended June 30, 2000, compared to $2.0 million or 15% of revenue
for the same period in 1999. General and administrative expenses were R$2.3
million reals or 11.7% of reals revenue during the three months ended June 30,
2000, compared to R$3.6 million reals or 15.2% of reals revenue for the same
period in 1999. The decline in general and administrative expenses in relation
to revenue in real terms was due to an effort to reduce overhead as the revenue
base has declined.
Six Months Ended June 30, 2000
Compared to Six Months Ended June 30, 1999
Our International operations' functional currency is the Brazilian real.
Brazilian revenue was $21.6 million for the six months ended June 30, 2000,
compared to $32.1 million for the same period in 1999, representing a decrease
of $10.5 million or 32.7%. Brazilian revenue decreased primarily due to the
completion of prior existing contracts. Brazil had revenue of R$37.4 million
reals during the six months ended June 30, 2000, compared to R$54.2 million
reals for the same period in 1999, representing a decrease of 31.0%. The average
currency exchange rate was 1.73 reals per US dollar for the period ended June
30, 2000 compared to 1.69 reals per US dollar for the same period in 1999.
Amortization expense was $3.0 million or 13.9% of revenue for the six
months ended June 30, 2000 compared to $1.6 million or 5.1% of revenue for the
same period in 1999. Amortization relates primarily to an intangible asset
resulting from one acquisition completed in early 1998 that was being amortized
over a five year period relative to the volume of work under specified contracts
but has been accelerated during 2000. As of June 30, 2000, almost the entire
balance has been amortized.
General and administrative expenses were $2.8 million or 12.9% of revenue
for the six months ended June 30, 2000, compared to $3.9 million or 12.2% of
revenue for the same period in 1999. General and administrative expenses were
R$4.8 million reals or 12.8% of reals revenue during the six months ended June
30, 2000, compared to R$6.6 million reals or 12.2% of reals revenue for the same
period in 1999. The decline in general and administrative expenses in relation
to revenue in real terms was due to an effort to reduce overhead as the revenue
base has declined.
Consolidated Results
The following table sets forth for the periods indicated certain
consolidated income statement data for North America and International and the
related percentage of consolidated revenue.
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------------------------------
2000 1999 2000 1999
----------------------- ---------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest expense $ (4,303) (1.4%) $ (7,311) (3.1%) $ (9,859) (1.7%) $ (13,542) (3.0%)
Interest income 1,054 0.4% 3,633 1.5% 2,267 0.4% 5,742 1.3%
Other income, net 4,873 1.6% 178 0.1% 5,253 0.9% 301 -
Income before provision for 36,600 12.3% 22,510 9.4% 56,311 9.9% 31,172 7.0%
income taxes and minority
interest
Provision for income taxes (15,120) (5.1%) (9,279) (3.9%) (23,499) (4.1%) (12,949) (2.9%)
Minority interest (138) - (1,054) (0.4%) 7 - (1,694) (0.4%)
============ ========== ============ ======================= ========= ============ ==========
Net income $ 21,342 7.2% $ 12,177 5.1% $ 32,819 5.8% $ 16,529 (3.7%)
============ ========== ============ ======================= ========= ============ ==========
</TABLE>
Three Months Ended June 30, 2000
Compared to Three Months Ended June 30, 1999
For the three months ended June 30, 2000, interest expense declined from
$7.3 million to $4.3 million primarily due to the repayment of debt under our
revolving credit facility with a portion of the proceeds of our offering of 3.75
million shares which raised approximately $126.0 million in net proceeds.
Interest income for the three months ended June 30, 1999 includes interest
accrued and collected from a customer financing arrangement which terminated in
September 1999. Interest income for the three months ended June 30, 2000 was
mainly comprised of interest earned on temporary investments as a result of our
3.75 million equity offering completed in March 6, 2000.
For the three months ended June 30, 2000, we reflected a gain of $9.6
million related to the sale of our PCS system in Latin America. We also recorded
a charge of $5.4 million comprised primarily of the write-off of two Latin
American operations.
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
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 and Brazil operations
approximates 42% and 33% respectively, for the three and six months ended June
30, 2000 and 1999.
The trends experienced during the three months ended June 30, 2000 are
consistent with those of the six months ended June 30, 2000 to six months ended
June 30, 1999.
<PAGE>
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,
issuances of stock and the proceeds from the sale of assets held for sale.
Net cash used in operating activities was $10.6 million for the six months
ended June 30, 2000, compared to net cash provided by operating activities of
$22.2 million for the same period in 1999. In 1999, we collected approximately
$42.0 million from a customer to whom we were providing vendor financing of
which approximately $14.3 million related to work performed in 1999 with the
balance being for work performed in 1998.
Our working capital at June 30, 2000, excluding assets held for sale of
$24.7 million, was $279.9 million compared to $169.6 million at December 31,
1999 excluding assets held for sale of $53,639. Our North American working
capital as of June 30, 2000 was comprised primarily of $265.2 million in
accounts receivable, $36.9 million in inventories and other current assets and
$75.4 million in cash and cash in escrow, net of $118.5 million in current
liabilities.
We have a credit facility that provides for borrowings up to an aggregate
amount of $100.0 million, which we have reduced from $165.0 million during 2000.
Amounts outstanding under the revolving credit facility mature on June 9, 2002.
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.
We also have $200.0 million, 7.75% senior subordinated 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 coverages, requiring, among other things, minimum ratios at the
end of each fiscal quarter of debt to earnings and earnings to interest expense.
During 2000, we invested $28.3 million primarily in our fleet to support
revenue growth. We collected $15.2 million in net proceeds related to assets
sold, primarily from the sale of our Spanish operations. Subsequent to June 30,
2000, we received $45.0 million in proceeds held in escrow at June 30 from the
sale of our PCS system in Latin America in the second quarter. We anticipate
that available cash, cash flows from operations and the proceeds 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.
We also own minority interests in Argentina and Spain. Our investment in
Argentina is a minority interest with a carrying value of $17.9 million as of
June 30, 2000 in Supercanal Holding, S.A., a holding company of numerous cable
television operators in western Argentina ("Supercanal"). We also own a minority
interest in and have made a $3.0 million working capital loan to Sistemas e
Instalaciones S.A. ("Sintel"), a Spanish telecommunications infrastructure
services provider.
Supercanal has defaulted on its third party debt and has filed a petition
under Argentine law seeking protection from its creditors. We do not guarantee
any of this indebtedness. In January 2000, the majority shareholder of
Supercanal approved a capital increase that would have required us to contribute
approximately $5.9 million to maintain our interest if the capital increase is
effected in full, but the capital increase has been enjoined by an Argentine
judge and we cannot determine whether or when the capital increase will be
effected.
<PAGE>
During the second quarter of 2000, Sintel filed a petition under Spanish
law seeking protection from its creditors, including our working capital loan.
In July 2000, Sintel approved a capital increase that will require us to
contribute approximately $2.6 million to maintain our interest if the capital
increase is effected in full. Management is considering whether to subscribe to
the capital increase.
We have determined that the carrying value of these assets has not been
impaired, but we are monitoring investments to determine whether a charge is
warranted in the future.
While we do not currently anticipate taking an additional impairment charge
on any of these assets, there can be no assurance that future transactions or
events will not result in any further impairment of these assets. If we were to
take a charge, however, it could adversely affect our earnings for the period in
which we incurred the charge.
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. Some of our U.S. customers, particularly the
incumbent local exchange carriers, tend to complete budgeted capital
expenditures before the end of the year and defer additional expenditures until
the following budget year. Revenue in reals from our Brazilian operations is not
expected to fluctuate seasonally.
Impact of Inflation
The primary inflationary factor affecting our operations is increased labor
costs. We have experienced some increases in labor costs. Competition for
qualified personnel could increase labor costs for us further in the future. Our
international operations may, at times in the future, be exposed to high
inflation in certain foreign countries. During the six months ended June 30,
2000, we generated approximately 4% of our total revenue from our Brazilian
operations that are susceptible to currency devaluation. We anticipate that
revenue from our Brazilian operations will be less significant to our operations
in the foreseeable future due to our continued focus on domestic operations. In
addition, any deterioration in economic conditions in Brazil and other Latin
American countries could adversely impact our results of operations, financial
position and cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 4 and 6 of Notes to Consolidated Financial Statements for
disclosure about market risk.
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 17, 2000. The
holders of MasTec's common stock, $0.10 par value, were entitled to elect two
Class II directors to serve until 2003 and until their successors are elected
and qualified. Proxies for 32,065,269 shares of the 46,505,745 entitled to vote
were received.
<PAGE>
The following table sets forth the names of the two persons elected at
the Annual Meeting to serve as directors until 2003 and the number of votes cast
for or against respect to each person.
Class II Director For Withheld
Olaf Olafsson 32,028,233 37,037
William N. Shiebler 32,026,947 38,322
Also at the Annual Meeting, a proposal to increase the shares reserved for
issuance under the 1994 Stock Incentive Plan by 1,000,000 shares was voted upon
with the following votes cast:
For Against Withheld
25,984,287 6,039,219 41,763
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.
<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 4, 2000 /s/ CARMEN M. SABATER
---------------------
Carmen M. Sabater
Senior Vice President - Chief Financial Officer
(Principal Financial Officer)
Date: August 4, 2000 /s/ ARLENE VARGAS
-----------------
Arlene Vargas
Vice President and Controller
Principal Accounting Officer)
