PROSPECTUS
2,500,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
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MASTEC, INC. IS OFFERING 2,500,000 SHARES OF ITS COMMON STOCK.
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MASTEC'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"MTZ." ON FEBRUARY 24, 2000, THE REPORTED LAST SALE PRICE OF MASTEC'S COMMON
STOCK ON THE NEW YORK STOCK EXCHANGE WAS $56 5/16 PER SHARE.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
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PRICE $53 A SHARE
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS MASTEC
---------------- --------------- ----------------
PER SHARE ......... $ 53.000 $ 2.597 $ 50.403
TOTAL ............. $132,500,000 $6,492,500 $126,007,500
A SELLING SHAREHOLDER HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO
AN ADDITIONAL 375,000 SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. WE WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THESE ADDITIONAL SHARES.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS
ON MARCH 1, 2000.
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MORGAN STANLEY DEAN WITTER
JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
FEBRUARY 24, 2000
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MASTEC.
BUILDING THE E-WORLD.
<PAGE>
TABLE OF CONTENTS
PAGE
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Prospectus Summary ......................... 4
Risk Factors ............................... 9
Cautionary Note Regarding Forward-
Looking Statements ...................... 14
Use of Proceeds ............................ 15
Price Range of Common Stock and
Dividend Policy ......................... 15
Capitalization ............................. 16
Selected Financial Data .................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 19
PAGE
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Business ................................... 29
Management ................................. 36
Principal and Selling Shareholders ......... 38
Description of Capital Stock ............... 39
Material United States Tax Consequences
for Non-U.S. Investors .................. 41
Underwriters ............................... 44
Legal Matters .............................. 48
Experts .................................... 48
Where You Can Find More Information
About MasTec ............................ 49
Index to Financial Statements .............. F-1
3
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PROSPECTUS SUMMARY
THIS PROSPECTUS INCLUDES SPECIFIC INFORMATION REGARDING OUR BUSINESS AND
DETAILED FINANCIAL DATA. WE ENCOURAGE YOU TO READ THIS PROSPECTUS IN ITS
ENTIRETY. WE HAVE ADJUSTED ALL REFERENCES TO OUR COMMON STOCK IN THIS
PROSPECTUS TO GIVE EFFECT TO THE THREE-FOR-TWO STOCK SPLIT WHICH WE EFFECTED ON
FEBRUARY 28, 1997 BY MEANS OF A STOCK DIVIDEND OF ONE SHARE OF COMMON STOCK FOR
EVERY TWO SHARES OF COMMON STOCK OUTSTANDING.
MASTEC, INC.
We design, build, install and maintain 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 95% of our revenue in 1999.
We are organized into eight service lines centered around our customers,
which include some of the largest and most prominent companies in the
telecommunications and energy fields. Our customers include:
/bullet/ incumbent local exchange carriers,
/bullet/ competitive local exchange carriers,
/bullet/ long distance carriers,
/bullet/ cable television operators,
/bullet/ wireless phone companies,
/bullet/ telecommunications equipment vendors,
/bullet/ co-location facilities providers,
/bullet/ public and private energy companies and
/bullet/ financial institutions and other Fortune 500 companies.
Representative customers are:
BellSouth Telecommunications, Inc. Global Crossing, Ltd.
SBC Communications Williams Communications Group, Inc.
GTE Corporation AT&T Corp.
Sprint Corp. Charter Cable, Inc.
US West, Inc. Time Warner, Inc.
Qwest Communications, Inc. Winstar Communications, Inc.
Telergy, Inc. NEC Corp.
Enron Corp. Carolina Power and Light Co.
Level 3 Communications First Union National Bank
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OUR INDUSTRY
Our industry is experiencing a number of trends that we believe will lead
to a significant increase in the demand for our services over the next several
years.
/bullet/ INCREASED DEMAND FOR BANDWIDTH. Growth in telecommunications voice,
video and data traffic, electronic commerce and in the transmission of
high quality information, entertainment and other content over the
Internet has created the need for greater bandwidth. This requires
telecommunications providers and cable television system operators to
upgrade, expand and replace their facilities and infrastructure from
the central office to the home or business.
/bullet/ INCREASED OUTSOURCING OF INFRASTRUCTURE NEEDS. Consolidation and
deregulation in the telecommunications and energy industries have
created integrated, geographically diverse companies which are
increasingly focusing on their core competencies and outsourcing their
infrastructure needs to compete in the changing marketplace.
/bullet/ INCREASED DEMAND FOR COMPREHENSIVE SOLUTIONS. We believe that companies
in the industries we serve are seeking comprehensive end-to-end
solutions to their infrastructure needs and therefore require service
providers, such as MasTec, that can build out large and complex
networks quickly and with a high level of quality.
OUR COMPETITIVE STRENGTHS
We believe that our industry presents substantial growth opportunities for
companies, such as MasTec, with broad geographic coverage, comprehensive
technical expertise and reliable customer service. We have positioned ourselves
to take advantage of these opportunities by emphasizing the following
competitive strengths:
/bullet/ NATIONAL FOOTPRINT AND NAME RECOGNITION. We have significantly
broadened our geographic presence in recent years and believe we are
capable of servicing customers across the United States and Canada. We
are continuing to develop the brand name "MasTec" across all of our
operating units nationwide to further position ourselves as an
integrated, national company.
/bullet/ END-TO-END SOLUTIONS. We believe that we are one of the few
infrastructure services providers capable of providing all of the
design, building, installation and maintenance services necessary for a
complete telecommunications network starting from a transmission point,
such as a telephone company central office or cable television
head-end, and running through aerial, underground and buried cables or
through wireless transmission to the ultimate end users' voice and data
ports, computer terminals, cable outlets or cellular stations.
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/bullet/ TECHNICAL EXPERTISE AND RELIABLE CUSTOMER SERVICE. We believe that we
have established a reputation for quality and reliability, technical
expertise and operating efficiency. We believe that our reputation
among our customers should give us an advantage in securing larger,
more complex infrastructure projects, a greater volume of business from
our existing customers and new customers.
/bullet/ DIVERSE AND LONG-STANDING CUSTOMER BASE. We have a diverse customer
base that allows us to capitalize on the wide range of technological
advances and other market developments that drive capital spending by
our customers. We have continually provided services to our top ten
customers for an average of over 15 years. We believe that our diverse
and long-standing customer base makes us less susceptible to downturns
in any particular geographic region or industry sector.
/bullet/ EXPERIENCED MANAGEMENT. We have a strong management team to continue
executing our growth strategy. Our management team has the operational,
business development and financial knowledge and experience to
anticipate trends in our industry and to consistently meet and exceed
our clients' expectations for comprehensive and reliable solutions.
OUR GROWTH STRATEGY
The key elements of our growth strategy are as follows:
/bullet/ EXPAND OUR EXISTING CUSTOMER RELATIONSHIPS AND PURSUING NEW CUSTOMERS.
We actively market our services to our existing and potential customers
and focus on increasing the range of services we provide. We also team
with engineering firms, equipment suppliers and other vendors to
provide turnkey services to our customers.
/bullet/ CONTINUE TO ACHIEVE OPERATING EFFICIENCIES. We intend to continue to
improve our profitability by focusing on ways to achieve cost savings,
economies of scale and improved asset and personnel utilization.
/bullet/ PURSUE STRATEGIC ALLIANCES AND SELECTED ACQUISITIONS. Through strategic
alliances and selected acquisitions, we intend to continue to add
customers, enhance capabilities and expand our geographic coverage.
Most recently, we teamed with Skanska, USA, Inc. to provide project
management for RCN Corporation's announced construction of a $3 billion
fiber optic network. We have also announced an arrangement with Lucent
Technologies to provide comprehensive broadband infrastructure
solutions to the cable television industry throughout the United States
and with IBM to provide their rapid network deployment solutions.
We are incorporated under the laws of the State of Florida. Our principal
executive offices are located at 3155 N.W. 77th Avenue, Miami, Florida 33122.
Our telephone number is (305) 599-1800.
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THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock offered ...................................... 2,500,000 shares
Common stock offered in
United States offering ................................... 2,000,000 shares
International offering ................................... 500,000 shares
Common stock to be outstanding after the offering ......... 30,806,087 shares
Over-allotment option ..................................... 375,000 shares(1)
Use of proceeds ........................................... Net proceeds from this offering will be
about $125.5 million. We intend to use
the net proceeds to repay outstanding
indebtedness under our revolving credit
facility, subject to reborrowings, for
general corporate purposes, including
acquisitions, and for working capital
needs and capital expenditures.
New York Stock Exchange symbol ............................ MTZ
</TABLE>
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(1) The selling shareholder has granted the underwriters the right to purchase
these shares solely to cover over-allotments. We will not receive any of
the proceeds from the sale of shares by the selling shareholder.
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SUMMARY CONSOLIDATED FINANCIAL DATA
Below is a summary of our consolidated financial data for the periods and
as of the dates indicated. For informational purposes, the following summary
consolidated financial data for 1997 and 1998 includes the results of our
Spanish operations, 87% of which we sold effective December 31, 1998. You
should read the following information in conjunction with our consolidated
financial statements and their notes as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997(1) 1998(2) 1999
------------- ------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
North American revenue .............................. $ 377,046 $ 669,628 $ 1,003,802
Brazilian revenue ................................... 74,900 141,954 55,220
Spanish revenue ..................................... 207,493 237,340 --
--------- ---------- -----------
Total revenue ...................................... 659,439 1,048,922 1,059,022
Costs of revenue ..................................... 495,840 803,112 803,799
Depreciation and amortization ........................ 23,855 43,313 56,148
Non-recurring charge(3) .............................. -- 33,765 --
General and administrative expenses .................. 82,261 140,472 91,898
Net income (loss)(4) ................................. $ 34,664 $ (13,915) $ 44,726
Basic weighted average common shares outstanding(5) .. 26,460 27,489 27,809
Basic earnings (loss) per share ...................... $ 1.31 $ (0.51) $ 1.61
Diluted weighted average common shares outstanding(5) 27,019 27,489 28,416
Diluted earnings (loss) per share .................... $ 1.28 $ (0.51) $ 1.57
</TABLE>
DECEMBER 31, 1999
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ACTUAL AS ADJUSTED(6)
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(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital(7) .................. $169,619 $215,469
Total current assets ................ 393,861 439,711
Property and equipment, net ......... 153,527 153,527
Total assets ........................ 728,409 774,259
Total debt .......................... 279,658 200,000
Total shareholders' equity .......... 256,833 382,341
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(1) Our Brazilian operations began on August 1, 1997. Information for the year
ended December 31, 1997 includes the results of our Brazilian operations
from August 1, 1997.
(2) Includes severance charges related to Spanish operations of $13.4 million,
of which $1.9 million is reflected in costs of revenue and $11.5 million
in general and administrative expenses and a loss of $9.2 million related
to the sale of our Spanish subsidiary. Our effective tax rate for the year
ended December 31, 1998 was mainly affected by a tax liability of
approximately $7.8 million resulting from the sale of 87% of our Spanish
operations, the non-deductibility of the amortization of intangibles and
the non-deductibility of other expenses.
(3) Reflects a non-recurring charge for payments to operational management at
our external and internal communication services segments. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(4) Includes, for 1999, a write-down of $6.0 million related to international
assets held for sale, a $2.0 million transaction loss on a note receivable
resulting from the sale of Spanish operations and $2.2 million of expenses
relating to our Paraguay PCS system offset by a $4.8 million fee collected
from a customer.
(5) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997.
(6) As adjusted to give effect to our sale of 2,500,000 shares of common stock
in the offering and the application of the net proceeds.
(7) Working capital excludes $65.8 million of assets held for sale.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. OUR MATERIAL RISKS ARE DESCRIBED BELOW. OUR BUSINESS,
OPERATING RESULTS OR FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY
AFFECTED BY THESE RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE
DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU
SHOULD ALSO REFER TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS.
RISKS RELATING TO OUR INDUSTRY AND THE INDUSTRIES WE SERVE
THE TELECOMMUNICATIONS AND ENERGY INDUSTRIES ARE SUBJECT TO RAPID TECHNOLOGICAL
AND REGULATORY CHANGES THAT COULD REDUCE THE DEMAND FOR THE SERVICES WE
PROVIDE.
We derive and anticipate that we will continue to derive a substantial
portion of our revenue from customers in the telecommunications industry. New
or developing technologies could displace the wireline systems used for the
transmission of voice, video and data, and improvements in existing technology
may allow telecommunications providers to significantly improve their networks
without physically upgrading them. Additionally, the telecommunications
industry has been characterized by a high level of consolidation that may
result in the loss of one or more customers. The energy industry is also
entering into a phase of deregulation and consolidation similar to the
telecommunications industry, which could lead to the same uncertainties as in
the telecommunications industry.
THE VOLUME OF WORK WE RECEIVE FROM OUR CUSTOMERS IS DEPENDENT ON THEIR
FINANCIAL RESOURCES AND ABILITY TO OBTAIN CAPITAL.
The volume of work awarded under contracts with certain of our
telecommunications and energy customers is subject to periodic appropriations
or rate increase approvals during each contract's term. If a customer of ours
fails to receive sufficient appropriations or rate increase approvals, that
customer could reduce the volume of work that it awards to us or delay its
payments to us. These outcomes could reduce the demand for the services we
provide.
In addition, a number of other factors, including financing conditions for
the industry, could adversely affect our customers and their ability or
willingness to fund capital expenditures in the future. These factors could
also reduce the demand for the services we provide.
THE TELECOMMUNICATIONS AND ENERGY INFRASTRUCTURE SERVICES INDUSTRIES ARE HIGHLY
COMPETITIVE AND POTENTIAL COMPETITORS FACE FEW BARRIERS TO ENTRY. OUR INABILITY
TO COMPETE SUCCESSFULLY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
The industries in which we operate are highly competitive and we compete
with other companies in most of the markets in which we operate. We may also
face competition from existing or prospective customers who employ in-house
personnel to perform some of the same types of services as we provide. There
are relatively few significant barriers to entry into the markets in which we
operate, and as a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
MANY OF OUR CONTRACTS MAY BE CANCELED ON SHORT NOTICE, AND WE MAY BE
UNSUCCESSFUL IN REPLACING OUR CONTRACTS AS THEY ARE COMPLETED OR EXPIRE.
We could experience a material adverse effect on our revenue, net income
and liquidity if:
/bullet/ our customers cancel a significant number of contracts,
/bullet/ we fail to win a significant number of our existing contracts upon
re-bid or
/bullet/ we complete the required work under a significant number of our
non-recurring projects and cannot replace them with similar projects.
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Many of our customers may cancel our long-term contracts with them on
short notice, typically 90 to 180 days, even if we are not in default under the
contract. As a result, these contracts do not give us the assurances that
long-term contracts typically provide. Many of our contracts, including our
master service contracts, are opened to public bid at the expiration of their
terms and price is often an important factor in the award of these agreements.
We cannot assure you that we will be the successful bidder on our existing
contracts that come up for bid. We also provide a significant portion of our
services on a non-recurring, project by project basis.
OUR EXTERNAL NETWORK SERVICES BUSINESS IS SEASONAL, EXPOSING US TO REDUCED
REVENUE IN THE FIRST AND FOURTH QUARTERS OF EACH YEAR.
We experience reduced revenue in the first and fourth quarters of each
year relative to other quarters. These variations are partly due to the fact
that the budgetary years of many of our external network services customers end
in December. As a result of the end of their budgetary years, our
telecommunications customers, and particularly our incumbent local exchange
customers, typically reduce their expenditures and work order requests towards
the end of the year. The onset of winter also affects our ability to render
external network services in certain regions of the United States.
WE EXPERIENCE VARIATIONS IN REVENUE AND NET INCOME AS WE COMMENCE OR COMPLETE
WORK.
Our contracts typically require significant start-up costs in one
quarterly period, but we typically do not realize the benefit of the
contractual revenue until subsequent periods. The completion of major contracts
may affect our quarterly results for similar reasons. In addition, the amount
and type of work that we perform at any given time and the general mix of
customers for which we perform work can vary significantly from quarter to
quarter, affecting our quarterly results.
OUR MASTER SERVICE CONTRACTS SUBJECT US TO UNCERTAIN REVENUE GROWTH.
We currently derive a significant portion of our revenue from our master
services contracts. A significant decline in the work our customers assign us
under our master services contracts could materially and adversely affect our
revenue and net income. Under our master services contracts, we may be one of
several companies that perform services for the customer, and our customers
have no obligations under our master services contracts to undertake any
infrastructure projects or other work with us.
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR BUSINESS IS LABOR INTENSIVE, AND IF WE CANNOT ATTRACT AND RETAIN QUALIFIED
EMPLOYEES WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.
Labor shortages or increased labor costs could have a material adverse
effect on our ability to implement our growth strategy and our operations. Our
business is labor intensive, and many of our operations experience a high rate
of employee turnover. The low unemployment rate in the United States has made
it more difficult for us to find qualified personnel at low cost in some areas
where we operate. As we offer new services and pursue new customer markets we
will also need to increase our executive and support personnel. We cannot
assure you that we will be able to continue to hire and retain a sufficient
skilled labor force necessary to operate efficiently and to support our growth
strategy or that our labor expenses will not increase as a result of a shortage
in the supply of skilled personnel.
IF WE ARE UNABLE TO EXPAND OUR INFRASTRUCTURE, WE WILL NOT BE SUCCESSFUL IN
MANAGING OUR RAPID GROWTH.
To manage our growth effectively, we will need to continuously enhance our
information systems and our operational and financial systems and controls. Our
anticipated growth could significantly strain our operational infrastructure
and financial resources. Our growth plan may be adversely affected if we are
unable to expand and continuously improve our operational infrastructure.
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WE MAY HAVE DIFFICULTY IDENTIFYING AND FINANCING ACQUISITIONS, WHICH COULD
DISRUPT OUR GROWTH STRATEGY.
We have grown rapidly both through internal growth and by acquiring other
companies, and our growth strategy is dependent in part on additional
acquisitions. Increased competition for acquisition candidates has raised
prices for these targets and lengthened the time period required to recoup our
investment. Our acquisition strategy presents the risks inherent in:
/bullet/ assessing the value, strengths and weaknesses of growth opportunities
and
/bullet/ evaluating the costs and uncertain returns of expanding our operations.
We cannot assure you that:
/bullet/ we will be able to continue to identify and acquire appropriate
businesses on favorable terms or at all,
/bullet/ we will be able to obtain financing for acquisitions on favorable terms
if at all or
/bullet/ the companies that we acquire will perform as we expect.
Our future acquisitions could also result in:
/bullet/ issuing additional shares of our capital stock, which could dilute our
existing shareholders,
/bullet/ increasing our debt to finance the acquisitions, which could require us
to agree to restrictive covenants and which might limit our operational
and financial flexibility,
/bullet/ using our cash, which would reduce the funds we have available for
other corporate purposes or
/bullet/ increased amortization expense from goodwill and other intangibles
related to acquisitions, which would decrease our net income.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESSES THAT WE ACQUIRE, WHICH COULD
DECREASE OUR REVENUE AND NET INCOME.
Any difficulties we encounter in integrating the businesses we acquire
could reduce the earnings we generate from that business, which may have a
material adverse effect on our revenue and net income. As an example, the
integration process may require us to change the acquired businesses' operating
methods and strategies. The integration of an acquired business may also divert
the attention of the management of the acquired business from its day-to-day
responsibilities. We may also become responsible for liabilities of an acquired
business that we may not have discovered prior to an acquisition.
WE MAY NOT RECOVER THE VALUE OF OUR FOREIGN INVESTMENTS.
As of December 31, 1999 we had unconsolidated equity investments accounted
for at cost, totaling approximately $58.6 million, in the following non-core
assets that are held for sale:
/bullet/ a minority interest in an Argentine cable television operator,
/bullet/ a minority interest in an Ecuadorian cellular telephone company,
/bullet/ a minority interest in a Spanish telecommunications infrastructure
services provider and
/bullet/ a personal communications system in Paraguay.
The companies in Argentina and Ecuador in which we have approximately $30
million invested have defaulted on their third-party debt obligations. We do
not guarantee any of that defaulted indebtedness, and we are monitoring those
investments to determine their impact, if any, on our results of operations,
financial position and cash flows. We reduced the carrying value of our
investment in Ecuador by $4.0 million in the fourth quarter of 1999 based upon
a publicly announced proposed
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purchase of a controlling interest in the Ecuadorian company by an unaffiliated
purchaser. As part of this transaction, the third-party debt obligations of the
Ecuadorian company will be restructured and will no longer be in default. We
are currently in a dispute with the majority shareholder of the company
regarding our ownership interest. 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 a 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.
On January 25, 2000 the majority shareholders of the Argentinean company
approved a capital increase which would require us to contribute approximately
$5.9 million to the company within the next six months to maintain our
interest. We are considering whether to make the additional capital
contribution. Our interest in this company will be significantly diluted in the
event we elect not to make the additional capital contribution.
We are exploring methods to maximize the value of these assets. We cannot
assure you that we will be successful in achieving any proposed methods, and
even if we do achieve one or more proposed methods, it may result in a charge,
loss or tax liability to us.
OUR OPERATIONS IN BRAZIL ARE SUBJECT TO POLITICAL AND ECONOMIC INSTABILITY AND
FOREIGN CURRENCY FLUCTUATIONS THAT MAY ADVERSELY AFFECT THEIR ABILITY TO
GENERATE REVENUE.
We derived approximately 5% of our revenue during the year ended December
31, 1999 from operations in Brazil that are subject to the risks of political,
economic or social instability, including:
/bullet/ the possibility of expropriation,
/bullet/ confiscatory taxation,
/bullet/ recessions,
/bullet/ hyper-inflation,
/bullet/ other adverse governmental or regulatory developments or
/bullet/ limitations on the repatriation of investment income, capital stock and
other assets.
We also conduct business in foreign currencies that are subject to
fluctuations in their exchange rates relative to the U.S. dollar. We monitor
our currency exchange risk but we do not currently hedge against that risk. We
cannot assure you that currency exchange fluctuations or other political,
economic or social factors will not adversely affect our financial condition or
results of operations.
Revenue from our Brazilian operations declined during 1999 due largely to
both the devaluation of the Brazilian reais and reductions in telephony
infrastructure spending resulting from deteriorating economic conditions.
BECAUSE WE ARE EFFECTIVELY SELF-INSURED AGAINST MANY POTENTIAL LIABILITIES, WE
MAY INCUR SIGNIFICANT ADDITIONAL LIABILITIES IF WE EXPERIENCE INSURANCE CLAIMS
OR COSTS ABOVE OUR ACTUARIAL ESTIMATES.
We maintain insurance policies with respect to automobile, general
liability, workers' compensation and employee group health claims. However,
those policies are generally subject to high deductibles. Accordingly, we must
pay all valid insurance claims which do not exceed the amount of the applicable
deductible. We actuarially determine any liabilities for unpaid claims and
associated expenses, including incurred but not reported losses, and reflect
those liabilities in our balance sheet as an accrued liability. We continually
review the determination of those claims and expenses and the extent of the
accrued liability. If we were to experience insurance claims or costs above our
estimates and were unable to offset those increases with earnings, our net
income and cash flows could be materially and adversely affected.
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OUR CREDIT FACILITY AND SENIOR NOTES COULD BE ACCELERATED IF WE DEFAULT AND
COULD ALSO PREVENT US FROM ENGAGING IN OTHERWISE BENEFICIAL TRANSACTIONS.
We have a credit facility with a group of financial institutions and have
outstanding our 7 3/4% Senior Subordinated Notes due 2008. The terms of our
indebtedness contain customary events of default and covenants. Events which
are beyond our control may affect our ability to comply with these provisions.
If we breach any of these covenants, we could be in default under the credit
facility or under the indenture relating to the senior notes. A default could
accelerate the indebtedness. In addition, these covenants may significantly
restrict our ability to respond to changing business and economic conditions or
to secure additional financing, if needed, and may prevent us from engaging in
transactions that might otherwise be considered beneficial to us. The
prohibited actions include, among other things:
/bullet/ making investments in excess of specified amounts,
/bullet/ incurring additional indebtedness in excess of a specified amount,
/bullet/ paying dividends in excess of a specified amount,
/bullet/ making capital expenditures in excess of a specified amount,
/bullet/ creating liens on our assets,
/bullet/ prepaying our other indebtedness, including the senior notes,
/bullet/ engaging in mergers or combinations and
/bullet/ engaging in transactions which would result in a "change of control."
Our credit facility also requires us to maintain financial ratio coverages at
the end of each fiscal quarter of debt to earnings and of earnings to interest
expense.
WE ARE CONTROLLED BY A SMALL NUMBER OF OUR EXISTING SHAREHOLDERS WHO CAN
EFFECTIVELY DICTATE OUR MANAGEMENT AND POLICIES AND WHO COULD LIMIT OR PREVENT
AN OTHERWISE BENEFICIAL TAKEOVER ATTEMPT.
Upon the completion of this offering, and assuming the underwriters do not
exercise their over-allotment option, Jorge Mas, our Chairman, and his family
members will own more than 45% of the outstanding shares of our common stock.
Accordingly, they will remain in a position to effectively:
/bullet/ control the vote of most matters submitted to our shareholders,
including any merger, consolidation or sale of all or substantially all
of our assets (even if that transaction might result in you receiving a
premium for your common stock),
/bullet/ elect all of the members of our Board of Directors,
/bullet/ prevent or cause a change in our control and
/bullet/ decide whether we will issue additional common stock or other
securities or declare dividends.
OUR CHARTER DOCUMENTS AND FLORIDA LAW CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY
MAKE IT MORE DIFFICULT TO EFFECT A CHANGE IN OUR CONTROL AND COULD ADVERSELY
IMPACT THE PRICE OF OUR COMMON STOCK.
Our articles of incorporation and bylaws and provisions of the Florida
Business Corporation Act may make it more difficult in some respects to effect
a change in our control and replace our incumbent management. These provisions
may:
/bullet/ have a negative impact on the price of our common stock,
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<PAGE>
/bullet/ discourage third party bidders from making a bid for us or
/bullet/ reduce any premiums paid to you for your common stock.
In addition, our Board of Directors has the authority to fix the rights and
preferences of, and to issue our preferred stock, and to take other actions
without the action of our shareholders that may have the effect of delaying or
preventing a change of our control.
THE YEAR 2000 ISSUE COULD MATERIALLY AND ADVERSELY AFFECT US.
Year 2000 problems might require us to incur unanticipated expenses or
experience interruptions of operations that could have an adverse effect on our
future revenues and profitability. Our vendors, suppliers and customers might
also experience Year 2000 problems which could impact our operations. You
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We are making this statement pursuant to the safe harbor provisions for
forward-looking statements described in the Private Securities Litigation
Reform Act of 1995. We make statements in this prospectus and in the documents
that we incorporate by reference into this prospectus that are forward-looking,
such as statements regarding:
/bullet/ our future growth and profitability,
/bullet/ our competitive strengths and business strategy and
/bullet/ the trends we anticipate in the industries and economies in which we
operate.
These forward-looking statements are based on our current expectations and
are subject to a number of risks, uncertainties and assumptions relating to:
/bullet/ our operations, financial condition and results of operations,
/bullet/ rapid technological and regulatory changes in the industries we serve,
/bullet/ the financial resources of our customers,
/bullet/ our numerous competitors and the few barriers to entry for potential
competitors,
/bullet/ the short-term nature of many of our contracts,
/bullet/ the seasonality and quarterly variations we experience in our revenue,
/bullet/ our uncertain revenue growth,
/bullet/ our ability to attract and retain qualified personnel,
/bullet/ our ability to expand our infrastructure and manage our growth,
/bullet/ our ability to identify, finance and integrate acquisitions,
/bullet/ our foreign operations and investments,
/bullet/ the restrictions imposed by our credit facility and
/bullet/ our exposure to Year 2000 problems.
If any of these risks or uncertainties materialize, or if any of our
underlying assumptions are incorrect, our actual results may differ
significantly from the results that we express in or imply by any of our
forward-looking statements. These and other risks are detailed in this
prospectus, the documents that we incorporated by reference into this
prospectus and in other documents that we file with the Securities and Exchange
Commission. We do not undertake any obligation to revise these forward-looking
statements to reflect future events or circumstances.
14
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 2,500,000 shares of
common stock we are offering will be approximately $125.5 million after
deducting estimated offering expenses, underwriting discounts and commissions.
We intend to use the net proceeds of the offering to repay outstanding
indebtedness under our credit facility, subject to reborrowings for general
corporate purposes, including acquisitions, and for working capital needs and
capital expenditures. We regularly evaluate potential acquisition
opportunities, but we are not currently negotiating any agreements to make any
material acquisitions, and no such acquisitions are currently probable.
As of December 31, 1999, the indebtedness that we intend to repay out of
the net proceeds bore interest at LIBOR (London Interbank Offered Rate) plus
1.25% (6.98% at December 31, 1999). We used the outstanding borrowings under
our credit facility for working capital purposes, for capital expenditures and
to fund acquisitions and investments.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange under the symbol
"MTZ." The following table states, for the quarters indicated, the high and low
sale prices of our common stock, as reported by the New York Stock Exchange.
HIGH LOW
---------- ----------
FISCAL YEAR ENDED DECEMBER 31, 1998
First Quarter ............................... $343/16 $223/8
Second Quarter .............................. 34 1913/16
Third Quarter ............................... 263/8 141/2
Fourth Quarter .............................. 283/4 123/8
FISCAL YEAR ENDING DECEMBER 31, 1999
First Quarter ............................... 303/8 195/8
Second Quarter .............................. 30 21
Third Quarter ............................... 371/4 2611/16
Fourth Quarter .............................. 441/2 281/2
FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter (through February 24) ......... 5711/16 403/4
On February 24, 2000 the closing sale price of our common stock as
reported on the New York Stock Exchange was $56 5/16 per share. The number of
shareholders of record on January 31, 2000 was approximately 4,582.
We have not paid any cash dividends and do not anticipate paying any cash
dividends in the foreseeable future. Instead, we intend to retain any future
earnings for reinvestment.
Our Board of Directors will make any future determination as to the
payment of dividends at their discretion, and their determination will depend
upon our operating results, financial condition and capital requirements,
general business conditions and any other factors that the Board of Directors
considers relevant. In addition, some of our credit agreements prohibit us from
paying dividends or making other distributions on our common stock without the
prior written consent of the lenders. You should read "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
15
<PAGE>
CAPITALIZATION
The following table states our capitalization on an actual basis as of
December 31, 1999 and on an as adjusted basis to reflect the sale of the
2,500,000 shares of common stock that we are offering and the application of
the estimated net proceeds from the offering as described in "Use of Proceeds."
You should read the information in the following table in conjunction with our
consolidated financial statements and their notes.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long term debt, including current portion ............................... $ 279,658 $ 200,000
--------- ---------
Shareholders' equity:
Preferred stock, par value $1.00 per share; 5,000,000 shares authorized;
no shares issued and outstanding ..................................... -- --
Common stock, par value $0.10 per share; 100,000,000 shares
authorized; 28,233,000 shares issued and outstanding;
30,733,000 shares issued and outstanding as adjusted ................. 2,823 3,073
Capital surplus ........................................................ 168,799 294,057
Retained earnings ...................................................... 101,203 101,203
Foreign currency transaction adjustments ............................... (15,992) (15,992)
--------- ---------
Total shareholders' equity ........................................... 256,833 382,341
--------- ---------
Total capitalization .............................................. $ 536,491 $ 582,341
========= =========
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA
The following table states our selected financial data. The summary
consolidated data as of December 31, 1995, 1996, 1997, 1998 and 1999 and for
each of the years in the five-year period ended December 31, 1999 are derived
from our audited consolidated financial statements.
The summary consolidated financial data for 1996, 1997 and 1998 includes
the results of our Spanish operations, 87% of which we sold effective December
31, 1998. You should read the following selected financial data together with
our consolidated financial statements and their notes as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1996(1) 1997(2) 1998(1) 1999
----------- ------------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
North American revenue .................................. $ 174,583 $ 284,645 $377,046 $ 669,628 $1,003,802
Brazilian revenue ....................................... -- -- 74,900 141,954 55,220
Spanish revenue ......................................... -- 188,155 207,493 237,340 --
--------- --------- -------- ---------- ----------
Total revenue .......................................... 174,583 472,800 659,439 1,048,922 1,059,022
Costs of revenue ......................................... 130,762 352,329 495,840 803,112 803,799
Depreciation and amortization ............................ 6,913 12,000 23,855 43,313 56,148
Non-recurring charge(3) .................................. -- -- -- 33,765 --
General and administrative expenses ...................... 19,081 58,529 82,261 140,472 91,898
Interest expense ......................................... 4,954 11,434 11,541 29,580 26,673
Interest income .......................................... 3,349 3,246 1,783 9,093 9,398
Other income (expense), net(1)(4)(5)(6) .................. (18,662) 769 8,332 (5,155) (10,092)
--------- --------- -------- ---------- ----------
Income (loss) before provision (benefit) for income taxes,
equity in earnings (losses) of unconsolidated companies
and minority interest .................................. (2,440) 42,523 56,057 2,618 79,810
Provision (benefit) for income taxes(1) .................. (1,970) 15,591 20,944 12,550 33,266
Equity in earnings (losses) of unconsolidated companies
and minority interest .................................. (139) 3,133 (449) (3,983) (1,818)
--------- --------- -------- ---------- ----------
Net income (loss) ........................................ $ (609) $ 30,065 $ 34,664 $ (13,915) $ 44,726
========= ========= ======== ========== ==========
Basic weighted average common shares
outstanding(7) ......................................... 23,892 24,703 26,460 27,489 27,809
Basic earnings (loss) per share .......................... $ (0.03) $ 1.22 $ 1.31 $ (0.51) $ 1.61
Diluted weighted average common shares
outstanding(7) ......................................... 23,892 25,128 27,019 27,489 28,416
Diluted earnings (loss) per share ........................ $ (0.03) $ 1.20 $ 1.28 $ (0.51) $ 1.57
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1995 1996 1997 1998(1) 1999(8)
---------- ----------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ..................... $ 44,567 $151,780 $124,088 $254,825 $169,619
Property and equipment, net ......... 44,571 59,602 86,109 137,382 153,527
Total assets ........................ 170,163 483,018 630,224 732,221 728,409
Total debt .......................... 72,089 155,192 149,057 321,832 279,658
Total shareholders' equity .......... 50,504 103,504 223,697 204,273 256,833
</TABLE>
- ---------------
(1) Includes the results of operations of our Spanish subsidiary from May 1,
1996, 87% of which we sold effective December 31, 1998. Included in 1998
are severance charges relating to our Spanish operations of $13.4 million,
of which $1.9 million is reflected in costs of revenue and $11.5 million
in general and administrative expenses, and a loss of $9.2 million related
to the sale of our Spanish subsidiary. Our effective tax rate for the year
ended December 31, 1998 was mainly affected by a tax liability of
approximately $7.8 million resulting from the sale of 87% of our Spanish
subsidiary, the non-deductibility of the amortization of intangibles and
the non-deductibility of other expenses. Because of the sale, the balance
sheet data as of December 31, 1998 does not include the financial
condition of our Spanish operations.
(2) Our Brazilian operations began August 1, 1997. Information for the year
ended December 31, 1997 includes the results of operations of our
Brazilian operations from August 1, 1997.
(3) Includes a non-recurring charge for payments to operational management at
our external and internal communication services segments. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(4) As a result of the disposal of non-core real estate assets and other
investments, we recorded $23.1 million in charges in the year ended
December 31, 1995.
(5) Included in 1997 results of operations is a gain of $7.1 million from the
partial sale of our interest in an Ecuadorian cellular company.
(6) Includes, for 1999, a write-down of $6.0 million related to international
assets held for sale, a $2.0 million transaction loss on a note receivable
resulting from the sale of Spanish operations and $2.2 million of expenses
relating to our Paraguay PCS system offset by a $4.8 million fee collected
from a customer.
(7) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997.
(8) Working capital excludes $65.8 million of assets held for sale.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We design, build, install and maintain 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
one of 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 95%
of our revenue for the year ended December 31, 1999.
Our 1999 growth was achieved primarily through internal growth. We intend
to continue to emphasize internal growth, although we also intend to grow
through selected acquisitions following a disciplined model to take advantage
of consolidation opportunities in the fragmented infrastructure services
industry in the United States. We regularly evaluate potential acquisition
opportunities, but we are not currently engaged in any negotiations to make any
material acquisitions nor are any material acquisitions probable.
For the year ended December 31, 1999, approximately 12% of our domestic
revenue was derived from services performed for BellSouth. Our top 10 customers
combined account for approximately 42% of our domestic revenue.
We report our operations in four segments:
/bullet/ External Communication Services,
/bullet/ External Energy Services,
/bullet/ Internal Communication Services and
/bullet/ International.
External Communication Services represents our core business and is
divided into five service lines:
/bullet/ inter-exchange networks,
/bullet/ local exchange networks,
/bullet/ broadband networks,
/bullet/ wireless networks and
/bullet/ intelligent transportation systems.
Internal Communication Services includes:
/bullet/ switching and transmission services and
/bullet/ structured cabling services.
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.
19
<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 on a unit basis. A portion 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, monthly or upon
milestones.
We perform the majority of our services under master service 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
defined 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. Each master service agreement contemplates hundreds of individual
projects generally valued at less than $100,000 each. These master service
agreements 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 90 master service agreements across all segments.
Direct costs include:
/bullet/ operations payroll and benefits,
/bullet/ subcontractor costs,
/bullet/ materials not provided by our customers,
/bullet/ fuel,
/bullet/ equipment rental and
/bullet/ insurance.
Our customers generally supply materials such as cable, conduit and
telephone equipment, although on some 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 adverse claims and warrant the quality of our
services for specified time periods, usually one year.
20
<PAGE>
RESULTS OF OPERATIONS
NORTH AMERICA
The following tables state for the periods indicated our North American
operations in dollar and percentage of revenue terms (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ------------ --------------
<S> <C> <C> <C>
Revenue ........................................ $377,047 $ 669,628 $ 1,003,802
Costs of revenue ............................... 279,394 506,721 759,850
Depreciation and amortization .................. 20,452 37,284 52,132
General and administrative expenses(1) ......... 41,168 112,530 85,139
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
Revenue ........................................ 100.0% 100.0% 100.0%
Costs of revenue ............................... 74.1 75.7 75.7
Depreciation and amortization .................. 5.4 5.6 5.2
General and administrative expenses(1) ......... 10.9 16.8 8.5
</TABLE>
- ----------------
(1) General and administrative expenses include a non-recurring $33.8 million
charge for payments to operational managers at our internal and external
communication services segments.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The following table states revenue and change in revenue by North American
operating segments, in dollar and percentage terms (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
--------------------------- ------------------------
1998 1999 $ %
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
External Communication Services ......... $455,798 $ 743,955 $288,157 63.2%
External Energy Services ................ 120,218 153,179 32,961 27.4
Internal Communication Services ......... 89,687 105,246 15,559 17.3
Other ................................... 3,925 1,422 (2,503) (63.8)
-------- ---------- -------- -----
$669,628 $1,003,802 $334,174 49.9%
======== ========== ========
</TABLE>
Our North American revenue was $1,004 million for the year ended December
31, 1999, compared to $669.6 million for the same period in 1998, representing
an increase of $334.2 million or 49.9%. The fastest growing operating segment
is our external communication services segment primarily due to the increased
demand for bandwidth by end-users which has spurred increased network
construction and upgrades by our customers. The growth we are experiencing in
our internal communication services is 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. During the
year ended December 31, 1999, we completed a total of four acquisitions, all in
our external communication services segment. This compares to a total of twelve
acquisitions for the year ended December 31, 1998, of which eight were in the
external communication services segment, two in our external energy services
segment and two in our internal communication services segment. Our external
energy services segment grew primarily through two acquisitions made in March
and April 1998. Internal growth in revenue from our North American operations,
as adjusted to exclude acquisitions, approximated 47% for the year ended
December 31, 1999, and was primarily driven by growth in external communication
services.
Our North American costs of revenue were $759.9 million or 75.7% of
revenue for the year ended December 31, 1999, compared to $506.7 million or
75.7% of revenue for the same period in 1998. In
21
<PAGE>
1999, margins were impacted by increased revenue derived from the sale of
materials on turnkey projects, which carry a lower mark-up. Additionally, our
external energy services segment experienced reduced productivity due to
unusually poor weather conditions in the mid-Atlantic states during the third
quarter of 1999. Adverse weather conditions impacted productivity during the
first quarter of 1998.
Depreciation and amortization expense was $52.1 million or 5.2% of revenue
for the year ended December 31, 1999, compared to $37.3 million or 5.6% of
revenue for the same period in 1998. The increased depreciation and
amortization expense of $14.8 million resulted from our investment in our fleet
to support revenue growth and from intangibles related to acquisitions
completed in 1998 and 1999. The decline as a percentage of revenue was due to
increased revenue.
General and administrative expenses were $85.1 million or 8.5% of revenue
for the year ended December 31, 1999, compared to $112.5 million (which
included a $33.8 million non-recurring charge, as described in the year ended
December 31, 1998 to 1997 comparison below) or 16.8% of revenue (11.8% of
revenue, excluding the non-recurring charge) for the same period in 1998. The
decline in general and administrative expenses as a percent of revenue for the
year ended December 31, 1999 was due primarily to our ability to support higher
revenue with a reduced administrative base.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following table states revenue and change in revenue by North American
operating segments, in dollar and percentage terms (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------------- -------------------------
1997 1998 $ %
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
External Communication Services ......... $286,814 $455,798 $ 168,984 58.9%
External Energy Services ................ 19,693 120,218 100,525 510.5
Internal Communication Services ......... 47,285 89,687 42,402 89.7
Other ................................... 23,254 3,925 (19,329) (83.1)
-------- -------- --------- -----
$377,046 $669,628 $ 292,582 77.6%
======== ======== =========
</TABLE>
Our North American revenue was $669.6 million for the year ended December
31, 1998, compared to $377.0 million for the same period in 1997, representing
an increase of $292.6 million or 77.6%. The increase in North American revenue
was due primarily to revenue generated from acquired companies, as well as
internally generated growth. Each operating segment experienced significant
growth, excluding our other operating segment, which decreased as a result of a
corporate decision to exit the non-network construction services business.
During 1998, we completed a total of 12 acquisitions in North America of which
eight were in our external communication services segment, two in the external
energy services segment, and two in the internal communication services
segment. These acquisitions generated revenue of approximately $255.1 million,
representing 87.2% of the total increase in revenue. In comparison, during 1997
we acquired 11 companies in North America (seven in external communication
services, two in external energy services and two in internal communication
services).
Our North American costs of revenue were $506.7 million or 75.7% of
revenue for the year ended December 31, 1998, compared to $279.4 million or
74.1% of revenue in 1997. The increase in costs of revenue as a percentage of
revenue was due primarily to numerous inefficiencies caused by severe weather
conditions in various regions as a result of the climatic condition known as
"El Nino," poor performance in internal communication services due to
improperly managed growth and losses from a non-core external communication
services contract.
Depreciation and amortization expense was $37.3 million or 5.6% of revenue
for the year ended December 31, 1998, compared to $20.5 million or 5.4% of
revenue in 1997. The increased depreciation and amortization expense resulted
from our investment in our fleet to support revenue growth.
22
<PAGE>
General and administrative expenses were $112.5 million or 16.8% of
revenue for the year ended December 31, 1998, compared to $41.2 million or
10.9% of revenue in 1997. The increase in general and administrative expenses
was due primarily to two items: a non-recurring $33.8 million charge for
payments made pursuant to employment and non-competition agreements entered
into with management at our internal and external communication services
segments and $1.4 million for start-up costs.
The $33.8 million charge relates to up-front amounts in the form of
signing bonuses and extended non-competition payments made under the agreements
that could not be attributed to future services. Base salary and bonuses for
future performance paid pursuant to these agreements are being recognized over
the related service periods. The up-front payments were paid to these managers
to resolve issues arising from the original price paid for the acquisition of
their businesses and issues relating to these managers' roles within our
company, as well as to preserve the goodwill of the acquired businesses. These
issues arose primarily from a significant decline in the value of the MasTec
shares these managers received between the time when we bought their businesses
and the expiration of the period when they were restricted from the sale of the
shares. Because neither these payments nor the agreements were contemplated,
included or required under the original terms of the business acquisitions and
could not be attributed to future services, these payments were recorded as
expenses in 1998, rather than deferred or amortized. Excluding the previously
mentioned expenses, general and administrative expenses were $77.3 million or
11.5% of revenue in 1998.
BRAZIL
The following table states for the periods indicated our Brazilian
operations in dollar and percentage of revenue terms (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997(1) 1998 1999
------------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ..................................... $74,900 100.0% $141,954 100.0% $55,220 100.0%
Costs of revenue ............................ 63,266 84.5 112,667 79.4 43,949 79.6
Depreciation and amortization ............... 390 0.5 3,349 2.4 4,016 7.3
General and administrative expenses ......... 1,615 2.2 10,636 7.5 6,759 12.2
</TABLE>
- ----------------
(1) Brazilian operations began on August 1, 1997.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Brazilian revenue was $55.2 million for the year ended December 31, 1999,
compared to $142.0 million for the same period in 1998, representing a decrease
of $86.8 million or 61.1%. Brazilian revenue decreased primarily due to the
devaluation of the Brazilian reais and to a reduction in work performed.
Revenue in local currency was R$96.0 million reais during the year ended
December 31, 1999, compared to R$160.4 million reais for the same period in
1998, representing a decrease of 40.1%. Due to the economic conditions in
Brazil, it is uncertain when, if at all, previous levels of telephony
infrastructure spending will re-commence.
Brazilian costs of revenue were $43.9 million or 79.6% of revenue for the
year ended December 31, 1999, compared to $112.7 million or 79.4% of revenue
for the same period in 1998. In 1999, margins were positively impacted as a
result of amounts paid by a customer during the second quarter for additional
costs incurred during prior periods for which no revenue had been recorded due
to the uncertainty of its collection. This improved costs of revenue during the
year ended December 31, 1999 by 3.0%. Most of the costs associated with this
project were previously recorded in earlier periods. During the fourth quarter
of 1998, we completed certain wireless projects that carry higher than
traditional margins.
Depreciation and amortization expense was $4.0 million or 7.3% of revenue
for the year ended December 31, 1999 compared to $3.3 million or 2.4% of
revenue for the same period in 1998.
23
<PAGE>
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 relative to the volume of work under specified
contracts.
General and administrative expenses were $6.8 million or 12.2% of revenue
for the year ended December 31, 1999, compared to $10.6 million or 7.5% of
revenue for the same period in 1998. General and administrative expenses were
R$7.1 million reais or 7.4% of reais revenue during the year ended December 31,
1999, compared to R$9.9 million reais or 6.2% of reais revenue for the same
period in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO FIVE MONTHS ENDED DECEMBER 31, 1997
Brazilian operations commenced on August 1, 1997. Our Brazilian revenue
was $142.0 million for the year ended December 31, 1998, compared to $74.9
million in 1997, representing an increase of $67.1 million or 89.5%. The
increase in revenue was due primarily to a full year of operations in 1998,
compared to five months in 1997.
Brazilian costs of revenue were $112.7 million for the year ended December
31, 1998, compared to $63.3 million in 1997. Costs of revenue were 79.4% of
revenue in 1998, compared to 84.5% in 1997. The decrease in costs of revenue as
a percentage of revenue was due primarily to the completion of certain wireless
projects in the fourth quarter of 1998.
Depreciation and amortization expense was $3.3 million for the year ended
December 31, 1998, compared to $0.4 million for the year ended December 31,
1997. Depreciation and amortization relates primarily to an intangible asset
resulting from one acquisition which is being amortized over a five year
period. Depreciation and amortization expense was 2.4% of revenue for the year
ended December 31, 1998, compared to 0.5% of revenue for the year ended
December 31, 1997.
General and administrative expenses were $10.6 million or 7.5% of revenue
for the year ended December 31, 1998, compared to $1.6 million or 2.2% in 1997.
The increase in general and administrative expenses was due primarily to costs
of establishing an infrastructure to support anticipated additional work
following the privatization of Telebras, which did not take place until July
1998.
COMBINED RESULTS--NORTH AMERICA AND BRAZIL ONLY
The following table states for the periods indicated certain combined
income statement data for North America and Brazil only and the related
percentage of combined revenue (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1998(2) 1999
------------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense .................................. $(6,595) (1.5)% $(23,753) (2.9)% $(26,673) (2.5)%
Interest income ................................... 775 0.2 8,488 1.0 9,398 1.0
Other income (expense), net ....................... 7,857 1.7 1,183 0.2 (10,092) (0.9)
Income before provision for income taxes, equity in
earnings (losses) of unconsolidated companies
and minority interest ............................ 47,698 10.5 14,312 1.8 79,810 7.7
Provision for income taxes ........................ (18,633) (4.1) (4,563) (0.6) (33,266) (3.3)
Equity in earnings (losses) of unconsolidated
companies and minority interest(1) ............... (3,184) (0.7) (4,787) (0.6) (1,818) (0.2)
</TABLE>
- ----------------
(1) Consists of the minority interest of our Brazilian joint venture partner.
(2) Adjusted to exclude our Spanish operations which were sold effective
December 31, 1998.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
For a discussion of revenue, costs of revenue, depreciation and
amortization and general and administrative expenses, see "North America" and
"Brazil" above.
24
<PAGE>
Interest expense was $26.7 million or 2.5% of revenue for the year ended
December 31, 1999, compared to $23.8 million or 2.9% of revenue for the same
period in 1998. The increase in interest expense of $2.9 million was due
primarily to increased indebtedness resulting from the issuance of our 7 3/4%
Senior Subordinated Notes in early 1998.
Interest income includes interest of $4.8 million earned and collected
from a customer to which we extended financing for our services.
Reflected in other expense, net for the year ended December 31, 1999, are
the following transactions. At various dates predominantly during the second
quarter of 1999, we sold approximately 20 parcels of non-core real estate
assets with a book value of approximately $6.9 million and a non-core business
with a book value of approximately $4.3 million. We recognized a loss on sale
of approximately $3.6 million from these sales. These losses resulted from our
selling a portion of those assets in a manner that we knew would accelerate the
timing of the disposition and the receipt of cash proceeds from the sale. We
also reserved $1.0 million for a 1994 lawsuit from a predecessor company
following a $1.1 million judgment awarded in October 1999. We have appealed
this judgment and may incur other costs related to this lawsuit, such as
interest and attorneys' fees. We wrote-down certain international assets held
for sale by $6.0 million based on a proposed transaction and market
information. Additionally, we incurred expenses totaling $2.2 million relating
to our Paraguay PCS system and a $2.0 million foreign currency transaction loss
related to the note receivable resulting from the sale of the Spanish
operations. Offsetting these amounts was a fee of $4.8 million collected from a
telecommunications customer related to extensions to the maturity date of a
vendor financing arrangement.
For the year ended December 31, 1999, our effective tax rate was
approximately 41.5% for North American operations and 33% for Brazilian
operations.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
For a discussion of revenue, costs of revenue, depreciation and
amortization and general and administrative expenses, see "North America" and
"Brazil" above.
Interest expense was $23.8 million or 2.9% of revenue for the year ended
December 31, 1998, compared to $6.6 million or 1.5% of revenue in 1997. The
increase in interest expense was due primarily to increased indebtedness
resulting from the issuance of our Senior Subordinated Notes in early 1998, the
proceeds of which were used primarily for acquisitions and to fund
international operations investments. Minority interest primarily relates to
our Brazilian joint venture partner with a 49% interest.
Interest income includes interest income from temporary investments and
interest received from a customer.
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<PAGE>
SPAIN
The following table states for the periods indicated our Spanish
operations, which were sold effective December 31, 1998, in dollar and
percentage of revenue terms (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997(1) 1998(2)
---------------------- ---------------------------
<S> <C> <C> <C> <C>
Revenue .......................................................... $207,493 100.0% $237,340 100.0%
Costs of revenue ................................................. 153,180 73.8 183,724 77.4
Depreciation and amortization .................................... 3,013 1.5 2,680 1.1
General and administrative expenses .............................. 39,478 19.0 51,070 21.5
Interest expense ................................................. (4,946) (2.4) (5,827) (2.5)
Interest income .................................................. 1,008 0.1 605 --
Other income (loss) .............................................. 475 -- (6,338) (2.7)
-------- ----- -------- -----
Income (loss) before benefit from income taxes, equity in earnings
of unconsolidated companies and minority interest .............. 8,359 4.0 (11,694) (4.9)
(Provision) benefit from income taxes ............................ (2,311) (1.2) (7,987) (3.2)
Equity in earnings of unconsolidated companies ................... 2,897 1.4 1,291 0.1
Minority interest ................................................ (162) -- (487) --
-------- ----- -------- -----
Net income (loss) ................................................ $ 8,783 4.2% $(18,877) (8.0)%
======== ===== ======== =====
</TABLE>
- ----------------
(1) Spanish operations began on April 30, 1996, the date of acquisition. We
sold 87% of our Spanish operations effective December 31, 1998.
(2) Includes a total of $13.4 million of severance charges of which $1.9
million is reflected in costs of revenue and $11.5 million in general and
administrative expenses.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
We sold 87% of our Spanish operations effective December 31, 1998. Revenue
from Spanish operations was $237.3 million for the year ended December 31,
1998, compared to $207.5 million in 1997, representing an increase of $29.8
million or 14.4%. The increase was due to acquisitions made in 1998.
Costs of revenue were $183.7 million or 77.4% of revenue for the year
ended December 31, 1998, compared to $153.2 million or 73.8% of revenue in
1997. The increase in costs of revenue as a percentage of revenue was due
primarily to increased labor costs associated with a new labor agreement and to
$1.9 million in direct labor severance costs.
Depreciation and amortization expense was $2.7 million for the year ended
December 31, 1998, compared to $3.0 million in 1997. Depreciation and
amortization expense was 1.1% of revenue for the year ended December 31, 1998,
compared to 1.5% of revenue in 1997.
General and administrative expenses were $51.1 million or 21.5% of revenue
for the year ended December 31, 1998, compared to $39.5 million or 19.0% of
revenue in 1997. The increase in general and administrative expenses as a
percentage of revenue was due to severance charges of $11.5 million resulting
from reductions in administrative personnel.
Included in other expense for 1998 is a $9.2 million loss on sale of the
Spanish operation. The effective income tax rate on a consolidated basis for
the year ended December 31, 1998 increased to 479% from 37% in 1997. This
increase was mainly attributable to the recognition of approximately $9.2
million of a loss on sale of our Spanish operations, however for tax purposes
the Company recorded a tax provision of $7.8 million. Excluding the effect of
the book loss on sale and the taxable gain, the effective tax rate would have
been 40.1%, which is attributed to the non-deductibility of the amortization of
intangibles and other expenses.
26
<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 and the proceeds from the sale of assets held for sale.
Net cash provided by operating activities was $120.1 million for the year
ended December 31, 1999, compared to cash used by operations of $13.9 million
for the same period in 1998 and cash provided by operations of $15.2 million in
1997. Net cash provided by operating activities in 1999 was due principally to
profitability and working capital management.
Our working capital at December 31, 1999, excluding assets held for sale
of $65.8 million, was $169.6 million compared to $197.6 million (excluding
assets held for sale of $57.2 million at December 31, 1998). Our North American
working capital as of December 31, 1999 was $124.7 million, comprised primarily
of $233.2 million in accounts receivable, $25.4 million in inventories and
other current assets and $7.2 million in cash, net of $141.1 million in current
liabilities.
We have a revolving line of credit with a group of banks 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% annually on the facility,
depending upon certain financial covenants. The credit facility contains
customary events of default and covenants which prohibit, among other things,
making investments in excess of a specified amount, incurring additional
indebtedness in excess of a specified amount, paying dividends in excess of a
specified amount, making capital expenditures in excess of a specified amount,
creating liens, prepaying other indebtedness, including our 7 3/4% Senior
Subordinated Notes, and engaging in mergers or combinations without the prior
written consent of the lenders. The credit facility also provides that we must
maintain financial ratio coverages at the end of each fiscal quarter such as
debt to earnings and earnings to interest expense.
During 1999, we acquired four external communication services providers
for $11.6 million in cash and $2.4 million in notes and invested $69.5 million
primarily in our fleet to support revenue growth which we financed from cash
provided by operations and from financing activities. We have also sold assets
and investments for which we have received approximately $27.8 million in cash,
$15.9 million of which was attributable to the sale of our Spanish operations.
We invested cash in acquisitions and investments in unconsolidated companies
totaling $89.1 million during 1998 compared to $49.0 million in 1997. During
1998, we made capital expenditures of $76.4 million, primarily for machinery
and equipment used in the production of revenue, compared to $21.5 million in
1997.
We anticipate that cash from this offering, available cash, cash flows
from operations and 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. 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 our existing credit
facility, we may consider raising additional capital by increasing the credit
facility or through the offering of additional 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, if at all.
We currently have South American investments in Argentina, Ecuador and
Paraguay which are held for sale. Our investment in Argentina is a minority
interest in Supercanal Holding, S.A., a holding company of numerous cable
television operators in western Argentina. In Ecuador, we hold a minority
interest in Consorcio Ecuatoriano de Telecomunicaciones, S.A., one of the two
cellular phone operators in the Republic of Ecuador. We own, through our
subsidiary Comunicaciones Personales, S.A., a wireless personal communications
system in Paraguay.
We account for these investments at cost, totaling approximately $58.6
million at December 31, 1999. The companies in Argentina and Ecuador, in which
we have invested approximately $30.0 million,
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<PAGE>
have defaulted on their third party debt obligations. We do not guarantee any
of that indebtedness. In the fourth quarter of 1999, we recorded a $4.0 million
write-down of our investment in the Ecuadorian company based upon a publicly
announced proposed purchase of a controlling interest in the company by an
unaffiliated purchaser. As part of the proposed transaction, the third party
debt obligations of the Ecuadorian company will be restructured and will no
longer be in default. We are currently in a dispute with the majority
shareholder of the company regarding our ownership interest.
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.
On December 31, 1998, we sold 87% of our Spanish operations to a group of
investors and during 1999 we advanced $3.0 million for working capital needs.
The sale included the assumption of our remaining indebtedness to Telefonica
from the original purchase of our Spanish operations of $25.0 million (3.6
billion pesetas), for which we are not contingently liable. At December 31,
1999, we had $14.6 million reflected in other current assets, $11.6 million of
which subsequently has been received.
YEAR 2000
To date, we have not experienced any material Year 2000 issues and have
been informed by our material suppliers and vendors that they have also not
experienced material Year 2000 issues. We have not spent a material amount on
Year 2000 compliance issues. Most of our expenses have related to the costs
associated with time spent by employees and consultants in the evaluation and
implementation process and Year 2000 compliance matters generally.
During January 2000, additional Year 2000 patches were applied to all
required systems related to the end of February 2000 issues. Testing has been
completed for these patches and we will continue to monitor any on-going issues
prior to and after March 31, 2000.
SEASONALITY
Our North American 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 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. During 1999, we generated approximately 5% of our total revenue
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.
28
<PAGE>
BUSINESS
GENERAL
We design, build, install and maintain 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 nework 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 95% of our revenue in 1999.
We are organized into eight service lines centered around our customers,
which include some of the largest and most prominent companies in the
telecommunications and energy fields. Our customers include:
/bullet/ incumbent local exchange carriers,
/bullet/ competitive local exchange carriers,
/bullet/ cable television operators,
/bullet/ long distance carriers,
/bullet/ wireless phone companies,
/bullet/ telecommunications equipment vendors,
/bullet/ co-location facilities providers,
/bullet/ public and private energy companies and
/bullet/ financial institutions and other Fortune 500 companies.
Representative customers are:
BellSouth Telecommunications, Inc. Global Crossing, Ltd.
SBC Communications Williams Communications Group, Inc.
GTE Corporation AT&T Corp.
Sprint Corp. Charter Cable, Inc.
US West, Inc. Time Warner, Inc.
Qwest Communications, Inc. Winstar Communications, Inc.
Telergy, Inc. NEC Corp.
Enron Corp. Carolina Power and Light Co.
Level 3 Communications First Union National Bank
BellSouth accounted for 12% of our revenue for the year ended December 31,
1999. Our top 10 customers combined accounted for less than 42% of our domestic
revenue.
INDUSTRY OVERVIEW
Our industry is experiencing a number of trends that we believe will lead
to a significant increase in the demand for our services over the next several
years.
INCREASED DEMAND FOR BANDWIDTH. Recent increased growth in
telecommunications voice, video and data traffic, electronic commerce, and in
the transmission of high quality information,
29
<PAGE>
entertainment and other content over the Internet, coupled with increased use
of and reliance on personal computers, has enhanced the need for greater
bandwidth. Market research analysts estimate that at the end of 1998, 25
million U.S. households were online, implying a 24% household penetration. This
number is expected to have reached 30 million by year-end 1999 and over 58
million by 2004 (55% of households). The total number of U.S. Internet users
(business and residential) is anticipated to reach 126 million in 2004. We
believe 50% of these users will access the network by means of a broadband
technology.
Because of the physical limitations of existing network facilities,
telecommunications providers and cable television system operators are
upgrading facilities with new and innovative technology, expanding and, in many
cases, replacing the existing telecommunications infrastructure to allow for
increased bandwidth. The "race for the last mile", increased upgrades and
maintenance of existing networks are expected to drive further capital spending
growth by our customers even after substantial completion of their backbone
networks.
INCREASED OUTSOURCING OF INFRASTRUCTURE NEEDS. Telecommunication service
providers are entering new geographic and product markets and offering bundled
services that once were offered separately. Additionally, a growing number of
energy companies are exploring ventures in the telecommunications industry to
maximize the value of their rights of way. Consolidation and deregulation in
the telecommunications industry has created integrated, geographically diverse
companies who have combined assets to compete in the changing marketplace.
These providers are focusing on the increased range of their core competencies
of providing telecommunications and energy services and are increasingly
outsourcing infrastructure needs.
INCREASED DEMAND FOR COMPREHENSIVE SOLUTIONS. Increased competition and
the resulting increase in investment in infrastructure and content by
telecommunications and other service providers have led to greater concerns
about the quality and reliability of infrastructure providers. We believe that
our customers increasingly are seeking comprehensive end-to-end solutions to
their infrastructure needs by turning to fewer qualified infrastructure service
providers who have the size, financial capability and technical expertise to
deliver a quality and reliable network on time. These customers are seeking
service providers that can build out large and complex networks quickly, with a
high level of quality and who can rapidly mobilize their capital equipment,
financial assets and personnel to respond effectively to the increasing scale
and time constraints of customer demands.
COMPETITIVE STRENGTHS
We have positioned ourselves to take advantage of these trends by
emphasizing the following competitive strengths:
NATIONAL FOOTPRINT AND NAME RECOGNITION. We have significantly broadened
our geographic presence in recent years and believe we are capable of servicing
customers across the United States and Canada. We are continuing to develop the
brand name "MasTec" across all of our operating units nationwide to further
position ourselves as an integrated, national company.
END-TO-END SOLUTIONS. We believe we are one of the few infrastructure
providers capable of providing all of the design, building, installation and
maintenance services necessary for a complete telecommunications network
starting from a transmission point, such as a telephone company central office
or cable television head-end, and running through aerial, underground and
buried cables or through wireless transmission to the ultimate end users' voice
and data ports, computer terminals, cable outlets or cellular stations.
TECHNICAL EXPERTISE AND RELIABLE CUSTOMER SERVICE. We believe that we have
established a reputation for quality and reliability, technical expertise and
operating and financial efficiency. We
30
<PAGE>
believe that our reputation among our customers should give us an advantage in
securing larger, more technically complex infrastructure projects, a greater
volume of business from our existing customers and new customers.
DIVERSE AND LONG-STANDING CUSTOMER BASE. We have a diverse customer base
that allows us to capitalize on the wide range of technological advances and
other market developments that drive capital spending by our customers. We have
continually provided services to our top ten customers for an average of over
15 years. We believe that our diverse and long-standing customer base makes us
less susceptible to downturns in any particular geographic region or industry
sector.
EXPERIENCED MANAGEMENT. We have a strong management team to continue
executing our growth strategy. Our management team has the operational,
business development and financial knowledge and experience to anticipate
trends in our industry and to consistently meet and exceed our clients'
expectations for comprehensive and reliable solutions.
GROWTH STRATEGY
The key elements of our growth strategy are as follows:
EXPAND EXISTING CUSTOMER RELATIONSHIPS AND PURSUE NEW CUSTOMERS. We
believe that our customers increasingly are seeking single national vendors to
provide all of their telecommunications and energy infrastructure services
needs. Consequently, we actively market our national footprint and
comprehensive service offerings to our existing and potential customers and
focus on increasing the range of services we provide. We also team with
engineering firms, equipment suppliers and other vendors to provide turnkey
services to our customers.
CONTINUE TO ACHIEVE OPERATING EFFICIENCIES. We intend to continue to
improve our profitability by focusing on ways to achieve cost savings,
economies of scale and improved asset and personnel utilization. We have
realigned our North American operations along service and customer lines to
focus on our core businesses and instituted a program to improve efficiency and
productivity by leveraging existing administrative personnel to support
increased growth. We also intend to further develop and expand the use of
integrated management information systems across our service lines to
facilitate financial control, project costing and asset allocation. The goal of
the program is to realize savings in overhead and other expenses and thereby
improve our margins and profitability. An element of the program includes
paying our service line presidents and other managers incentive compensation
based upon profitability, return on assets and other financial criteria.
PURSUE STRATEGIC ALLIANCES AND SELECTED ACQUISITIONS. Through strategic
alliances and selected acquisitions, we continue to add customers and
capabilities as well as expand our geographic coverage. Most recently, we
teamed with Skanska USA, Inc. to provide project management for RCN
Corporation's announced construction of a $3 billion fiber optic network. We
have also announced an arrangement with Lucent Technologies to provide
comprehensive broadband infrastructure solutions to the cable television
industry throughout the United States and with IBM to provide their rapid
network deployment solutions. We have completed 33 domestic acquisitions in the
last five years, targeting selected companies to expand into customer and
geographic markets we did not currently serve and to expand the range and depth
of services we provided. We will continue to focus our acquisition efforts on
profitable companies with good reputations and strong management. We are not
currently engaged in any negotiations to make any material acquisitions.
31
<PAGE>
SERVICE LINES
Our North American operations consist of three segments:
/bullet/ External Communication Services,
/bullet/ External Energy Services and
/bullet/ Internal Communication Services.
EXTERNAL COMMUNICATION SERVICES. We design, build, install and maintain
the physical facilities used to provide end-to-end telecommunications service
from the provider's central office, switching center or cable head-end to the
ultimate consumer's home or business. These services include:
/bullet/ designing conduit networks and fiber rings;
/bullet/ placing and splicing fiber optic, coaxial and copper cable;
/bullet/ excavating trenches in which to place the cable;
/bullet/ fabricating and placing related structures such as poles, anchors,
conduits, manholes, cabinets and closures;
/bullet/ placing drop lines from the main distribution terminals to the
customer's home or business; and
/bullet/ maintaining, removing and replacing these facilities.
We also provide route development, right of way and other site
acquisition, permitting, materials procurement, acceptance testing and as-built
documentation.
We bundle our services and are organized to serve our customers' needs as
follows:
/bullet/ INTER-EXCHANGE NETWORKS. We design, engineer and build fiber optic and
other cable networks between metropolitan areas using specialty
equipment such as trenchers, plows and directional borers.
/bullet/ LOCAL EXCHANGE NETWORKS. We design, install, build and maintain
telecommunications networks from the provider's point-of-presence to
their customers' locations within metropolitan areas (local loop).
/bullet/ BROADBAND NETWORKS. We design, engineer, build and install the
infrastructure for network rebuilds, upgrades and maintenance for cable
television multiple system operators.
/bullet/ WIRELESS NETWORKS. We provide turnkey installation and maintenance
services to the wireless communications industry, including site
acquisition, design and building of communication towers, placement of
antennas and associated wiring, and installation of transmission
equipment and shelters.
/bullet/ INTELLIGENT TRAFFIC SERVICES. We also provide similar services to the
traffic control and highway safety industry, including the installation
and maintenance of traffic signals, controllers, connecting signals,
variable message signs, closed-circuit television and other monitoring
devices and controllers.
32
<PAGE>
Our external communications services customers include:
BellSouth Telecommunications, Inc.
GTE Corporation
Qwest Communications, Inc.
Williams Communication, Inc.
Global Crossing, Ltd.
Telergy, Inc.
Tele-Communications, Inc.
Charter Cable, Inc.
Sprint Corp.
Sprint Spectrum, L.P.
EXTERNAL ENERGY SERVICES. We provide external network and infrastructure
services to public and private utilities. These services consist of overhead
and underground installation and maintenance of electrical and other utilities'
transmission and distribution networks, substation construction and
maintenance, right-of-way maintenance and restoration of asphalt and concrete
surfaces. They are substantially similar to the services we provide to our
telecommunications customers, but the work often involves the installation and
splicing of high-voltage transmission and distribution lines. Our external
energy services customers include:
Carolina Power and Light Co.
Florida Power and Light Co.
Texas Utilities Company
Virginia Power Co.
INTERNAL COMMUNICATION SERVICES. We provide switching and transmission
services, premise wiring services and structured cabling services. These
services consist of the design, installation, testing and documentation of
switching and transmission equipment and supporting components at a provider's
point-of-presence (central office) locations. We design, install and maintain
integrated voice, data and video networks inside customer premises as well as
the infrastructure required to support complex intranet and Internet solutions.
We provide systems integration services, which involve the selection,
configuration, installation and maintenance of software, hardware, other
computing and communications equipment and cabling to provide an integrated
computing and communications system. Internal communication services are less
capital intensive than external communication services but require a more
technically proficient work force. We provide:
/bullet/ switching and transmission services to equipment vendors such as Lucent
Technologies, Inc. and NEC Corp.; and
/bullet/ premise wiring and structured cabling services to large corporate
customers with multiple locations such as First Union National Bank and
Montgomery Ward and Co.
NON-CORE INTERNATIONAL INVESTMENTS
We currently have South American investments in Argentina, Ecuador and
Paraguay which are held for sale. Our investment in Argentina is a minority
interest in Supercanal Holding, S.A., a holding company of numerous cable
television operators in western Argentina. In Ecuador, we hold a minority
interest in Consorcio Ecuatoriano de Telecommunicaciones, S.A., one of the two
cellular phone operators in the Republic of Ecuador. We own, through our
subsidiary Comunicaciones Personales, S.A., a wireless personal communications
system in Paraguay which became operational in January 2000.
33
<PAGE>
We account for these investments at cost, totaling approximately $58.6
million at December 31, 1999. The companies in Argentina and Ecuador, in which
we have invested approximately $30.0 million, have defaulted on their third
party debt obligations. We do not guarantee any of that indebtedness. In the
fourth quarter of 1999, we recorded a $4.0 million write-down of our investment
in Ecuador based upon a publicly announced purchase of a controlling interest
in the Ecuadorian company by an unaffiliated purchaser. As part of this
transaction, the third-party debt obligations of the Ecuadorian company will be
restructured and will no longer be in default. We are currently in a dispute
with the majority shareholder of the company regarding our ownership interest.
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 such an impairment charge, however, it could
adversely affect our earnings for the period in which we incurred the charge.
BACKLOG
At December 31, 1999, we had a backlog for domestic operations of
approximately $670.1 million as compared to a backlog of $249.9 million at
December 31, 1998. Our backlog consists of the uncompleted portion of services
we are to perform under project-specific contracts. We do not include as
backlog the estimated amount of work under our 90 master service agreements
because the customer under these contracts is not committed to order a specific
volume of services from us. We expect to complete substantially all of our
backlog at December 31, 1999 during the next 24 calendar months.
SALES AND MARKETING
We have developed a marketing plan emphasizing the "MasTec" brand name
nationwide and the role we play in building the e-world to position ourselves
as a seamless, end-to-end infrastructure service provider. Local marketing
efforts are principally carried out by the management of our service lines,
with our executive management supplementing their efforts at the corporate
level. Our service line presidents market to existing and potential
telecommunications and other utility customers to negotiate new contracts or to
be placed on lists of vendors invited to submit bids for master services
agreements and individual projects. They are responsible for developing and
maintaining successful long-term relationships with customers, which we believe
helps facilitate our repeat business. Our external and internal network
services are also marketed through commissioned salespeople and our corporate
marketing department.
SAFETY AND INSURANCE
We are committed to ensuring that our employees perform their work safely
and strive to instill safe work habits in all of our employees. In this regard
we evaluate our employees not only on the basis of the efficiency and quality
of their work but also on their safety records and the safety records of the
employees they supervise. We also hold regular training sessions and seminars
with our employees devoted to safe work practices.
The primary claims we face in our operations are workers' compensation,
automobile liability and various general liabilities. We maintain insurance
policies with respect to these claims, but our insurance policies are generally
subject to high deductibles and we are effectively self-insured for worker's
compensation and automobile liability up to $250,000 and for general liability
up to $100,000. We have umbrella coverage up to a policy limit of $25.0
million. We actuarially determine any liabilities for unpaid claims and
associated expenses, including incurred but not reported losses, and reflect
those liabilities in our balance sheet as an accrued liability. We continually
review the determination of these claims and expenses and the extent of the
accrued liability.
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SUPPLIERS
Our customers supply the majority of the raw materials and supplies
necessary to carry out our contracted work, although we are increasingly
supplying materials and supplies on turnkey projects. We obtain materials and
supplies for our own account from independent third-party providers and do not
manufacture any significant amount of materials or supplies for resale. We are
not dependent on any one supplier for any materials or supplies that we obtain
for our own account. We have not experienced any difficulty in obtaining an
adequate supply of materials and supplies.
We also use independent contractors to perform portions of our services
and to manage work flow. These independent contractors typically are sole
proprietorships or small business entities. Independent contractors typically
provide their own employees, vehicles, tools and insurance coverage. We are not
dependent on any single independent contractor.
COMPETITION
The industries in which we operate are highly competitive and we compete
with other companies in most of the markets in which we operate ranging from
small independent firms servicing local markets to larger firms servicing
regional markets, as well as large national and international engineering firms
and equipment vendors on turnkey projects who subcontract work to contractors
other than us. Despite the current trend toward outsourcing, we may also face
competition from existing or prospective customers who employ in-house
personnel to perform some of the same types of services as we provide. There
are relatively few significant barriers to entry into the markets in which we
operate and, as a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
Although we believe we are the largest provider of external network services
for telecommunications service providers and energy companies in the United
States, neither we nor any of our competitors can be considered dominant in the
industry on a national basis.
Because of the highly competitive bidding environment for infrastructure
services, the price of the contractor's bid historically has often been the
principal factor in determining whether the contractor is awarded the work.
Smaller competitors are sometimes able to win bids based on price alone due to
their lower overhead costs. We believe that as demand for our services
increases, customers will increasingly consider other factors in choosing a
service provider, including technical expertise and experience, financial and
operational resources, nationwide presence, industry reputation and
dependability, which should benefit contractors such as us.
EMPLOYEES
As of December 31, 1999, we had approximately 9,900 employees, 9,100 of
whom were employed in North American operations. Approximately 500 of our
employees are represented by a labor union, principally the Communication
Workers of America or the International Brotherhood of Electrical Workers under
agreements with wage rates established through dates ranging from the end of
January 2000 to May 2001. We believe that our employee relations are good.
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MANAGEMENT
The following is a list of the names and ages of all of our directors and
executive officers, indicating all positions and offices they hold with us. Our
directors hold office for a three year term and until their successors have
been elected and qualified. Our executive officers hold office for one year or
until their successors are elected by our Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- ----- ---------------------------------------------------
<S> <C> <C>
Jorge Mas ...................... 36 Chairman of the Board of Directors
Joel-Tomas Citron .............. 37 Vice Chairman of the Board of Directors, President
and Chief Executive Officer
Eliot C. Abbott ................ 50 Director
Arthur B. Laffer ............... 59 Director
Olaf Olafsson .................. 36 Director
Joseph P. Kennedy, II .......... 47 Director
William N. Shiebler ............ 57 Director
Jose S. Sorzano ................ 59 Director
Carmen M. Sabater .............. 35 Senior Vice President and Chief Financial Officer
Jose Sariego ................... 45 Senior Vice President and General Counsel
Arlene Vargas .................. 33 Vice President and Controller
</TABLE>
JORGE MAS has been our Chairman of the Board of Directors since January
1998 and a director since March 1994. From March 1994 to October 1999, Mr. Mas
was our Chief Executive Officer. In addition, Mr. Mas is the Chairman of the
Board of Directors of Neff Corporation, a publicly-held construction equipment
sales and leasing company, is involved in several real estate holding companies
and has served on the Board of Directors of First Union National Bank since
April 1998. Mr. Mas has been Chairman of the Cuban American National
Foundation, a not-for-profit organization, since July 1999, and was Vice
Chairman from July 1998 until July 1999.
JOEL-TOMAS CITRON has been our Chief Executive Officer since October 1999
and our President since May 1999. He has been a member of our Board of
Directors since January 1998 and Vice Chairman of the Board since November
1998. Mr. Citron was the managing partner of Triscope Capital LLC, a private
investment partnership from January 1998 until December 1998 and Chairman of
the Board of Directors of the United States subsidiary of Proventus AB, a
privately held investment company based in Stockholm, Sweden from January 1992
to December 1997. Mr. Citron is also a member of the Board of Directors of Neff
Corporation; past Chairman of the Board of Directors of American Information
Systems, Inc. (now owned by Exodus Communications, Inc.), a provider of
Internet and Internet systems solutions; and a member of the Board of Directors
of Telergy, Inc., a facilities-based provider of integrated communications
services and high bandwidth fiber optic capacity in New York State.
ELIOT C. ABBOTT has been a member of the Board of Directors since March
1994. Since February 1, 1997, Mr. Abbott has been a partner in the Miami law
firm of Kluger, Peretz, Kaplan & Berlin, P.A. From October 1, 1995 to January
31, 1997, Mr. Abbott was a member of the New York law firm of Kelley Drye &
Warren. From 1976 until September 30, 1995, Mr. Abbott was a shareholder in the
Miami law firm of Carlos & Abbott.
ARTHUR B. LAFFER has been a member of the Board of Directors since March
1994. Mr. Laffer has been Chairman of the Board of Directors of Laffer
Associates, an economic research and financial consulting firm, since 1979 and
Chief Executive Officer, Laffer Advisors Inc., an investment advisor and
broker-dealer, since 1981. Mr. Laffer is a director of Nicholas Applegate
Mutual Funds, Oxigene, Inc., Neff Corporation and Coinmach Laundry Corporation.
OLAF OLAFSSON has been a member of the Board of Directors since September
1999. Mr. Olafsson has been Vice Chairman of Time Warner Digital Media since
November 1999. Prior to joining Time
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Warner Digital Media, Mr. Olafsson was President of Advanta Corporation, a
financial services company, from March 1998 until October 1999 and a member of
Advanta's Board of Directors since 1997. Prior to joining Advanta, Mr. Olafsson
was the founder and President of Sony Interactive Entertainment, Inc., an
interactive entertainment software and hardware unit of Sony Corporation
established in 1991. Mr. Olafsson also serves on the Board of Directors of
Scholastic Corp., a global children's publishing and media company.
JOSEPH P. KENNEDY, II has been a member of the Board of Directors since
October 1999. Mr. Kennedy is Chairman of Citizens Energy Corporation, a
not-for-profit energy provider, which he founded in 1979. Mr. Kennedy served
six terms as a U.S. Representative during which time he was a member of the
House Banking and Financial Services Committee, a senior member of the House
Veteran's Affairs Committee and the co-chair of the Older American Caucus. He
also served as the ranking Democrat on the Housing and Community Opportunity
Subcommittee.
WILLIAM N. SHIEBLER has been a member of the Board of Directors since June
1999. Mr. Shiebler has been a Senior Managing Director of Putnam Investments, a
Boston based investment management firm and Vice Chairman of the Board of
Directors of Putnam Mutual Funds since 1990. Mr. Shiebler served as President
of Putnam Mutual Funds from 1990 until 1998. Mr. Shiebler has also been the
Chairman of Pacific Corporate Group, a private equity investment management and
consulting firm, since March 1999. Prior to joining Putnam, he was President
and Chief Operating Officer of Dean Witter Reynolds Intercapital, the
investment management division of Dean Witter Reynolds. Mr. Shiebler is the
President of the Kean University Foundation and a Trustee of the Boston Public
Library Foundation.
JOSE S. SORZANO has been a member of the Board of Directors since October
1994. Mr. Sorzano has been Chairman of the Board of Directors of The Austin
Group, Inc., an international corporate consulting firm, since 1989. Mr.
Sorzano was also Special Assistant to the President for National Security
Affairs from 1987 to 1988; Associate Professor of Government, Georgetown
University, from 1969 to 1987; President, Cuban American National Foundation,
from 1985 to 1987; and Ambassador and U.S. Deputy to the United Nations from
1983 to 1985.
CARMEN M. SABATER has been our Senior Vice President since December 1998
and was elected Chief Financial Officer in May 1999. From 1994 until December
1998 Ms. Sabater was our Corporate Controller. Prior to joining us, Ms. Sabater
was a Senior Manager with Deloitte & Touche, a public accounting firm.
JOSE SARIEGO has been our Senior Vice President and General Counsel since
September 1995. Prior to joining us, Mr. Sariego was Senior Corporate Counsel
and Secretary of Telemundo Group, Inc., a Spanish language television network,
from August 1994 to August 1995. From January 1990 to August 1994, Mr. Sariego
was a partner in the Miami office of Kelley Drye & Warren, an international law
firm.
ARLENE VARGAS has been our Vice President and Corporate Controller since
September 1998. Prior to joining us, Ms. Vargas was a Senior Manager from June
1997 to September 1998 and a Manager from June 1994 to June 1997 with
PricewaterhouseCoopers LLP, a public accounting firm.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides information concerning the beneficial
ownership of our common stock, as of December 31, 1999 and as adjusted to
reflect the sale of the common stock offered by this prospectus, by:
/bullet/ Jorge Mas, the selling shareholder,
/bullet/ each person known to us to beneficially own more than 5% of our common
stock,
/bullet/ each of our current directors and executive officers and
/bullet/ all of our current directors and executive officers as a group.
Unless otherwise indicated, each named shareholder has sole voting and
investment power with respect to the shares beneficially owned by the
shareholder.
<TABLE>
<CAPTION>
BEFORE STOCK OFFERING
--------------------------------
COMMON
STOCK
NAME OWNED PERCENTAGE
- ------------------------------- ------------------- ------------
<S> <C> <C>
Jorge Mas ..................... 13,991,722(3) 49.6%
Joel-Tomas Citron ............. 227,144(5) *
Eliot C. Abbott ............... 40,919(5) *
Arthur B. Laffer .............. 128,178(5) *
Olaf Olafsson ................. -- *
Joseph P. Kennedy, II ......... -- *
William N. Shiebler ........... 10,172 *
Jose S. Sorzano ............... 42,669(5) *
Carmen M. Sabater ............. 21,625(5) *
Jose Sariego .................. 23,201(5) *
Arlene Vargas ................. 1,000(5) *
American Express Company,
American Express
Financial Corporation and
Growth Portfolio(3) .......... 2,179,750(6) 7.7%
All executive officers
and directors as a group
(11 persons) ................. 14,486,630 51.3%
AFTER STOCK OFFERING(1) AFTER STOCK OFFERING(2)
-------------------------------- -------------------------------------
COMMON COMMON
STOCK STOCK
NAME OWNED PERCENTAGE OWNED PERCENTAGE
- ------------------------------- ------------------- ------------ ------------------------- -----------
<S> <C> <C> <C> <C>
Jorge Mas ..................... 13,991,722(3) 45.5% 13,616,722(3)(4) 44.3%
Joel-Tomas Citron ............. 227,114(5) * 227,144(5) *
Eliot C. Abbott ............... 40,919(5) * 40,919(5) *
Arthur B. Laffer .............. 128,178(5) * 128,178(5) *
Olaf Olafsson ................. -- * -- *
Joseph P. Kennedy, II ......... -- * -- *
William N. Shiebler ........... 10,172 * 10,172(5) *
Jose S. Sorzano ............... 42,669(5) * 42,669(5) *
Carmen M. Sabater ............. 21,625(5) * 21,625(5) *
Jose Sariego .................. 23,201(5) * 23,201(5) *
Arlene Vargas ................. 1,000(5) * 1,000(5) *
American Express Company,
American Express
Financial Corporation and
Growth Portfolio(3) .......... 2,179,750(6) 7.1% 2,179,750(6) 7.1%
All executive officers
and directors as a group
(11 persons) ................. 14,486,630 47.1% 14,111,630 45.9%
</TABLE>
- ----------------
* Less than 1%
(1) Assumes the over-allotment option is not exercised.
(2) Assumes the over-allotment option is exercised.
(3) Includes 7,890,811 shares owned directly by the Jorge L. Mas Canosa
Holdings I Limited Partnership (the "Family Partnership"), and indirectly
by Jorge Mas, as the sole officer and director of Jorge L. Mas Holdings
Corporation, a Texas corporation, the sole general partner of the Family
Partnership; and 5,587,311 shares owned of record by Jorge Mas Holdings I
Limited Partnership, a Texas limited partnership ("Jorge Mas Holdings").
The sole general partner of Jorge Mas Holdings is Jorge Mas Holdings
Corporation, a Texas corporation that is wholly-owned by Mr. Mas. Also
includes 188,447 shares owned of record by the Mas Family Foundation, a
Florida not-for-profit corporation (the "Family Foundation"); 199,199
shares covered by options exercisable within 60 days of December 31, 1999;
and 100,157 shares owned of record individually. Mr. Mas disclaims
beneficial ownership of the shares held by the Family Partnership except
to the extent of his pecuniary interest therein, and disclaims beneficial
ownership of all of the shares owned by the Family Foundation.
(4) Mr. Mas may borrow up to 375,000 shares of the common stock he is offering
from the Family Partnership. Mr. Mas will be obligated to repay the
borrowing by delivering to the Family Partnership shares of our common
stock equal in number to the borrowed shares five days after demand by the
Family Partnership; and, upon demand, the Family Partnership will receive
from Mr. Mas amounts equal to dividends and other distributions on the
borrowed shares. The Family Partnership may from time to time demand a
pledge of collateral by Mr. Mas to secure his obligations to repay the
borrowed shares to the Family Partnership.
(5) The amounts shown include shares covered by options exercisable within 60
days of December 31, 1999 as follows: Joel-Tomas Citron, 222,341 shares;
Eliot C. Abbott, 39,417 shares; Arthur B. Laffer, 36,667 shares; Jose S.
Sorzano, 41,167 shares; Carmen M. Sabater 18,500 shares; Jose Sariego,
12,266 shares; and Arlene Vargas 1,000 shares.
(6) American Express Company ("AMEX"), American Express Financial Advisors
("AMEXFA") and Growth Portfolio ("GP") filed a Schedule 13G dated December
31, 1998 with the SEC reporting beneficial ownership of more than 5% of
our Common Stock. As reported in the Schedule 13G, GP possesses sole
voting power over 1,800,000 shares and AMEX and AMEXFA possess shared
voting power over 379,750 shares. As reported in the Schedule 13G, AMEX
and AMEXFA possess shared dispositive power over 2,179,750 shares, over
1,800,000 of which GP also possesses shared dispositive power.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $.10 per share, and 5,000,000 shares of preferred stock, par
value $1.00 per share. As of December 31, 1999 we had 28,232,729 shares of
common stock issued and outstanding and no shares of preferred stock issued and
outstanding.
COMMON STOCK
Each share of our common stock entitles its owner to one vote on all
matters submitted to a vote of our shareholders. The holders of our common
stock are entitled to receive dividends, when, as and if declared by our Board
of Directors, in its discretion, from funds legally available for the payment
of dividends. If we liquidate or dissolve, the owners of our common stock will
be entitled to share proportionately in our assets, if any, legally available
for distribution to shareholders, but only after we have paid all of our debts
and liabilities.
Our common stock has no preemptive rights and no subscription, redemption
or conversion privileges and it is not subject to any further calls or
assessments by us. Our common stock does not have cumulative voting rights,
which means that the holders of a majority of the outstanding shares of our
common stock voting for the election of directors can elect all members of our
Board of Directors eligible for election in any year. See "--Florida law and
provisions of our Articles of Incorporation and By-Laws--Classified Board of
Directors and related provisions." A majority vote is also sufficient for other
actions that require the vote or concurrence of shareholders.
Currently, Jorge Mas, our Chairman, and other members of his family
beneficially own approximately 49% of the outstanding shares of our common
stock. They have the power to control our management and affairs. Upon the
completion of this offering, Mr. Mas and his family members will still own more
than 45% of the outstanding shares of our common stock. Accordingly, they will
remain in a position to effectively:
/bullet/ control the vote of most matters submitted to our shareholders,
including any merger, consolidation or sale of all or substantially all
of our assets;
/bullet/ elect all of the members of our Board of Directors;
/bullet/ prevent or cause a change in our control; and
/bullet/ decide whether we will issue additional common stock or other
securities or declare dividends.
The Mas family's ability to exercise significant control over us may
discourage, delay or prevent a takeover attempt that you might consider in your
best interest and that might result in you receiving a premium for your common
stock.
All of the outstanding shares of our common stock are, and the shares of
our common stock which we are offering by this prospectus will be, when issued
and paid for, fully paid and nonassessable.
The transfer agent and registrar for our common stock is First Union
National Bank of North Carolina.
PREFERRED STOCK
Our Articles of Incorporation authorize our Board of Directors to
/bullet/ issue preferred stock in one or more series,
/bullet/ establish the number of shares to be included in each such series and
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<PAGE>
/bullet/ fix the designations, powers, preferences and rights of the shares of
each series and any qualifications, limitations or restrictions on
those shares.
The Board of Directors may establish a class or series of preferred stock
with preferences, powers and rights (including voting rights) senior to the
rights of the holders of our common stock. If we issue any of our preferred
stock it may have the effect of delaying, deferring or preventing a change in
our control.
MATERIAL PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BY-LAWS
Our Articles of Incorporation and our By-Laws contain material provisions
that may make the acquisition of control of us more difficult.
BUSINESS COMBINATIONS. Our Articles of Incorporation contain material
provisions which may make it more difficult for a person or entity that is the
holder of more than 10% of our outstanding voting stock to force us to approve
a "business combination." For purposes of this discussion, a "business
combination" includes any:
/bullet/ merger or consolidation of us with or into another corporation,
/bullet/ sale or lease of all or any substantial part of our property and assets
or
/bullet/ issuance of our securities in exchange for sale or lease to us of
property and assets having an aggregate fair market value of $1 million
or more.
Our Articles of Incorporation require at least 80% of the voting power of
all of our outstanding shares entitled to vote in the election of directors,
voting together as a single class, to vote in favor of a business combination
proposed by any holders of more than 10% of our outstanding voting stock in
order for that transaction to be approved. This voting requirement is not
applicable to business combinations if either:
/bullet/ our Board of Directors has approved a memorandum of understanding with
the other corporation with respect to the transaction prior to the time
that the other corporation became a holder of more than 10% of our
outstanding voting stock or
/bullet/ the transaction is proposed by a corporation of which we are the
majority owner.
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS. Our By-Laws provide
that the number of our directors will be established from time to time by a
majority vote of our Board of Directors and our shareholders. Our By-Laws also
provide that our Board of Directors will be divided into three classes of
directors, with each class having a number as nearly equal as possible and that
directors will serve for staggered three-year terms. As a result, one-third of
our Board of Directors will be elected each year. These classified board
provision could prevent a party who acquires control of a majority of our
outstanding voting stock from obtaining control of the Board of Directors until
the second annual shareholders meeting following the date the acquirer obtains
its controlling interest.
Our shareholders may remove any of our directors or our entire Board of
Directors if the votes in favor of removal constitute at least a majority of
all of our outstanding voting stock entitled to vote. However, our By-Laws also
provide that our shareholders may only remove our directors for "cause" and
only by a vote at a meeting which is called for the purpose of removing the
director or directors. The By-Laws define "cause" as failing to substantially
perform his duties to us (other than as a result of physical or mental
disability) or willfully engaging in gross misconduct injurious to us. If there
is a vacancy on our Board of Directors either a majority of our remaining
directors or our shareholders may fill the vacancy.
SHAREHOLDER ACTION BY WRITTEN CONSENT. Our By-Laws provide that any
actions which our shareholders may take at a shareholders' meeting can be taken
by written consent in lieu of a meeting.
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<PAGE>
In order to effect a shareholder action by written consent in lieu of a meeting
holders of our outstanding stock having at least the minimum number of votes
that would be necessary to authorize the action at a shareholders' meeting must
sign a written consent which states the action to be taken. If our shareholders
take any action by written consent in lieu of a meeting we must notify all of
our shareholders that did not consent to the action in writing within 10 days
after receiving the written consent and describe the action to them.
INDEMNIFICATION. Our Articles of Incorporation and By-Laws provide that we
will indemnify each of our directors and officers to the fullest extent
permitted by law. Our By-Laws permit us to purchase insurance on behalf of our
directors, officers, employees and agents against liabilities that they may
incur in those capacities, whether or not we would have the power to indemnify
them against such liabilities.
MATERIAL UNITED STATES TAX CONSEQUENCES FOR NON-U.S. INVESTORS
INTRODUCTION
The following is a summary of material United States federal tax
consequences to non-U.S. investors of owning and disposing of common stock. In
this summary, "non-U.S. investor" means:
/bullet/ a nonresident alien individual,
/bullet/ a foreign corporation,
/bullet/ a nonresident alien fiduciary of a foreign estate or trust or
/bullet/ a foreign partnership, one or more members of which is, for U.S. tax
purposes, a nonresident alien individual, a foreign corporation, or a
nonresident alien fiduciary of a foreign estate or trust.
This summary does not address all of the federal tax considerations that
may be relevant to you in light of your particular circumstances and also does
not discuss any state, local or foreign tax. This summary is based on current
provisions of the Internal Revenue Code, Treasury regulations, judicial
opinions, published positions of the Internal Revenue Service (the "IRS") and
other applicable authorities. These authorities are all subject to change,
possibly with retroactive effect. If you are considering buying common stock,
you should consult your tax advisor with respect to the current and future tax
consequences of investing in the common stock.
DISTRIBUTIONS
If distributions are paid on the shares of our common stock, these
distributions generally will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles, and then will
constitute a return of capital that is applied against your basis in the common
stock to the extent these distributions exceed those earnings and profits. To
the extent a distribution, which is not a dividend, exceeds your basis in the
common stock, it shall be treated as gain from the sale or exchange of common
stock.
Dividends paid to a non-U.S. investor generally will be subject to
withholding of federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. To receive a reduced treaty rate,
you must furnish to us or our paying agent a completed IRS Form 1001 or W-8BEN
(or substitute form) certifying that you qualify for a reduced rate. Dividends
that are effectively connected with the conduct of a trade or business within
the United States or, if a treaty applies,
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<PAGE>
attributable to a permanent establishment within the United States, will be
exempt if you provide us with an IRS Form 4224 or IRS Form W-8ECI (or
substitute form). Dividends exempt from withholding because they are
effectively connected or attributable to a permanent establishment will instead
be taxed at ordinary federal income tax rates on a net income basis. Further,
if the non-U.S. investor is a corporation, this effectively connected dividend
income may also be subject to an additional branch profits tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty. Under
current Treasury regulations, dividends paid before January 1, 2001 to an
address outside the United States are presumed to be paid to a resident of the
country of address, unless the payer has knowledge to the contrary for purposes
of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate. However, for dividends paid after December
31, 2000, this presumption is eliminated.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A non-U.S. investor generally will not be subject to federal income tax on
any gain recognized on the sale or other disposition of common stock, except in
the following circumstances:
(1) The gain will be subject to federal income tax if it is effectively
connected with a trade or business of the non-U.S. investor within the
United States or, if a treaty applies, is attributable to a permanent
establishment. Unless an applicable treaty provides otherwise, the
non-U.S. investor will be taxed on its net gains derived from the sale
under regular graduated U.S. federal income tax rates. If the non-U.S.
investor is a foreign corporation, it may be subject to an additional
branch profits tax.
(2) The gain will be subject to federal income tax if the non-U.S. investor is
an individual who holds the common stock as a capital asset, is present in
the United States for 183 or more days in the taxable year of the sale or
other disposition, and certain other conditions are met.
(3) The gain may be subject to federal income tax pursuant to federal income
tax laws applicable to certain expatriates.
(4) The gain may be subject to federal income tax if we are or have been within
the shorter of the five-year period preceding such disposition or the
period the non-U.S. investor held the common stock a "United States real
property holding corporation" and the non-U.S. investor held, at any time
during the five-year period ending on the date of disposition (or, of
shorter, the non-U.S. investor's holding period), more than 5 percent of
the outstanding common stock. We believe that we will not constitute a
United States real property holding corporation immediately after the
offering and do not expect to become a United States real property holding
corporation; however, we can give no assurance in this regard.
An individual non-U.S. holder described in clause 1 above will be taxed on
the net gain derived from the sale under regular graduated United States
federal income tax rates. An individual non-U.S. holder described in clause 2
above will be subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States capital losses, notwithstanding the fact
that the individual is not considered a resident of the United States. If a
non-U.S. holder that is a foreign corporation falls under clause 1 above, it
will be taxed on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits within the meaning of the
Internal Revenue Code for the taxable year, as adjusted for specified items,
unless it qualifies for a lower rate under an applicable income tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current law, backup withholding is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements. United
States backup withholding tax generally will not apply to dividends paid
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<PAGE>
before January 1, 2001 to a non-U.S. investor at an address outside the United
States, or to dividends paid after December 31, 2000 if the non-U.S. investor
certifies that it is a non-U.S. investor on an IRS Form W-8BEN or otherwise
establishes an exemption. We must report annually to the IRS and to each
non-U.S. investor the amount of dividends paid to such investor and the amount,
if any, of tax withheld with respect to such dividends. This information may
also be made available to the tax authorities in the non-U.S. investor's
country of residence.
Payment of the proceeds of a sale of common stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
is a non-U.S. holder, or otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of common stock by or through a foreign office of a broker.
If, however, the broker is, for United States federal income tax purposes, a
U.S. person, a controlled foreign corporation, or a foreign person that derives
50% or more of its gross income for specified periods from the conduct of a
trade or business in the United States, the payments will be subject to
information reporting, but not backup withholding, unless:
/bullet/ the broker has documentary evidence in its records that the beneficial
owner is a non-U.S. holder and other conditions are met; or
/bullet/ the beneficial owner otherwise establishes an exemption.
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is not a
citizen or a "resident," which is specifically defined for federal estate tax
purposes, of the United States at the time of death, will be included in such
individual's gross estate for federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
43
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below have
severally agreed to purchase, and we have agreed to sell to them, severally,
the respective number of shares of common stock set forth opposite their names.
Morgan Stanley & Co. Incorporated, Jefferies & Company, Inc. and Morgan Keegan
& Company, Inc., are acting as U.S. representatives for the U.S. underwriters
named below, and Morgan Stanley & Co. International Limited, Jefferies
International Limited and Morgan Keegan & Company, Inc., are acting as
international representatives for the international underwriters named below.
NAME NUMBER OF SHARES
- ----------------------------------------------------- -----------------
Morgan Stanley & Co. Incorporated ................... 800,000
Jefferies & Company, Inc. ........................... 400,000
Morgan Keegan & Company, Inc. ....................... 400,000
Banc of America Securities LLC ...................... 50,000
First Union Securities, Inc. ........................ 50,000
Edward D. Jones & Co., L.P. ......................... 50,000
Sanders Morris Harris Inc. .......................... 50,000
Scotia Capital Markets (USA) Inc. ................... 50,000
SunTrust Equitable Securities Corporation ........... 50,000
Wachovia Securities, Inc. ........................... 50,000
H.G. Wellington & Co. Inc. .......................... 50,000
2,000,000
---------
Morgan Stanley & Co. International Limited .......... 250,000
Jefferies International Limited ..................... 125,000
Morgan Keegan & Company, Inc. ....................... 125,000
500,000
---------
Total ............................................. 2,500,000
=========
The U.S. underwriters and the international underwriters, are referred to
as the "underwriters," and the U.S. representatives and the international
representatives are referred to as the "representatives." The underwriters are
offering the shares of common stock subject to their acceptance of the shares
from us and subject to prior sale. The underwriting agreement provides that the
obligations of the underwriters to pay for and accept delivery of the shares of
common stock offered hereby are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered hereby
(other than those covered by the U.S. underwriters' over-allotment option
described below) if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters'
over-allotment option described below.
Pursuant to the agreement between the U.S. and international underwriters,
each U.S. underwriter has represented and agreed that, with certain exceptions:
/bullet/ it is not purchasing any shares (as defined herein) for the account of
anyone other than a United States or Canadian person (as defined
herein); and
/bullet/ it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the
shares outside the United States or Canada or to anyone other than a
United States or Canadian person.
44
<PAGE>
Pursuant to the agreement between the U.S. and the international
underwriters, each international underwriter has represented and agreed that,
with certain exceptions:
/bullet/ it is not purchasing any shares for the account of any United States or
Canadian person; and
/bullet/ it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the
shares in the United States or Canada or to any United States or
Canadian person.
With respect to any underwriter that is a U.S. underwriter and an
international underwriter, the representations and agreements above (i) made by
it in its capacity as a U.S. underwriter apply only to it in its capacity as a
U.S. underwriter and (ii) made by it in its capacity as an international
underwriter apply only to it in its capacity as an international underwriter.
The limitations above do not apply to stabilization transactions or to certain
other transactions specified in the agreement between the U.S. and
international underwriters. "United States or Canadian person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision of either
country (other than a branch located outside the United States and Canada of
any United States or Canadian person). These terms also include any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian person. All shares of common stock to be purchased by the underwriters
under the underwriting agreement are referred to herein as the "shares."
Pursuant to the agreement between the U.S. and international underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares as they may agree on. The per share price of any shares
sold shall be the public offering price set forth on the cover page of this
prospectus, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Each U.S. underwriter has represented that it has not offered or sold, and
has agreed not to offer or sell, any shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in violation of Canadian securities laws.
Each U.S. underwriter has represented that any offer or sale of shares in
Canada will be made only pursuant to an exemption from the requirement to file
a prospectus in the province or territory of Canada in which such offer or sale
is made. Each U.S. underwriter has further agreed to send to any dealer who
purchases any of the shares from it a notice stating that, by purchasing such
shares, such dealer represents that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in violation of Canada's securities laws. Each dealer
also represents that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each of
these dealers will deliver to any other dealer to whom it sells any of such
shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the agreement between the U.S. and international underwriters,
each international underwriter has represented and agreed that:
/bullet/ it has not offered or sold and, prior to the date six months after the
closing date for the sale of the shares to the international
underwriters, will not offer or sell, any shares to persons in the
United Kingdom except to persons whose ordinary activities include
acquiring, holding, managing or disposing investments (as principal or
agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer
to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;
/bullet/ it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the shares in, from or otherwise involving the United
Kingdom; and
45
<PAGE>
/bullet/ it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
offering of the shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom such document may otherwise lawfully be issued or passed on.
Each international underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, in Japan or to or for the account of
any resident of Japan, any of the shares acquired in connection with the
distribution contemplated hereby, except for offers or sales to Japanese
international underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law and otherwise
in compliance with applicable provisions of Japanese law.
Each international underwriter has also agreed to send to any such dealer
a notice stating that, by purchasing the shares, the dealer represents and
agrees that it has not offered or sold, and will not offer or sell, any of such
shares in Japan or to or for the account of any resident thereof except for
offers or sales to Japanese international underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each of these dealers will send to any other dealer to whom it
sells any of those shares a notice containing substantially the same statement
as is contained in this sentence.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $1.69 a share under the public offering price.
After the initial offering of the shares of common stock, the offering price
and other selling terms may from time to time be varied by the representatives.
The selling shareholder has granted to the U.S. underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of 375,000 additional shares of common stock at the public offering
price, less underwriting discounts and commissions. The U.S. underwriters may
exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock offered
hereby. To the extent this option is exercised, each U.S. underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of those additional shares of common stock as the number set
forth next to it in the preceding table bears to the total number of shares of
common stock set forth next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public would be $152,375,000, the total underwriters'
discounts and commissions would be $7,466,375, the total proceeds to the
selling shareholder would be $18,901,125 and the total proceeds to us would be
unchanged.
Our common stock is listed on the New York Stock Exchange under the symbol
"MTZ" and we have applied to the New York Stock Exchange to have the shares of
our common stock that we will issue in the offering listed there subject to
official notice of issuance.
Each of the selling shareholder, us and our directors, executive officers
and certain of our other shareholders has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 90 days after the date of
this prospectus:
/bullet/ offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer, any shares of
our common stock or any securities convertible into or exercisable or
exchangeable for our common stock; or
/bullet/ enter into any swap or other arrangement that transfers to another any
of the economic consequences of ownership of our common stock.
46
<PAGE>
The restrictions described in the previous paragraph do not apply to:
/bullet/ the sale of shares to the underwriters;
/bullet/ the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
/bullet/ any private placement of shares of common stock to a strategic investor
who agrees to be bound by the restrictions above;
/bullet/ the issuance by us of shares of our common stock as consideration for
the purchase by us of any business or assets;
/bullet/ transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after
the completion of the offering;
/bullet/ any options or shares of common stock issued pursuant to our Incentive
Compensation Plans; or
/bullet/ any shares of common stock currently pledged to Ocean Bank, unless
these shares are released from the pledge and returned to the pledgor,
in which case the shares will become subject to the restrictions
described above.
To facilitate the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with the offering,
creating a short position in the common stock for their own account. In
addition, to cover over-allotments or to stabilize the price of the common
stock, the underwriters may bid for, and purchase, shares of common stock in
the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing shares of
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and
may end any of these activities at any time.
It is anticipated that Morgan Stanley Dean Witter Online, Inc. ("MSDW
Online"), an affiliate of Morgan Stanley Dean Witter, may be a member of the
syndicate and engage in electronic offers, sales and distribution of the shares
being offered.
MSDW Online uses the following procedures in electronic distribution of
securities. MSDW Online delivers the preliminary prospectus and any amendments
by posting electronic versions of such documents on its web site. Such
documents are delivered only to those customers who have agreed to accept
Internet delivery of the prospectus and any amendments thereto as indicated on
both the customer's Qualification Questionnaire and the customer's General
Expression of Interest Form. In addition to delivery through its web site, MSDW
Online delivers a final paper copy of the prospectus to each purchaser by mail.
The electronic version of the prospectus is identical to the electronic
version of the prospectus that the Company files via EDGAR, except that the
format matches that of the paper prospectus. There are no links leading from
the electronic version of the prospectus posted on the MSDW Online web site to
other web sites.
47
<PAGE>
MSDW Online follows the following procedures for opening all account and
transacting trades in securities regardless of the type of transaction that a
customer is interested in executing:
/bullet/ Each potential customer must complete an account application and open
the account with at least $2,000 cash or with securities with a fair
market value of at least $2,000.
/bullet/ Once the account is opened, the customers may transact their trades (1)
over the Internet, (2) through a touch-tone phone or (3) over the phone
through a registered representative.
/bullet/ Customers may make their trades only with cash balances in their
account or on margin.
MSDW Online follows specific procedures to allow customers to place an
indication of interest in a public offering. It requires its customers to have
funds in their account (unless securities are permissible to be purchased on
margin) on the trade date for any security transaction. Any customer who
expresses an interest in an offering is required to complete a Qualification
Questionnaire and a General Indication of Interest on a deal by deal basis. In
addition, each qualified MSDW Online customer must reconfirm his or her
interest in the offering after final pricing and effectiveness of the
registration statement or he or she will not be eligible to receive shares in
the offering.
The selling shareholder, the underwriters and us have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
From time to time, Morgan Stanley & Co. Incorporated, Jefferies & Company,
Inc. and Morgan Keegan & Company, Inc. have provided, and continue to provide,
investment banking services to us for which they have received customary fees
and commissions.
LEGAL MATTERS
The validity of the shares we are offering will be passed upon for us by
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., Miami, Florida. The
validity of the shares we are offering will be passed upon for the underwriters
by Shearman & Sterling, New York, New York.
EXPERTS
The audited financial statements included in this Prospectus, except as
they relate to Sintel, S.A., have been audited by PricewaterhouseCoopers LLP,
independent accountants, and, insofar as they relate to Sintel, S.A., by Arthur
Andersen, independent accounts, whose reports on them appear elsewhere in this
Prospectus. We have included our financial statements in this Prospectus in
reliance on the reports of our independent accountants given on their authority
as experts in auditing and accounting.
48
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT MASTEC
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the reports, statements and other information that we file, at the SEC's Public
Reference Room at 450 Fifth Street, N.W., in Washington, D.C. Please call the
SEC at 1-800-SEC-0330 for further information on their Public Reference Room.
Our SEC filings are also available from the New York Stock Exchange, from
commercial document retrieval services and from the internet site maintained by
the SEC at http://www.sec.gov.
The SEC allows us to "incorporate by reference" in this prospectus the
information that we file with the SEC. This permits us to disclose important
information to you by referring to those documents rather than repeating them
in full in this prospectus. The information incorporated by reference in this
prospectus contains important business and financial information. In addition,
information that we file with the SEC after the date of this prospectus will
update and supersede the information in this prospectus and incorporated
filings. Our later filings will be considered to be included in this
prospectus.
The documents which we incorporate by reference consist of the documents
listed below and any future filings which we make with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended:
/bullet/ Our annual report on Form 10-K for the year ended December 31, 1999.
/bullet/ Our definitive proxy statement dated April 14, 1999 and filed on April
7, 1999.
/bullet/ Our current report on Form 8-K dated May 29, 1998 and filed on June 29,
1998.
We will provide you with a copy of any document incorporated by reference
without charge. Direct your request for copies to:
MasTec, Inc.
3155 N.W. 77th Avenue
Miami, Florida 33122-1205
Attention: Corporate Secretary
(305) 406-1813
For information about us, you should rely only on the information
contained in this prospectus or incorporated in this prospectus by reference.
We have not authorized anyone else to provide you with information other than
this prospectus or to make representations as to matters not stated in this
prospectus. If anyone else has provided you with different information, you
should not rely on it.
We will update this information by means of supplemental or revised
prospectuses, and, as described above, by the future filing of our reports with
the SEC. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that offer or sale would not be permitted.
49
<PAGE>
MASTEC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
------
Reports of Independent Certified Public Accountants .................. F-2
Consolidated Statements of Operations
for the Years Ended December 31, 1997, 1998 and 1999 ............... F-4
Consolidated Balance Sheets as of December 31, 1998 and 1999 ......... F-5
Consolidated Statement of Changes in Shareholders' Equity
for the Years Ended December 31, 1997, 1998 and 1999 ............... F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997, 1998 and 1999 ............... F-7
Notes to Consolidated Financial Statements ........................... F-10
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of MasTec, Inc.:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated
statements of operations, changes in shareholders' equity and cash flows
present fairly, in all material respects, the financial position of MasTec,
Inc. and its subsidiaries ("MasTec") at December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles. These consolidated financial statements are the
responsibility of MasTec's management; our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Sintel, S.A., a wholly-owned subsidiary
until December 31, 1998 which statements reflect total revenues of $207.2
million and $207.6 million for the years ended December 31, 1997 and 1998,
respectively. Those statements, prior to adjustment, were audited by other
auditors whose report dated March 31, 1999 expressed a qualified opinion
thereon. The other auditor's report has been furnished to us, and our opinion
expressed herein, insofar as it relates to amounts included for Sintel, S.A.,
except for the adjustment, which results from the matter noted in the
qualification of the other auditor's report and is described in the following
paragraph, is based solely on the report of the other auditors. We conducted
our audits of the consolidated financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for the opinion
expressed above.
As discussed in Note 2, for purposes of inclusion in the consolidated financial
statements, MasTec adjusted the financial statements of Sintel, S.A., a
wholly-owned subsidiary until December 31, 1998, to correct for the effect of
the improper reversal of a reserve for employee severance. We have audited the
adjustment to the Sintel, S.A. financial statements. In our opinion, such
adjustment is and has been properly applied to the financial statements of
Sintel, S.A. for the year ended December 31, 1998 for purposes of inclusion in
the 1998 MasTec consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Miami, Florida
January 26, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Sistemas e Instalaciones de Telecomunicacion, S.A. (Sintel)
1. We have audited the consolidated balance sheet of SINTEL, S.A. and
subsidiaries ("Sintel") as of December 31, 1998 and 1997 and the related
consolidated statements of income and the accompanying notes, all expressed in
Spanish pesetas which are not included herein. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
2. We conducted our audits in accordance with generally accepted auditing
standards in Spain which are substantially consistent with those in the United
States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
3. The framework agreement entered into with Telefonica de Espana, S.A.,
whereby the latter guaranteed a minimum level of purchases from the Controlling
Company, expired on December 31, 1998. In view of this situation, the
Controlling Company is implementing a strategy consisting of the internal
rationalization of its operating structure and the expansion and
diversification of its production activities in Spain and Latin America, as
discussed in Note 1.
4. In relation to what is described in the previous paragraph, in 1998 the
Controlling Company restructured its operations which gave rise to an
extraordinary expense of Ptas. 1,810 million for indemnities to terminated
employees. In view of the extraordinary nature of this restructuring, the
Controlling Company's directors considered it appropriate to offset a portion
of this cost and reversed Ptas. 1,001 million of voluntary reserves with a
credit to income for the year. The recording of this transaction is detailed in
Notes 10 and 18. Although the use of voluntary reserves is unrestricted for the
Shareholder's Meeting, Spanish accounting regulations do not provide for the
reversal of this reserve and consequent recording as extraordinary revenues for
1998. Therefore, under generally accepted accounting principles, net income for
the year should be reduced, and voluntary reserves should be increased, by
Ptas. 1,001 million. However, this matter does not change the total balance of
consolidated shareholder's equity as of December 31, 1998.
5. In our opinion, except as described in paragraphs 3 and 4 above, the
consolidated financial statements referred to above present fairly, in all
materials respects the consolidated financial position of SINTEL, S.A. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations for the years then ended, in conformity with generally accepted
accounting principles in Spain.
6. Further, in our opinion, the reconciliation of consolidated net income
for each of the two years in the period ended December 31, 1998 and
shareholders' equity as of December 31, 1998 and 1997 presented in Note 21 and
Note 22 to the 1998 and 1997 consolidated financial statements, respectively,
which reconciles net income and shareholders' equity , as shown in the
consolidated financial statements, to net income, as determined in accordance
with generally accepted accounting principles in the United States, presents
fairly the information shown therein on a consistent basis.
/s/ ARTHUR ANDERSEN
Arthur Andersen
Madrid, Spain
March 31, 1999
F-3
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
Revenue ....................................................... $659,439 $1,048,922 $1,059,022
Costs of revenue .............................................. 495,840 803,112 803,799
Depreciation and amortization ................................. 23,855 43,313 56,148
Non-recurring charge .......................................... -- 33,765 --
General and administrative expenses ........................... 82,261 140,472 91,898
Interest expense .............................................. 11,541 29,580 26,673
Interest income ............................................... 1,783 9,093 9,398
Other income (expense), net ................................... 8,332 (5,155) (10,092)
-------- ---------- ----------
Income before provision for income taxes, equity in earnings of
unconsolidated companies and minority interest .............. 56,057 2,618 79,810
Provision for income taxes .................................... 20,944 12,550 33,266
Equity in earnings of unconsolidated companies ................ 2,897 1,906 ---
Minority interest ............................................. (3,346) (5,889) (1,818)
-------- ---------- ----------
Net income (loss) ............................................. $ 34,664 $ (13,915) $ 44,726
======== ========== ==========
Basic weighted average common shares outstanding .............. 26,460 27,489 27,809
Basic earnings (loss) per share ............................... $ 1.31 $ (0.51) $ 1.61
Diluted weighted average common shares outstanding ............ 27,019 27,489 28,416
Diluted earnings (loss) per share ............................. $ 1.28 $ (0.51) $ 1.57
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 19,864 $ 27,635
Accounts receivable, unbilled revenue and retainage, net ......... 279,015 251,576
Inventories ...................................................... 9,393 14,264
Assets held for sale ............................................. 57,238 65,752
Other current assets ............................................. 59,601 34,634
-------- ---------
Total current assets ........................................... 425,111 393,861
Property and equipment, net ....................................... 137,382 153,527
Investments in unconsolidated companies ........................... 5,886 5,893
Intangibles, net .................................................. 140,461 151,556
Other assets ...................................................... 23,381 23,572
-------- ---------
Total assets ................................................... $732,221 $ 728,409
======== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of debt ....................................... $ 11,143 $ 12,200
Accounts payable and accrued expenses ............................ 84,372 74,408
Other current liabilities ........................................ 74,771 71,882
-------- ---------
Total current liabilities ...................................... 170,286 158,490
-------- ---------
Other liabilities ................................................. 46,973 45,628
-------- ---------
Long-term debt .................................................... 310,689 267,458
-------- ---------
Commitments and contingencies (Note 11)
Shareholder's equity:
Common stock ..................................................... 2,738 2,823
Capital surplus .................................................. 149,479 168,799
Retained earnings ................................................ 56,477 101,203
Foreign currency translation adjustments ......................... (4,421) (15,992)
-------- ---------
Total shareholders' equity ..................................... 204,273 256,833
-------- ---------
Total liabilities and shareholders' equity ..................... $732,221 $ 728,409
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- CAPITAL RETAINED
SHARES AMOUNT SURPLUS EARNINGS
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 .............. 26,435 $2,643 $ 149,083 $ 35,728
Net income ............................. 34,664
Foreign currency translation
adjustment ............................
Stock issued from treasury for stock
options exercised ..................... 206
Tax benefit resulting from stock
option plan ........................... 1,538
Stock issued for acquisitions .......... 1,621 162 76,219
Stock issued from treasury for an
acquisition ........................... 4,479
Stock issued for stock dividend
from treasury ......................... (75,802)
Stock issued from treasury ............. 3,007
---------
Balance December 31, 1997 .............. 28,056 2,805 158,730 70,392
Retirement of treasury stock ........... (476) (47) (4,717)
------ ------ ---------
Balance December 31, 1997 .............. 27,580 2,758 154,013 70,392
Net loss ............................... (13,915)
Foreign currency translation
adjustment ............................
Stock issued, primarily for
acquisitions and stock options
exercised ............................. 469 47 8,721
Tax benefit resulting from stock
option plan ........................... 403
Repurchase of common stock ............. (667) (67) (13,658)
------ ------ ---------
Balance December 31, 1998 .............. 27,382 2,738 149,479 56,477
Net income ............................. 44,726
Foreign currency translation
adjustment ............................
Stock issued, primarily for
acquisitions and stock options
exercised ............................. 851 85 17,387
Tax benefit resulting from stock
option plan ........................... 1,933
---------
Balance December 31, 1999 .............. 28,233 $2,823 $ 168,799 $ 101,203
====== ====== ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY OTHER
TRANSLATION TREASURY COMPREHENSIVE
ADJUSTMENTS STOCK TOTAL INCOME
------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 .............. $ (802) $ (83,148) $ 103,504 $ 34,926
Net income ............................. 34,664 34,664
Foreign currency translation
adjustment ............................ (2,664) (2,664) (2,664)
Stock issued from treasury for stock
options exercised ..................... 979 1,185 --
Tax benefit resulting from stock
option plan ........................... 1,538 --
Stock issued for acquisitions .......... 76,381 --
Stock issued from treasury for an
acquisition ........................... 1,603 6,082 --
Stock issued for stock dividend
from treasury ......................... 75,802 --
Stock issued from treasury ............. 3,007 --
--------- ----------
Balance December 31, 1997 .............. (3,466) (4,764) 223,697 66,926
Retirement of treasury stock ........... 4,764 -- --
--------- --------- ----------
Balance December 31, 1997 .............. (3,466) -- 223,697 66,926
Net loss ............................... (13,915) (13,915)
Foreign currency translation
adjustment ............................ (955) (955) (955)
Stock issued, primarily for
acquisitions and stock options
exercised ............................. 8,768 --
Tax benefit resulting from stock
option plan ........................... 403 --
Repurchase of common stock ............. (13,725) --
--------- ----------
Balance December 31, 1998 .............. (4,421) -- 204,273 52,056
Net income ............................. 44,726 44,726
Foreign currency translation
adjustment ............................ (11,571) (11,571) (11,571)
Stock issued, primarily for
acquisitions and stock options
exercised ............................. 17,472 --
Tax benefit resulting from stock
option plan ........................... 1,933 --
--------- ----------
Balance December 31, 1999 .............. $ (15,992) $ -- $ 256,833 $ 85,211
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ 34,664 $ (13,915) $ 44,726
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ........................................ 23,855 43,313 56,148
Minority interest .................................................... 3,346 5,889 1,818
Equity in earnings of unconsolidated companies ....................... (2,897) (1,906) --
Deferred tax (benefit) expense ....................................... (4,991) 6,974 (1,961)
(Gain) loss on sale or write-down of assets .......................... (6,848) 8,918 9,798
Changes in assets and liabilities net of effect of acquisitions and
divestitures:
Accounts receivable, unbilled revenue and retainage, net ............ (28,809) (34,942) 5,707
Inventories and other current assets ................................ 64 (16,759) 564
Other assets ........................................................ (10,889) (27,341) (1,946)
Accounts payable and accrued expenses ............................... 5,348 (2,017) (2,858)
Other current liabilities ........................................... 7,326 13,385 5,653
Other liabilities ................................................... (4,988) 4,548 2,486
--------- ---------- ---------
Net cash provided by (used in) operating activities .................... 15,181 (13,853) 120,135
--------- ---------- ---------
Cash flows from investing activities:
Capital expenditures .................................................. (21,534) (76,445) (69,507)
Cash paid for acquisitions and contingent consideration, net of
cash acquired ....................................................... (45,606) (75,745) (18,706)
Investments in unconsolidated companies, net of distributions ......... (1,234) (13,384) (25,528)
Repayment (advances) of notes receivable, net ......................... 1,345 (18,667) 15,667
Net proceeds from sale of assets ...................................... 29,628 5,600 27,791
--------- ---------- ---------
Net cash used in investing activities .................................. (37,401) (178,641) (70,283)
--------- ---------- ---------
Cash flows from financing activities:
Proceeds (repayments) from revolving credit facilities, net ........... 57,328 5,032 (45,384)
Proceeds from senior notes ............................................ -- 199,724 --
Other borrowings ...................................................... 19,936 35,106 --
Debt repayments ....................................................... (59,059) (17,946) --
Proceeds from issuance of common stock ................................ 6,264 3,779 6,593
Stock repurchased ..................................................... -- (13,725) --
Financing costs ....................................................... (587) (4,993) --
--------- ---------- ---------
Net cash provided by (used in) financing activities .................... 23,882 206,977 (38,791)
--------- ---------- ---------
Net increase in cash and cash equivalents .............................. 1,662 14,483 11,061
Net effect of translation on cash ...................................... (353) (682) (3,290)
Cash and cash equivalents--beginning of period ......................... 4,754 6,063 19,864
--------- ---------- ---------
Cash and cash equivalents--end of period ............................... $ 6,063 $ 19,864 $ 27,635
========= ========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................................. $ 8,727 $ 21,795 $ 25,510
========= ========== =========
Income taxes .......................................................... $ 10,377 $ 6,593 $ 9,726
========= ========== =========
</TABLE>
(CONTINUED)
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
Supplemental disclosure of non-cash investing and financing activities:
YEAR ENDED
DECEMBER 31,
1998
-------------
Disposal of Sintel:
Accounts receivable .................. $137,214
Inventories .......................... 2,774
Other current assets ................. 37,722
Property and equipment ............... 17,251
Other assets ......................... 2,825
--------
Total non-cash assets ............... 197,786
--------
Liabilities ........................... 109,448
Long-term debt ........................ 25,013
--------
Total disabilities .................. 134,461
--------
Net non-cash assets sold .............. 63,325
Cash .................................. 2,234
Investment retained ................... (4,072)
--------
Fair value of net assets sold ......... 61,487
Net loss on sale ...................... (9,222)
--------
Sales price ........................... $ 52,265
========
Assumption of debt .................... 25,013
Seller financing ...................... 27,252
--------
Sales price ........................... $ 52,265
========
(CONTINUED)
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
In 1997, we issued 1.6 million shares of common stock for domestic
acquisitions, of which 0.25 million shares were issued from treasury stock at a
cost of approximately $1.6 million.
In 1997, we converted a note receivable and accrued interest thereon
totaling $29.0 million into stock of Conecel.
In 1998, we issued approximately 0.16 million shares of common stock
primarily as payment for contingent consideration related to 1997 acquisitions.
In addition, we issued approximately 0.1 million shares as bonuses to certain
employees and fees to directors.
In 1997, we completed certain acquisitions which have been accounted for
as purchases. The fair value of the net assets acquired totaled $139.8 million
and was comprised primarily of $44.0 million of accounts receivable, $27.5
million of property and equipment, $7.8 million of other assets and $3.3
million in cash, offset by $40.8 million of assumed liabilities. The excess of
the purchase price over the net assets acquired was $98.1 million and was
allocated to goodwill. The acquisitions were made in the form of cash and
stock.
In 1998, we completed certain acquisitions which have been accounted for
as purchases. The fair value of the net assets acquired totaled $91.4 million
and was comprised primarily of $35.2 million of accounts receivable $27.2
million of property and equipment, $8.0 million of other assets and $5.0
million in cash, offset by $39.2 million of assumed liabilities. The excess of
the purchase price over the net assets acquired was $55.3 million and was
allocated to goodwill.
In 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, $2.4
million of property and equipment, $0.68 million of other assets and $0.27
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 $7.4 million
and was allocated to goodwill. We also issued 0.53 million 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.
F-9
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We design, build, install and maintain 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. Our North American operations consist of three segments:
external communication services, external energy services and internal
communication services.
Revenue generated by North American operations, as a percentage of total
revenue, was 57.2%, 63.8% and 94.8% in 1997, 1998 and 1999, respectively. For
the years ended, December 31, 1997, 1998 and 1999, revenue expressed as a
percentage of North American revenue generated by external communication
services was 76.1%, 68.1% and 74.1%, respectively, by external energy services
was 5.2%, 18.0% and 15.3%, respectively, and by internal communication services
was 12.5%, 13.4% and 10.5%, respectively. See Note 10. In 1997 and 1998,
international operations consisted primarily of our operations in Spain and
Brazil. Effective December 31, 1998, we sold 87% of our Spanish operations.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is presented
below:
MANAGEMENT'S ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant estimates relate to our for
allowance for doubtful accounts, accrued insurance, and the realization of
certain intangibles and assets held for sale. Actual results could differ from
those estimates.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
MasTec, Inc. and its subsidiaries including our 51% interest in our Brazilian
operations. All material intercompany accounts and transaction have been
eliminated. Certain prior year amounts have been reclassified to conform to the
current presentation.
COMPREHENSIVE INCOME (LOSS). As reflected in the consolidated statement of
changes in shareholders' equity, comprehensive income is a measure of net
income and all other changes in equity that result from transactions other than
with shareholders. Comprehensive income (loss) consists of net income (loss)
and foreign currency translation adjustments.
FOREIGN CURRENCY. We operate in Brazil, which is subject to greater
political, monetary, economic and regulatory risks than our domestic
operations. During January 1999, the Brazilian government allowed its currency
to trade freely against other currencies resulting in an immediate devaluation
of the Brazilian REAIS. Assets and liabilities of foreign subsidiaries and
equity with a functional currency other than U.S. dollars are translated into
U.S. dollars at exchange rates in effect at the end of the reporting period.
Foreign entity revenue and expenses are translated into U.S. dollars at the
average rates that prevailed during the period. The resulting net translation
gains and losses are reported as foreign
F-10
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
currency translation adjustments in shareholders' equity as a component of
other accumulated comprehensive income. Exchange gains and losses on
transactions and equity investments denominated in a currency other than their
functional currency are included in results of operations as incurred.
REVENUE RECOGNITION. Revenue and related costs for short-term construction
projects (i.e., generally projects with a duration of less than one month) are
recognized as the projects are completed. Upon completion of the projects
customers provide written acceptance. Revenue generated by certain long-term
construction contracts are accounted for by the percentage of completion method
under which income is recognized based on the ratio of estimated cost incurred
to total estimated contract cost.
Losses, if any, on such contracts are provided for in full when they
become known. Billings in excess of costs and estimated earnings on uncompleted
contracts are classified as current liabilities. Any costs in excess of
billings are classified as current assets. Work in process on contracts is
based on work performed but not billed to customers as per individual contract
terms.
We also provide management, coordination, consulting and administration
services for construction projects. Compensation for such services is
recognized ratably over the term of the service agreement.
EARNINGS PER SHARE. Basic earnings per common share is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding. Diluted earnings per common share include the
dilutive effect of stock options using the treasury stock method. The
difference between the weighted average common shares outstanding used to
calculate basic and diluted earnings per share relates to stock options assumed
exercised under the treasury method of accounting of approximately 559,000 and
607,000 at December 31, 1997 and 1999, respectively. Potentially dilutive
shares as of December 31, 1998 were not included in the diluted per share
calculation include 336,000 shares because their effects would be anti-dilutive
due to the loss incurred by us. Accordingly, for 1998, diluted net loss per
common share is the same as basic net loss per common share.
CASH AND CASH EQUIVALENT. We consider all short-term investments with
maturities of three months or less when purchased to be cash equivalents. At
December 31, 1998 and 1999, we had cash and cash equivalents denominated in
Brazilian REAIS that translate to approximately $9.1 million and $20.5 million,
respectively.
INVENTORIES. Inventories (consisting principally of material and supplies)
are carried at the lower of first-in, first-out cost or market.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the respective assets. Leasehold improvements are
amortized over the shorter of the term of the lease or the estimated useful
lives of the improvements. Expenditures for repairs and maintenance are charged
to expense as incurred. Expenditures for betterments and major improvements are
capitalized. The carrying amounts of assets sold or retired and related
accumulated depreciation are eliminated in the year of disposal and the
resulting gains and losses are included in income.
F-11
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
INTANGIBLES AND OTHER LONG LIVED ASSETS. Assets and liabilities acquired
in connection with business combinations accounted for under the purchase
method are recorded at their respective estimated fair values. Goodwill
represents the excess of the purchase price over the estimated fair value of
net assets acquired, including the recognition of applicable deferred taxes,
and is amortized on a straight-line basis over a period ranging from 5 to 40
years, with a weighted average amortization period of 23 years. At December 31,
1998 and 1999, we had recorded intangibles primarily consisting of goodwill of
$140.5 million and $151.6 million, respectively (net of accumulated
amortization of $14.9 million in 1998 and $24.5 million in 1999).
We review long-lived assets, identifiable intangibles and goodwill and
record an impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying
amount of the assets to future undiscounted net cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets or expected future
cash flows on an undiscounted basis. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
ACCRUED INSURANCE. We are self-insured for certain property and casualty
and worker's compensation exposure and, accordingly, accrue the estimated
losses not otherwise covered by insurance.
INCOME TAXES. We record income taxes using the liability method of
accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are recognized for the expected future tax consequence of
temporary differences between the financial statement and income tax bases of
our assets and liabilities. A valuation allowance is established when it is
more likely than not that any or all of the deferred tax assets will not be
realized.
STOCK BASED COMPENSATION. We adopted the disclosure provision of Statement
of Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation ("SFAS 123") and retained the intrinsic value method of accounting
for such stock based compensation (see Note 7).
FAIR VALUE OF FINANCIAL INSTRUMENTS. We estimate the fair market value of
financial instruments through the use of public market prices, quotes from
financial institutions and other available information. Judgment is required in
interpreting data to develop estimates of market value and, accordingly,
amounts are not necessarily indicative of the amounts that we could realize in
a current market exchange. Our short-term financial instruments, including cash
and cash equivalents, accounts and notes receivable, accounts payable and other
liabilities, consist primarily of instruments without extended maturities, the
fair value of which, based on management's estimates, equaled their carrying
values. Long-term debt is carried at face value less unamortized discount. The
fair value of our senior notes was approximately $188.0 million at December 31,
1999. We use letters of credit to back certain insurance policies. The letters
of credit reflect fair value as a condition of their underlying purpose and are
subject to fees competitively determined in the market place.
F-12
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 2--INVESTING ACTIVITIES
During 1998 and 1999, we completed 12 and four North American
acquisitions, respectively, which have been accounted for under the purchase
method of accounting. Accordingly, the results of operations of acquired
companies have been included in our consolidated results of operations from
their respective acquisition dates. Contingent consideration, to the extent
earned, will be recorded as additional goodwill. If the acquisitions had been
made at the beginning of 1998 or 1999, pro forma results of operations would
not have differed materially from actual results based on historical
performance prior to their acquisition by us. During 1999, we acquired
Directional Advantage Boring, Inc., Central Trenching, Inc., Queens Network
Cable Corp. and Trench Masters, Inc. all of which are external communication
services providers.
Common stock issued in acquisitions is valued based upon the market price
of the common stock around the date of purchase or the date the purchase price
is determined.
During the fourth quarter of 1999, we recorded in other current assets a
$2.5 million preferred stock investment in a co-location facilities provider.
In connection with the investment, we have entered into an agreement to build
their neutral central offices throughout the United States.
We also have 171,250 warrants to purchase common stock at $60.00 per share
of a competitive local exchange carrier in the northeastern United States with
whom we have a preferred services provider agreement.
On December 31, 1998, we sold 87% of our Spanish operations to a group of
investors and during 1999 we advanced $3.0 million for working capital needs.
The sale included the assumption of our remaining indebtedness to Telefonica
from the original purchase of our Spanish operations of $25.0 million, for
which we are not contingently liable. At December 31, 1999, we had $14.6
million reflected in other current assets, $11.6 million of which subsequently
has been received.
The following information presents the unaudited pro forma condensed
results of operations for the years ended December 31, 1998 as if our
disposition of our Spanish operations had occurred in January 1998.
Revenue ............................ $811,582
Net income ......................... 4,962
Basic earnings per share ........... 0.18
Diluted earnings per share ......... 0.18
We corrected in consolidation the matter described in paragraph 4 of
Sintel's auditors' report, included herein, on our Spanish operations.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful
accounts of $3.1 million, $7.3 million, and $9.7 million at December 31, 1997,
1998 and 1999, respectively. We recorded a provision for doubtful accounts of
$5.3 million, $4.5 million and $4.7 million during 1997, 1998 and 1999,
respectively. In addition, we recorded write-offs of $5.3 million, $0.3 million
and $2.3 million during 1997, 1998 and 1999, respectively.
F-13
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 3--ACCOUNTS RECEIVABLE--(CONTINUED)
Accounts receivable includes retainage which has been billed but is not
due until completion of performance and acceptance by customers, and claims for
additional work performed outside original contract terms. Retainage aggregated
$18.9 million and $16.5 million at December 31, 1998 and 1999, respectively.
Retainage is expected to be collected within one year. Any retainage expected
to be collected beyond a year is recorded in long-term other assets.
Included in accounts receivable is unbilled revenue of $83.3 million and
$69.6 million at December 31, 1998 and 1999, respectively. Such unbilled
amounts represent work performed but not billable to customers as per
individual contract terms, of which $45.2 million and $18.6 million at December
31, 1998 and 1999, respectively, are related to our Brazilian operations.
Unbilled revenue is typically billed within one to two months.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
1998 1999 (IN YEARS)
------------ ------------- -------------
<S> <C> <C> <C>
Land ................................... $ 7,950 $ 6,905
Buildings and improvements ............. 9,961 11,852 5 - 20
Machinery and equipment ................ 168,484 223,378 3 - 7
Office furniture and equipment ......... 9,299 13,760 3 - 5
--------- ----------
195,694 255,895
Less-accumulated depreciation .......... (58,312) (102,368)
--------- ----------
$ 137,382 $ 153,527
========= ==========
</TABLE>
F-14
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 5--DEBT
Debt is comprised of the following at December 31, (in thousands):
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Revolving credit facility, at LIBOR plus 1.25% (7.06% at
December 31, 1998 and 6.98% at December 31, 1999) ............. $ 106,300 $ 64,000
Other bank facilities at LIBOR plus 1.50% (6.31% at December 31,
1998 and 7.32% at December 31, 1999) .......................... 6,206 7,707
Notes payable for equipment, at interest rates from 7.5% to 8.5%
due in installments through the year 2000 ..................... 6,145 3,920
Notes payable for acquisitions, at interest rates from 7% to 8%
due in installments through February 2000 ..................... 3,431 4,254
Senior notes, 7.75% due February 2008 .......................... 199,750 199,777
--------- ---------
Total debt ..................................................... 321,832 279,658
Less current maturities ........................................ (11,143) (12,200)
--------- ---------
Long-term debt ................................................. $ 310,689 $ 267,458
========= =========
</TABLE>
We have a 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. Upon written request by us and at the bank's
sole discretion, the maturity date of the credit facility may be extended to
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 had outstanding $8.3 million in standby letters of credit as of
December 31, 1999.
On January 30, 1998, we issued $200.0 million, 7.75% senior subordinated
notes due in February 2008 with interest due semi-annually. The net proceeds
were used primarily for acquisitions and other corporate purposes.
The credit facility and the senior notes contain customary events of
default and covenants which prohibit, among other things, making investments in
excess of a specified amount, incurring additional indebtedness in excess of a
specified amount, paying dividends in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens, prepaying
other indebtedness, including the senior notes, and engaging in certain mergers
or combinations without the prior written consent of the lenders. The credit
facility also provides that 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.
F-15
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 5--DEBT--(CONTINUED)
At December 31, 1999, debt matures as follows:
<TABLE>
<S> <C>
2000 .......................... $ 12,200
2001 .......................... 67,308
2002 .......................... 345
2003 .......................... 28
Thereafter (due 2008) ......... 199,777
--------
$279,658
========
</TABLE>
NOTE 6--LEASE COMMITMENTS
We have operating lease agreements for our premises and equipment that
expire on various dates through 2005. The operating lease agreements are
subject to escalation. Rent expense for the year ended December 31, 1999, was
approximately $14.8 million.
Minimum future lease commitments under non-cancelable operating leases in
effect at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 ................................... $11,263
2001 ................................... 9,747
2002 ................................... 7,776
2003 ................................... 5,805
2004 ................................... 1,766
Thereafter ............................. 3,832
-------
Total minimum lease payments ......... $40,189
=======
</TABLE>
NOTE 7--STOCK OPTION PLANS
We have three stock option plans currently in effect: the 1994 Stock
Incentive Plan (the "1994 Plan"), the 1994 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan") and the 1999 Non-Qualified Employee Stock
Option Plan (the "Non-Qualified Plan"). Typically, options under these plans
are granted at fair market value at the date of grant, vest between three to
five years and terminate no later than 10 years from the date of grant.
Under these plans there were a total of 1,654,151, 1,291,962 and 286,703
options available for grant at December 31, 1997, 1998 and 1999, respectively.
We also have a non-qualified stock purchase plan whereby eligible employees may
purchase common stock through payroll deductions at a 15% discount from fair
market value.
In addition, there are 149,000 options outstanding under individual option
agreements with varying vesting schedules at exercise prices ranging from $3.83
to $21.09 with terms up to 10 years.
F-16
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
The following is a summary of all stock option transactions:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE FAIR
STOCK AVERAGE VALUE OF
OPTIONS EXERCISE PRICE OPTIONS GRANTED
------------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding December 31, 1996 ......... 897,900 $ 9.98
Granted ............................... 1,254,950 24.96 $19.97
Exercised ............................. (201,950) 5.58
Canceled .............................. (343,475) 23.62
--------- ------
Outstanding December 31, 1997 ......... 1,607,425 17.06
Granted ............................... 1,234,250 19.17 $13.29
Exercised ............................. (101,990) 11.38
Canceled .............................. (110,580) 19.47
--------- ------
Outstanding December 31, 1998 ......... 2,629,105 18.32
Granted ............................... 1,849,955 32.65 $16.04
Exercised ............................. (407,069) 16.21
Canceled .............................. (168,030) 22.26
--------- ------
Outstanding December 31, 1999 ......... 3,903,961 $25.21
========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
PRICES STOCK OPTIONS CONTRACTUAL LIFE PRICE STOCK OPTIONS PRICE
- ----------------- --------------- ------------------ ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.83-5.29 54,300 4.19 $ 4.49 54,300 $ 4.49
6.83-8.68 121,250 5.59 7.56 75,553 7.66
8.92-14.63 136,350 3.20 9.60 82,800 9.51
15.59-20.19 630,300 8.99 17.96 451,634 18.18
20.56-29.69 2,281,706 8.49 25.31 601,129 21.08
31.19-40.19 680,055 9.89 39.50 2,600 31.63
--------- ---- ------ ------- ------
3.83-40.19 3,903,961 8.48 25.21 1,268,016 17.80
========= ==== ====== ========= ======
</TABLE>
We have elected to follow Accounting Principles Board Option No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its employees stock options. Therefore, no compensation cost has
been recognized.
F-17
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
We have reflected below the 1997, 1998 and 1999 earnings as if
compensation expense relative to the fair value of the options granted had been
recorded under the provisions of SFAS No. 123 "Accounting for Stock- Based
Compensation." The fair value of each option grant was estimated using the
BlackScholes option-pricing model with the following assumptions used for
grants in 1997, 1998 and 1999, respectively: a five, six and five year expected
life for 1997, 1998 and 1999, respectively; volatility factors of 82%, 72% and
41% respectively; risk-free interest rates of 5.5%, 4.3% and 5.9%,
respectively; and no dividend payments.
1997 1998 1999
---------- ------------- ----------
Net income (loss):
As reported ...................... $34,664 $ (13,915) $44,726
======= ========= =======
Pro forma ........................ $28,797 $ (28,472) $32,980
======= ========= =======
Basic earnings (loss) per share:
As reported ...................... $ 1.31 $ (0.51) $ 1.61
Pro forma ........................ $ 1.09 $ (1.04) $ 1.19
Diluted earnings (loss) per share:
As reported ...................... $ 1.28 $ (0.51) $ 1.57
Pro forma ........................ $ 1.07 $ (1.04) $ 1.16
NOTE 8--INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
1997 1998 1999
--------- ------------ ----------
Current:
Federal ........................... $ 9,583 $ (3,876) $ 32,069
Foreign ........................... 4,465 1,376 214
State and local ................... 1,670 536 3,770
------- -------- --------
15,718 (1,964) 36,053
------- -------- --------
Deferred:
Federal ........................... 2,730 9,193 (5,889)
Foreign ........................... 2,040 5,430 1,740
State and local ................... 456 (109) 1,362
------- -------- --------
5,226 14,514 (2,787)
------- -------- --------
Provision for income taxes ......... $20,944 $ 12,550 $ 33,266
======= ======== ========
F-18
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 8--INCOME TAXES--(CONTINUED)
The tax effects of significant items comprising our net deferred tax
liability as of December 31, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Deferred tax assets:
Non-compete ......................................... $ 6,068 $ 5,919
Bad debts ........................................... 2,694 4,279
Accrued self insurance .............................. 4,655 5,468
Operating loss and tax credit carry forward ......... 1,186 1,960
All other ........................................... 4,762 2,105
--------- ---------
Total deferred tax assets ............................ 19,365 19,731
--------- ---------
Deferred tax liabilities:
Installment sale .................................... $ 7,452 $ 3,902
Accounts receivable retainage ....................... 6,891 5,665
Property and equipment .............................. 12,737 15,709
Asset re-evaluations ................................ 5,901 5,526
All other ........................................... 3,328 2,080
--------- ---------
Total deferred tax liabilities ....................... 36,309 32,882
Valuation allowance ................................. 211 --
--------- ---------
Net deferred tax liability ........................... $ (17,155) $ (13,151)
========= =========
</TABLE>
The net deferred tax liability includes deferred items resulting from
acquisitions made during the period which are not reflected as part of the
deferred tax provision. During 1999, the net change in the valuation allowance
for the deferred tax asset was a decrease of $0.2 million. Such change is
attributed to amounts expected to be realized through future earnings.
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
<TABLE>
<CAPTION>
L997 1998 1999
------ -------- -------
<S> <C> <C> <C>
U.S. statutory federal rate applied to pretax income .......... 35% 35% 35%
State and local income taxes .................................. 2 10 4
Effect of non-U.S. tax rates .................................. (1) (23) --
Amortization of intangibles ................................... -- 58 2
Gain on sale of Spanish operations ............................ -- 329 --
Non-deductible expenses ....................................... -- 37 2
Other ......................................................... 1 33 (1)
-- --- ---
Provision for income taxes .................................... 37% 479% 42%
== === ==
</TABLE>
No provision has been made for the years ended December 31, 1998 and 1999
for U.S. income taxes on the undistributed earnings of the foreign subsidiaries
since it is our intention to utilize those earnings in the foreign operations
for an indefinite period of time. During 1998, MasTec sold its interest in its
Spanish operations which resulted in a tax liability of $7.8 million. At
December 31, 1999,
F-19
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 8--INCOME TAXES--(CONTINUED)
undistributed earnings of the remaining foreign subsidiaries amounted to $13.2
million. If the earnings of such foreign subsidiaries were not indefinitely
reinvested, a deferred tax liability of $0.2 million would be required.
The Internal Revenue Service is currently reviewing the tax returns filed
by MasTec for the years ended December 31, 1995 and 1996. No adjustments have
been proposed to date related to this review.
NOTE 9--CAPITAL STOCK
MasTec has authorized 100,000,000 shares of common stock, $0.10 par value.
At December 31, 1998 and 1999, approximately 27,382,000 and 28,233,000 shares
of common stock were issued and outstanding. At December 31, 1998 and 1999,
MasTec had 5,000,000 shares of authorized but unissued preferred stock,
respectively.
NOTE 10--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS
We currently derive a substantial portion of our revenue from providing
external communication services to BellSouth. For the year ended December 31,
1997, approximately 27%, 13% and 11% of our revenue was derived from services
performed for Telefonica, BellSouth and Telebras, respectively. For the year
ended December 31, 1998, approximately 19% of our revenue was derived from
services performed for Telefonica. For the year ended December 31, 1999,
approximately 12.0% of our revenue was derived from services performed for
BellSouth. Accounts receivable from our BellSouth approximated $17.1 million at
December 31, 1999.
Our North American operations consist of three segments: External
Communication Services, External Energy Services and Internal Communication
Services. We also operate in Brazil.
EXTERNAL COMMUNICATION SERVICES. We design, build, install and maintain
the physical facilities used to provide end-to-end telecommunications service
from the provider's central office, switching center or cable head-end to the
ultimate consumer's home or business. These services include: designing conduit
networks and fiber rings; placing and splicing fiber optic, coaxial and copper
cable; excavating trenches in which to place the cable; fabricating and placing
related structures such as poles, anchors, conduits, manholes, cabinets and
closures; placing drop lines from the main distribution terminals to the
customer's home or business; and maintaining, removing and replacing these
facilities.
We also provide route development, right of way and other site
acquisition, permitting, materials procurement, acceptance testing and as-built
documentation.
EXTERNAL ENERGY SERVICES. We provide external network and infrastructure
services to public and private utilities. These services consist of overhead
and underground installation and maintenance of electrical and other utilities'
transmission and distribution networks, substation construction and
maintenance, right-of-way maintenance and restoration of asphalt and concrete
surfaces. They are substantially similar to the services we provide to our
telecommunications customers, but the work often involves the installation and
splicing of high-voltage transmission and distribution lines.
F-20
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 10--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS--(CONTINUED)
INTERNAL COMMUNICATION SERVICES. We provide services consisting of the
design, installation, testing and documentation of switching and transmission
equipment and supporting components at a provider's point-of-presence (central
office) locations. We also design, install and maintain integrated voice, data
and video networks inside customer premises as well as the infrastructure
required to support complex intranet and Internet solutions. We provide systems
integration services, which involve the selection, configuration, installation
and maintenance of software, hardware, other computing and communications
equipment and cabling to provide an integrated computing and communications
system. Internal communication services are less capital intensive than
external communication services but require a more technically proficient work
force. We provide switching and transmission services to equipment vendors, and
premise wiring and structured cabling services to large corporate customers
with multiple locations.
F-21
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 10--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS--(CONTINUED)
The following table set forth, for each of 1997, 1998 and 1999, certain
information about segment results of operations and segment assets (in
thousands).
<TABLE>
<CAPTION>
EXTERNAL INTERNAL EXTERNAL
COMMUNICATION COMMUNICATION ENERGY
1997 SERVICES SERVICES SERVICES INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- --------------------------------- --------------- --------------- ---------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ......................... $286,814 $ 47,285 $ 19,693 $282,393 $ 23,254 $ 659,439
======== ======== ======== ======== ========= ==========
Depreciation and
amortization .................. 16,210 1,022 2,888 3,403 332 23,855
Income (loss) before
provision for income taxes,
equity in earnings of
unconsolidated companies
and minority interest ......... 44,449 4,794 593 25,167 (18,946) 56,057
Total assets .................... 194,245 51,606 33,250 325,458 25,665 630,224
Capital expenditures ............ 16,387 1,113 1,223 1,879 932 21,534
EXTERNAL INTERNAL EXTERNAL
COMMUNICATION COMMUNICATION ENERGY
1998 SERVICES SERVICES SERVICES INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- --------------------------------- --------------- --------------- ---------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ......................... $455,798 $ 89,687 $120,218 $379,294 $ 3,925 $1,048,922
======== ========= ======== ======== ========= ==========
Depreciation and
amortization .................. 24,600 1,617 10,095 6,029 972 43,313
Income (loss) before
provision for income taxes,
equity in earnings of
unconsolidated companies
and minority interest ......... 32,725 (11,501) 10,941 6,372 (35,919) 2,618
Total assets .................... 299,952 61,185 87,181 186,023 97,880 732,221
Capital expenditures ............ 41,946 2,361 25,872 5,003 1,263 76,445
EXTERNAL INTERNAL EXTERNAL
COMMUNICATION COMMUNICATION ENERGY
1999 SERVICES SERVICES SERVICES INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- --------------------------------- --------------- --------------- ---------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ......................... $743,955 $105,246 $153,179 $ 55,220 $ 1,422 $1,059,022
======== ======== ======== ======== ========= ==========
Depreciation and
amortization .................. 35,683 2,468 12,560 4,016 1,421 56,148
Income (loss) before
provision for income taxes,
equity in earnings of
unconsolidated companies
and minority interest ......... 106,821 5,760 12,231 (6,904) (38,098) 79,810
Total assets .................... 394,662 63,083 84,472 142,672 43,520 728,409
Capital expenditures ............ 57,786 1,815 8,845 86 975 69,507
</TABLE>
F-22
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 10--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS--(CONTINUED)
- ----------------
(1) For the year ended December 31, 1997, revenue, depreciation and
amortization and income before provision for income taxes, equity in
earnings of unconsolidated companies and minority interest was $74.9
million, $390,000 and $7.3 million, respectively, for Brazil and $207.5
million, $3.0 million and $10.8 million, respectively, for Spain. Income
before provision for income taxes, equity in earnings of unconsolidated
companies and minority interest also includes a $7.1 million gain related
to other international entities. As of December 31, 1997, assets and
capital expenditures consisted of $93.4 million and $0, respectively for
Brazil, $195.2 million and $1.9 million, respectively for Spain and total
assets of $36.9 million related to other international entities. For the
year ended December 31, 1998, revenue, depreciation and amortization and
income (loss) before provision for income taxes, equity in earnings of
unconsolidated companies and minority interest was $142.0 million, $3.3
million and $18.1 million, respectively for Brazil and $237.3 million,
$2.7 million and $(11.7) million respectively for Spain. As of December
31, 1998, total assets consisted of $117.2 million for Brazil, capital
expenditures consisted of $3.5 million for Brazil and $1.5 million for
Spain, and total assets of $68.8 million related to our other
international entities, which includes a note receivable of $25.8 million
in connection with the sale of our Spanish operations. For the year ended
December 31, 1999, international includes only our Brazilian operations.
(2) Consists of non-core construction and corporate operations, which includes
interest expense net of interest income.
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 11--COMMITMENTS AND CONTINGENCIES
In the fourth quarter of 1999, we entered into a stipulation of settlement
regarding two shareholder class action and derivative lawsuits first filed in
1990. The two Delaware state court lawsuits alleged, among other things, that
various former fiduciaries of MasTec breached their duties in approving certain
transactions, including, the acquisition of control of the Company in 1994 in
these former fiduciaries engaged in mismanagement, waste and breach of
fiduciary duties in managing our affairs prior to the acquisition of control.
The settlement, which must be approved by the court, calls for the payment of
certain amounts by another defendant, a dismissal of the actions with prejudice
and full release of all parties. We are not required to make any payments or to
contribute to any amounts paid by other parties.
In November 1997, Church & Tower filed a lawsuit against Miami-Dade County
(the "County") in Florida state court alleging breach of contract and seeking
damages exceeding $3.0 million in connection with the County's refusal to pay
amounts due to Church & Tower under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department ("MWSD"), a
department of the County, and the County's wrongful termination of the
agreement. The County has refused to pay amounts due to Church & Tower under
the agreement until alleged overpayments under the agreement have been
resolved, and has counterclaimed against us and is seeking unspecified damages.
The County also has refused to award a new road restoration agreement for MWSD
to Church & Tower, which was the low bidder for the new agreement. We are
vigorously pursuing this lawsuit and believe that we will not incur any
material liability from this lawsuit.
We are a party to other pending legal proceedings arising in the normal
course of business, none of which MasTec believes is material to our financial
position or results of operations.
In connection with certain contracts, we have signed certain agreements of
indemnity in the aggregate amount of approximately $500.0 million, of which
approximately $361.6 million relate to the
F-23
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 11--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
uncompleted portion of contracts in process. These agreements are to secure the
fulfillment of obligations and performance of the related contracts.
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.
NOTE 12--ASSETS HELD FOR SALE
Included in assets held for sale at December 31, 1999 is our minority
interest in Supercanal Holding S.A. ("Supercanal") a cable television operator
in western Argentina with a carrying value at December 31, 1999 of
approximately $17.9 million, and our minority interest in Consorcio Ecuatoriano
de Telecomunicaciones, S.A. ("Conecel"), one of two cellular operators in
Ecuador with a carrying value of $12.1 million. Both Supercanal and Conecel
defaulted, during the second quarter of 1999, on their third-party obligations.
We do not guarantee any of their indebtedness.
We are monitoring our investments in Argentina and Ecuador and have
determined that the carrying values of these assets as of December 31, 1999
have not been further impaired. We periodically review the carrying value of
our South American assets through our independent sources including information
provided by the companies, actual or proposed transactions, valuation from
investment bankers, discussions with other stakeholders and comparable
transactions. We have engaged investment bankers to dispose of our interest in
Conecel and Supercanal. There can be no assurance that future transactions or
events will not result in a further impairment of these assets. In the case of
Supercanal, we executed an agreement in September 1997 to sell less than half
of our interest in Supercanal in excess of its carrying value. In early 1999,
we received a valuation from an investment banking firm that valued our
interest at more than its carrying value, and later in 1999 received an offer
to purchase the interest for a combination of cash and other securities valued
at more than the carrying value.
We do not exercise significant influence over the management of Supercanal
because the other two shareholders holding 72% of the outstanding stock are
entitled to make most significant decisions regarding the operations of
Supercanal under a stockholders' agreement. Additionally, we are not
represented on the board of directors.
On January 25, 2000, the majority shareholders of Supercanal approved a
capital increase which would require MasTec to contribute approximately $5.9
million to Supercanal within the next six months to maintain our interest. We
are considering whether to make the capital contribution.
In December 1997, we sold our investment in the holding company for
Conecel for $20.0 million in cash and 7.5 million shares of Conecel common
stock valued at $25.0 million. Accordingly, we recognized a gain of $4.4
million net of tax based on the percent of cash received to the total
transaction value. In the fourth quarter of 1999, we recorded a $4.0 million
write-down of our investment in Conecel based upon a publicly announced
purchase of a controlling interest in Conecel by an
F-24
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 12--ASSETS HELD FOR SALE--(CONTINUED)
unaffiliated purchaser. As part of the transaction, Conecel's third party debt
obligations would be restructured and would no longer be in default. We are
currently in a dispute with the majority shareholder of the company regarding
our ownership interest.
We have a $28.6 million investment in a PCS wireless system in Paraguay
which is held for sale. The system became operational in January 2000 in
accordance with its license requirements. We are actively marketing the system
for sale. Our Paraguayan subsidiary is under a preliminary investigation for
alleged improper conduct by certain of its employees in connection with a prior
extension of the completion deadline. We believe that the allegations are
baseless.
We also have other international investments with a carrying value of $2.6
million recorded as assets held for sale as of December 31, 1999. We estimate
that the carrying value of such assets held for sale will be realized upon
their ultimate disposition.
During the year ended December 31, 1999 we sold non-core real estate
reflected at $6.9 million at a loss of $1.1 million. Currently, approximately
$4.6 million remains unsold. Of the original $10.5 million reflected at
December 31, 1998, an additional $950,000 was recorded as an asset held for
sale and subsequently disposed.
NOTE 13--QUARTERLY INFORMATION (UNAUDITED)
The following table presents unaudited quarterly operating results for the
two years ended December 31, 1999. MasTec believes that all necessary
adjustments have been included in the amounts stated below to present fairly
the quarterly results when read in conjunction with the Consolidated Financial
Statements and Notes thereto for the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
1998 1999
QUARTER ENDED QUARTER ENDED
----------------------------------------------- -----------------------------------------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30 DEC 31
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenue ..................... $ 186,095 $246,106 $288,606 $ 328,115 $206,796 $238,688 $301,092 $312,446
Gross profit, excluding
depreciation and
amortization ............... 33,129 59,878 70,093 82,710 44,699 60,419 73,332 76,773
Net income (loss) ........... (12,099) 9,395 13,413 (24,624) 4,352 12,177 17,146 11,051
Basic earnings (loss)
per share .................. $ (0.44) $ 0.34 $ 0.49 $ (0.90) $ 0.16 $ 0.44 $ 0.61 $ 0.39
Diluted earnings (loss)
per share .................. $ (0.44) $ 0.33 $ 0.48 $ (0.90) $ 0.16 $ 0.43 $ 0.60 $ 0.38
</TABLE>
We believe that the effects of inflation have not had a significant impact
on our results of operations or financial condition. However, the results of
operations have been impacted due to the devaluation in Brazil (see Note 1).
MasTec's results of 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.
F-25
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
NOTE 13--QUARTERLY INFORMATION (UNAUDITED)--(CONTINUED)
The first quarter of 1998 was negatively affected by severe weather, $4.0
million related to bad debts incurred in North American operations and $13.4
million of severance expenses related to our Spanish operations.
The fourth quarter of 1998 includes a non-recurring $33.8 million charge
for payments made pursuant to employment and non-competition agreements entered
into with management of our internal and external communication services
segment and $1.4 million expense for start-up costs.
The $33.8 million charge relates to up-front amounts in the form of
signing bonuses and extended non-competition payments made under the agreements
that could not be attributed to future services. Base salary and bonuses for
future performance paid pursuant to these agreements are being recognized over
the related service periods. The up-front payments were paid to these managers
to resolve issues arising from the original price paid for the acquisition of
their businesses and issues relating to these managers' roles within our
company, as well as to preserve the goodwill of the acquired businesses. These
issues arose primarily from a significant decline in the value of the MasTec
shares these managers received between the time when we bought their businesses
and the expiration of the period when they were restricted from sale of the
shares. Because neither these payments nor the agreements were contemplated,
included or required under the original terms of the business acquisitions and
could not be attributed to future services, these payments were recorded as
expenses in 1998, rather than deferred or amortized.
During the fourth quarter of 1998, we sold at a loss of $9.2 million
($17.0 million net of taxes) 87% of our Spanish operations.
In the fourth quarter of 1999, we recorded a $4.0 million write-down of
our investment in Conecel based upon a publicly announced purchase of a
controlling interest in Conecel by an unaffiliated purchaser. Additionally, we
recorded a $2.0 million write-down related to an ancillary international asset,
start-up expenses of $2.2 million related to our Paraguayan PCS system and a
$2.0 million foreign currency transaction loss related to a note receivable
resulting from the sale of the Spanish operation.
* * * * * * * * * * * *
F-26
<PAGE>
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