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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 001-08106
MasTec
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
Former name, former address and former fiscal year, if changed since last
report: Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
As of April 26, 2000, MasTec, Inc. had 31,054,087 shares of common stock,
$0.10 par value, outstanding.
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MasTec, Inc.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and March 31, 1999.................................. 3
Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and
December 31, 1999....................................................... 4
Unaudited Consolidated Statement of Changes in
Shareholders' Equity for the Three Months
Ended March 31, 2000.................................................... 5
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and
March 31, 1999 ........................................................ 6
Notes to Consolidated Financial Statements (Unaudited) ................. 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition........................................ 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk..... 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................... 17
Signatures .............................................................. 18
2
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
----------------------------------------
2000 1999
------------------ ------------------
Revenue
North American $ 262,372 $ 188,222
International 10,322 18,575
------------------ ------------------
272,694 206,797
Costs of revenue 208,929 162,097
Depreciation 13,478 10,379
Amortization 3,501 2,268
General and administrative expenses 23,112 19,391
Interest expense 5,556 6,231
Interest income 1,213 2,109
Other income, net 380 123
------------------ ------------------
Income before provision for income 19,711 8,663
taxes and minority interest
Provision for income taxes 8,379 3,670
Minority interest 145 (640)
------------------ ------------------
Net income $ 11,477 $ 4,353
================== ==================
Weighted average common shares outstanding 29,203 27,328
Basic earnings per share $ 0.39 $ 0.16
Weighted average common shares outstanding 30,568 27,755
Diluted earnings per share $ 0.38 $ 0.16
The accompanying notes are an integral part of these consolidated financial
statements.
3
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
------------- ---------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 54,270 $ 27,635
Accounts receivable, unbilled revenue and retainage, net 263,729 251,576
Inventories 15,071 14,264
Assets held for sale 57,633 53,639
Other current assets 26,136 34,634
------------- --------------
Total current assets 416,839 381,748
Property and equipment, net 152,768 153,527
Investments in unconsolidated companies 17,688 18,006
Intangibles, net 150,712 151,556
Other assets 22,282 23,572
------------- --------------
Total assets $ 760,289 $ 728,409
============= ==============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt $ 5,985 $ 12,200
Accounts payable and accrued expenses 67,611 74,408
Other current liabilities 50,401 71,882
------------- --------------
Total current liabilities 123,997 158,490
------------- --------------
Other liabilities 37,698 45,628
------------- --------------
Long-term debt 199,257 267,458
------------- --------------
Commitments and contingencies
Shareholders' equity:
Common stock 3,102 2,823
Capital surplus 299,124 168,799
Retained earnings 112,680 101,203
Foreign currency translation adjustments (15,569) (15,992)
------------- --------------
Total shareholders' equity 399,337 256,833
------------- --------------
Total liabilities and shareholders' equity $ 760,289 $ 728,409
============= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
4
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Foreign
--------------------------- Currency
Capital Retained Translation
Shares Amount Surplus Earnings Adjustments Total
- -----------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 28,233 $ 2,823 $ 168,799 $ 101,203 $ (15,992) $ 256,833
Net income 11,477 11,477
Foreign currency translation 423 423
adjustments
Stock issued 2,795 279 130,325 130,604
- -----------------------------------------------------------------------------------------------------------------
Balance March 31, 2000 31,028 $ 3,102 $ 299,124 $ 112,680 $ (15,569) $ 399,337
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
5
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------------
2000 1999
--------------- --------------
Cash flows from operating activities:
Net income $ 11,477 $ 4,353
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 16,979 12,647
Minority interest (145) 640
Loss on sale of assets 3 -
Changes in assets and liabilities (net of effect of acquisitions):
Accounts receivables, unbilled revenue and retainage, net (12,951) 7,801
Inventories and other current assets (3,557) (6,939)
Other assets 472 (3,106)
Accounts payable and accrued expenses (8,798) (4,903)
Other current liabilities (21,481) (19,602)
Other liabilities (2,590) (5,387)
-------------- -------------
Net cash used in operating activities (20,591) (14,496)
-------------- -------------
Cash flows from investing activities:
Capital expenditures (13,749) (15,813)
Cash paid for acquisitions (net of cash acquired) and (2,109) (2,956)
contingent consideration
Repayment of notes receivable, net 946 18,667
Investment in unconsolidated companies held for sale (3,083) (2,685)
Distribution to joint venture partner (4,900) -
Net proceeds from sale of assets 13,401 11,372
-------------- ------------
Net cash (used in) provided by investing activities (9,494) 8,585
-------------- ------------
Cash flows from financing activities:
(Repayments) proceeds, net from revolving credit facilities (74,416) 16,615
(Repayments) of debt - (3,102)
Net proceeds from common stock issued 130,604 114
-------------- ------------
Net cash provided by financing activities 56,188 13,627
-------------- ------------
Net increase in cash and cash equivalents 26,103 7,716
Effect of translation on cash 532 (2,020)
Cash and cash equivalents - beginning of period 27,635 19,864
-------------- ------------
Cash and cash equivalents - end of period $ 54,270 $ 25,560
============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
6
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Supplemental disclosure of non-cash investing and financing activities:
During the three months ended March 31, 2000, we paid approximately $2.1
million related to contingent consideration from earlier acquisitions which was
recorded as additional goodwill.
During the three months ended March 31, 1999, we acquired certain assets
from Directional Advantage Boring, Inc., headquartered in Minnesota, in a
transaction accounted for as a purchase. The fair value of the assets acquired
amounted to $0.6 million, $0.3 million paid in cash with the remainder financed.
We also paid approximately $2.7 million related to contingent consideration from
earlier acquisitions which was recorded as additional goodwill.
The accompanying notes are an integral part of these consolidated financial
statements.
7
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis for Presentation of Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of MasTec,
Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. They do not include all information and
notes required by generally accepted accounting principles for complete
financial statements and should be read together with the audited financial
statements and notes thereto included in our annual report on Form 10-K for the
year ended December 31, 1999. The balance sheet data as of December 31, 1999 was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Certain reclassifications
have been made to conform to the 2000 presentation. The financial information
furnished reflects all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the quarterly periods presented. The results of operations for the periods
presented are not necessarily indicative of our future results of operations for
the entire year.
Our comprehensive income for the three months ended March 31, 2000 and 1999
was $11.9 million and $6.4 million, respectively. The components of
comprehensive income are net income and foreign currency translation
adjustments.
Note 2 - Debt
Debt is comprised of the following (in thousands):
March 31, December 31,
2000 1999
-------------- -------------
Revolving credit facility, at LIBOR plus 1.25% (6.98% at December 31, $ - $ 64,000
1999)
Other bank facilities at LIBOR plus 1.50% (7.63% at March 31, 2000 2,956 7,707
and 7.32% at December 31, 1999)
Notes payable for equipment, at interest rates from 7.5% to 8.5% due 4,092 3,920
in installments through the year 2002
Notes payable for acquisitions, at interest rates from 7.0% to 8.0% 2,326 4,254
due in installments through the year 2001
Senior Notes, 7.75% due February 2008 195,868 199,777
------------- -------------
Total debt 205,242 279,658
Less current maturities (5,985) (12,200)
------------- -------------
Long-term debt $ 199,257 $ 267,458
============= =============
We have a credit facility that provides for borrowings up to an aggregate
amount of $125.0 million, which we reduced from $165.0 million following our
public offering in March 2000. 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 also have $200.0 million, 7.75% senior subordinated notes due in
February 2008 with interest due semi-annually.
8
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The credit facility and the senior notes contain customary events of
default and covenants which prohibit, among other things, making investments in
excess of a specified amount, incurring additional indebtedness in excess of a
specified amount, paying dividends in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating certain liens,
prepaying other indebtedness, including the senior notes, and engaging in
certain mergers or combinations without the prior written consent of the
lenders. The credit facility also provides that we must maintain certain
financial ratio coverages, requiring, among other things, minimum ratios at the
end of each fiscal quarter of debt to earnings and earnings to interest expense.
Note 3 - Operations by Segments and Geographic Areas
The following table sets forth, for the three months ended March 31,
2000 and 1999, certain information about segment results of operations and
segment assets (in thousands):
External Internal External
Three Months Communication Communication Energy International
2000 Services Services Services (1) Other (2) Consolidated
- ---------------------------------------------------------------------------------------------------------
Revenue $ 192,991 $ 32,018 $ 37,363 $ 10,322 $ - $ 272,694
Depreciation 9,621 467 2,941 - 449 13,478
Amortization 1,021 249 202 2,029 - 3,501
Income before provision 24,591 2,466 2,107 (1,010) (8,443) 19,711
for income taxes and
minority interest
Capital expenditures 12,706 155 555 333 - 13,749
Total assets 403,708 65,249 83,048 121,224 87,060 760,289
External Internal External
Three Months Communication Communication Energy International
1999 Services Services Services (1) Other (2) Consolidated
- ---------------------------------------------------------------------------------------------------------
Revenue $ 128,878 $ 21,303 $ 36,950 $ 18,575 $ 1,091 $ 206,797
Depreciation 6,992 355 2,644 - 388 10,379
Amortization 942 260 191 875 - 2,268
Income before provision 13,062 593 3,056 1,070 (9,118) 8,663
for income taxes and
minority interest
Capital expenditures 10,978 165 4,051 542 77 15,813
Total assets 314,710 57,126 92,122 130,954 100,388 695,300
(1) For the three months ended March 31, 2000 and 1999, revenue, depreciation,
amortization income before provision for income taxes and minority interest and
capital expenditures related to our Brazilian operations. As of March 31, 2000
and 1999, total assets for Brazil consisted of $47.9 million and $66.3 million,
respectively and the remainder relates to our interest in international assets
not related to our core business.
(2) Consists of non-core construction and corporate operations, which includes
interest expense net of interest income of $4.3 million and $4.1 million for
2000 and 1999, respectively.
There are no significant transfers between geographic areas and segments.
Total assets are those assets used in our operations in each segment. Corporate
assets include domestic cash and cash equivalents, real estate assets held for
sale and notes receivable.
9
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Commitments and Contingencies
The Delaware court in which two shareholder class action and derivative
lawsuits were pending approved a settlement entered into in the fourth quarter
of 1999 that dismisses both lawsuits and releases all parties in the first suit.
We are not required to make any payments or to contribute to any amounts paid by
other parties.
In November 1997, we filed a lawsuit against Miami-Dade County in Florida
state court alleging breach of contract and seeking damages exceeding $3.0
million in connection with the county's refusal to pay amounts due to us under a
multi-year agreement to perform road restoration work for the Miami-Dade Water
and Sewer Department ("MWSD"), a department of the county, and the county's
wrongful termination of the agreement. The county has refused to pay amounts due
to Church & Tower under the agreement until alleged overpayments under the
agreement have been resolved, and has counterclaimed against Church & Tower
seeking unspecified damages. MasTec is vigorously pursuing this lawsuit.
We are a party to other pending legal proceedings arising in the normal
course of business, none of which we believe is material to our financial
position or results of operations.
We own minority interests in Argentina and Ecuador. Our investment in
Argentina is a minority interest with a carrying value of $17.9 million as of
March 31, 2000 in Supercanal Holding, S.A., a holding company of numerous cable
television operators in western Argentina ("Supercanal"). We also own a minority
interest in and have made a $3.0 million working capital loan to Sistemas e
Instalaciones de Telecomunicacion S.A. ("Sintel"), a Spanish telecommunications
infrastructure services provider.
Supercanal has defaulted on its third party debt and has filed a petition
under Argentine law seeking protection from its creditors. We do not guarantee
any of this indebtedness. In January 2000, the majority shareholder of
Supercanal approved a capital increase that would have required us to contribute
approximately $5.9 million to maintain our interest, but the capital increase
has been enjoined by an Argentine judge and we cannot determine whether or when
the capital increase will be effected. We have determined that the carrying
value of this asset held for sale has not been impaired, but we are monitoring
developments to determine whether a charge is warranted in the future.
Our current and future operations and investments in certain foreign
countries are generally subject to the risks of political, economic or social
instability, including the possibility of expropriation, confiscatory taxation,
hyper-inflation or other adverse regulatory or legislative developments, or
limitations on the repatriation of investment income, capital and other assets.
We cannot predict whether any of such factors will occur in the future or the
extent to which such factors would have a material adverse effect on our
international operations.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Except for historical information, the matters discussed below are forward
looking statements made pursuant to the safe harbor provisions for
forward-looking statements described in the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on the Company's current
expectations and are subject to a number of risks, uncertainties and assumptions
relating to the Company's operations, financial condition and results of
operations. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may differ
significantly from results expressed or implied in any forward-looking
statements made by the Company in this Quarterly Report. These and other risks
are detailed in documents filed by the Company with the Securities and Exchange
Commission. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
General
We design, build, install 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 communications and energy infrastructure service provider in
North America. We offer comprehensive network infrastructure solutions to a
diverse group of customers, enabling our customers to connect with their
customers. Currently, we operate from approximately 200 locations throughout
North America, which accounted for 96% of our revenue for the period ended March
31, 2000. Internationally we operate in Brazil through a 51% joint venture which
we consolidate net of a 49% minority interest after tax.
For the three months ended March 31, 2000, approximately 12.9% of our
domestic revenue was derived from services performed for BellSouth
Telecommunications, Inc. Our top 10 customers combined accounted for
approximately 50% of our domestic revenue in the quarter.
We report our operations in four segments:
* External Communication Services,
* External Energy Services,
* Internal Communication Services and
* International.
External Communication Services represents our core business and is divided
into five service lines:
* inter-exchange networks,
* local exchange networks,
* broadband networks,
* wireless networks, and
* intelligent transportation networks.
Internal Communication Services includes:
* switching and transmission services, and
* structured cabling services.
11
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):
Three Months Ended March 31,
-------------------------------------------------
2000 1999
---------------------- ----------------------
Revenue $ 262,372 100.0% $ 188,222 100.0%
Costs of revenue 200,689 76.5 147,076 78.1
Depreciation 13,478 5.1 10,379 5.5
Amortization 1,472 0.6 1,393 0.7
General and administrative expenses 21,678 8.3 17,506 9.3
Three Months Ended March 31, 2000
Compared to Three Months Ended March 31, 1999
The following table sets forth the revenue and change in revenue by North
American operating segments, in dollar and percentage terms (in thousands):
Three Months Ended
March 31, Change
----------------------------- -----------------------------
2000 1999 $ %
-------------- ------------- ------------- -------------
External Communication Services $ 192,991 $ 128,878 $ 64,113 49.7%
External Energy Services 37,363 36,950 413 1.1
Internal Communication Services 32,018 21,303 10,715 50.3
Other - 1,091 (1,091) (100.0)
-------------- ------------- ------------- -------------
$ 262,372 $ 188,222 $ 74,150 39.4%
============== ============= =============
Our North American revenue was $262.3 million for the three months ended
March 31, 2000, compared to $188.2 million for the same period in 1999,
representing an increase of $74.1 million or 39.4%. 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 segment 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 three months ended March 31, 2000, we had no
acquisitions compared to one acquisition for the three months ended March 31,
1999 in our external communication services segment. Internal growth in revenue
from our North American operations, as adjusted to exclude acquisitions,
approximated 35.8% for the three months ended March 31, 2000, and was primarily
driven by growth in external communication services.
Our North American costs of revenue were $200.7 million or 76.5% of revenue
for the three months ended March 31, 2000, compared to $147.1 million or 78.1%
of revenue for the same period in 1999. In 2000, margins improved due to
increased productivity in our external and internal communication services
groups offset by a slight decline in our external energy services group due to
poor weather conditions experienced in the month of January.
Depreciation expense was $13.5 million or 5.1% of revenue for the three
months ended March 31, 2000, compared to $10.4 million or 5.5% of revenue for
the same period in 1999. The increased depreciation expense of $3.1 million
resulted from our investment in our fleet to support revenue growth. The decline
as a percentage of revenue was due to an increase in revenue from our internal
communication segment which is less capital intensive.
12
General and administrative expenses were $21.7 million or 8.3% of revenue
for the three months ended March 31, 2000, compared to $17.5 million or 9.3% of
revenue for the same period in 1999. The decline in general and administrative
expenses as a percentage of revenue for the three months ended March 31, 2000
was due primarily to our ability to support higher revenue with a reduced
administrative base.
Brazil
The following tables set forth for the periods indicated our Brazilian
operations in dollar and percentage terms (in thousands):
Three Months Ended March 31,
-----------------------------------------------------------
2000 1999
---------------------------- ---------------------------
Revenue $ 10,322 100.0% $ 18,575 100.0%
Costs of revenue 8,240 79.8 15,021 80.9
Amortization 2,029 19.7 875 4.7
General and administrative expenses 1,434 13.9 1,885 10.1
Three Months Ended March 31, 2000
compared to Three Months Ended March 31, 1999
Our Brazilian operations' functional currency is the Brazilian reals.
Brazilian revenue was $10.3 million for the three months ended March 31,
2000, compared to $18.6 million for the same period in 1999, representing a
decrease of $8.3 million or 44.6%. Brazilian revenue decreased primarily due to
the completion of prior existing contracts. Brazil had revenue of R$18.0 million
reals during the three months ended March 31, 2000, compared to R$32.0 million
reals for the same period in 1999, representing a decrease of 43.8%. The average
currency exchange rate was 1.7434 reals per US dollar for the period ended March
31, 2000 compared to 1.7220 reals per US dollar for the same period in 1999.
Amortization expense was $2.0 million or 19.7% of revenue for the three
months ended March 31, 2000 compared to $0.9 million or 4.7% of revenue for the
same period in 1999. 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. During the quarter, amortization related to this contract was
accelerated due to a change in volume.
General and administrative expenses were $1.4 million or 13.9% of revenue
for the three months ended March 31, 2000, compared to $1.9 million or 10.1% of
revenue for the same period in 1999. General and administrative expenses were
R$2.5 million reals or 13.9% of reals revenue during the three months ended
March 31, 2000, compared to R$3.2 million reals or 10.0% of reals revenue for
the same period in 1999. The decline in general and administrative expenses in
both dollar and reals terms was due to an effort to reduce overhead as the
revenue base has declined.
13
Consolidated Results
The following table sets forth for the periods indicated certain
consolidated income statement data for North America and Brazil and the related
percentage of consolidated revenue.
Three Months Ended March 31,
--------------------------------------------------
2000 1999
------------------------ -----------------------
Interest expense $ 5,556 2.0% $ 6,231 3.0%
Interest income 1,213 0.4 2,109 1.0
Other income, net 380 0.1 123 0.1
------------ --------- ---------- ---------
Income before provision for income taxes 19,711 7.2 8,663 4.2
and minority interest
Provision for income taxes 8,379 3.1 3,670 1.8
Minority interest 145 0.1 (640) (.3)
------------ --------- ---------- ---------
Interest expense declined from $6.2 million to $5.6 million primarily due
to the repayment of debt under our revolving credit facility with a portion of
the proceeds of our offering of 2.5 million shares which raised approximately
$126.0 million in net proceeds. Interest income for the three months ended March
31, 1999 includes interest accrued and collected from a customer financing
arrangement which terminated in September 1999. Interest income for the three
months ended March 31, 2000 was mainly comprised of interest earned on temporary
investments as a result of our 2.5 million equity offering completed on March 3,
2000.
Our effective tax rate for North American and Brazil operations
approximates 42% and 33% respectively, for the three months ended March 31,
2000 and 1999.
Financial Condition, Liquidity and Capital Resources
Our primary liquidity needs are for working capital, capital expenditures,
acquisitions and investments, and debt service. Our primary sources of liquidity
are cash flows from operations, borrowings under revolving lines of credit,
issuances of stock and the proceeds from the sale of assets held for sale.
Net cash used in operating activities was $20.6 million for the three
months ended March 31, 2000, compared to $14.5 million for the same period in
1999. The increase in net cash used in operating activities in 2000 was due
primarily to increased working capital needs related to our growth.
Our working capital at March 31, 2000, excluding assets held for sale of
$57.6 million, was $235.2 million compared to $169.6 million at December 31,
1999. Our North American working capital as of March 31, 2000 was $212.8 million
(net of $7.5 million in assets held for sale), comprised primarily of $244.3
million in accounts receivable, $31.5 million in inventories and other current
assets and $45.4 million in cash, net of $108.4 million in current liabilities.
As of December 31, 1999, our North American working capital was $124.7 million
(net of $7.5 million in assets held for sale), 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 credit facility that provides for borrowings up to an aggregate
amount of $125.0 million, which we reduced from $165.0 million following our
public offering in March 2000. 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.
14
We also have $200.0 million, 7.75% senior subordinated notes due in
February 2008 with interest due semi-annually.
The credit facility and the senior notes contain customary events of
default and covenants which prohibit, among other things, making investments in
excess of a specified amount, incurring additional indebtedness in excess of a
specified amount, paying dividends in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating certain liens,
prepaying other indebtedness, including the senior notes, and engaging in
certain mergers or combinations without the prior written consent of the
lenders. The credit facility also provides that we must maintain certain
financial ratio coverages, requiring, among other things, minimum ratios at the
end of each fiscal quarter of debt to earnings and earnings to interest expense.
During 2000, we acquired and invested $13.7 million primarily in our fleet
to support revenue growth. We collected $13.4 million related to assets sold,
primarily related to the sale of our Spanish operations. We anticipate that
available cash, cash flows from operations and from the sale of assets and
investments and borrowing availability under the Credit Facility will be
sufficient to satisfy our working capital requirements for the foreseeable
future.
We own 100% of a PCS wireless system in Paraguay in which we have invested
$33.7 million and which is held for sale. We have entered into an agreement to
sell the system to an unaffiliated telecommunications company. The agreement is
subject to certain conditions and there can be no assurance that the sale will
be consummated.
We also own minority interests in Argentina and Ecuador. Our investment in
Argentina is a minority interest with a carrying value of $17.9 million as of
March 31, 2000 in Supercanal Holding, S.A., a holding company of numerous cable
television operators in western Argentina ("Supercanal"). We also own a minority
interest in and have made a $3.0 million working capital loan to Sistemas e
Instalaciones de Telecomunicacion S.A. ("Sintel"), a Spanish telecommunications
infrastructure services provider.
Supercanal has defaulted on its third party debt and has filed a petition
under Argentine law seeking protection from its creditors. We do not guarantee
any of this indebtedness. In January 2000, the majority shareholder of
Supercanal approved a capital increase that would have required us to contribute
approximately $5.9 million to maintain our interest, but the capital increase
has been enjoined by an Argentine judge and we cannot determine whether or when
the capital increase will be effected. We have determined that the carrying
value of this asset held for sale has not been impaired, but we are monitoring
developments to determine whether a charge is warranted in the future.
In Ecuador, we hold an indirect minority interest with a carrying value of
$12.0 million as of March 31, 2000 in Consorcio Ecuatoriano de
Telecomunicaciones, S.A. ("Conecel"), one of the two cellular phone operators in
the Republic of Ecuador. In the first quarter of 2000, Telefonos de Mexico S.A.
("Telmex") acquired 60% of Conecel. In connection with the acquisition,
Conecel's defaulted debt was either satisfied or brought current and all
defaults cured. We exchanged our direct interest in Conecel for a minority
interest in a Delaware holding company for Conecel and received certain
shareholder rights, including a six-year put of our interest to Telmex for $12.0
million and registration rights.
While we do not currently anticipate taking an additional impairment charge
on any of these assets, there can be no assurance that future transactions or
events will not result in any further impairment of these assets. If we were to
take a charge, however, it could adversely affect our earnings for the period in
which we incurred the charge.
Seasonality
Our North America operations have historically been seasonally weaker in
the first and fourth quarters of the year and have produced stronger results in
the second and third quarters. This seasonality is primarily the result of
customer budgetary constraints and preferences and the effect of winter weather
on external network activities. Some of our U.S. customers, particularly the
incumbent local exchange carriers, tend to complete budgeted capital
expenditures before the end of the year and defer additional expenditures until
the following budget year. Revenue in reals from our Brazilian operations is not
expected to fluctuate seasonally.
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Impact of Inflation
The primary inflationary factor affecting our operations is increased labor
costs. We have experienced some increases in labor costs. Competition for
qualified personnel could increase labor costs for us further in the future. Our
international operations may, at times in the future, be exposed to high
inflation in certain foreign countries. During the first quarter of 2000, we
generated approximately 4% of our total revenue from our Brazilian operations
that are susceptible to currency devaluation. We anticipate that revenue from
our Brazilian operations will be less significant to our operations in the
foreseeable future due to our continued focus on domestic operations. In
addition, any deterioration in economic conditions in Brazil and other Latin
American countries could adversely impact our results of operations, financial
position and cash flows.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 2 and 4 of Notes to Consolidated Financial Statements for
disclosure about market risk.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No.* Description
27 Financial Data Schedule
- -------------------------
* Exhibit filed with the Securities and Exchange Commission. MasTec
agrees to provide this exhibit supplementally upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MASTEC, INC.
Date: May 1, 2000 /s/ CARMEN M. SABATER
-----------------------------
Carmen M. Sabater
Senior Vice President - Chief Financial Officer
(Principal Financial Officer)
Date: May 1, 2000 /s/ ARLENE VARGAS
-----------------------------
Arlene Vargas
Vice President and Controller
(Principal Accounting Officer)
18