UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission File Number 001-08106
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(305) 599-1800
Former name, former address and former fiscal year, if changed
since last report: Not Applicable
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes_X_ No____.
As of August 13, 2001 MasTec, Inc. had 47,784,003 shares of
common stock, $0.10 par value, outstanding.
MASTEC, INC.
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2001 and June 30,
2000....................................................... 3
Consolidated Balance Sheets as of June 30, 2001
(Unaudited) and December 31, 2000.......................... 4
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended June 30, 2001.............. 5
Unaudited Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and June 30, 2000.......... 6
Notes to Consolidated Financial Statements (Unaudited)..... 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk................................................22
Part II. Other Information
Item 1. Legal Proceedings..................................22
Item 4. Submission of Matters to a Vote of Securities
Holders............................................23
Signatures.................................................24
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
--------------------- ---------------------
Revenue
North America $ 316,254 $ 286,418 $ 640,063 $ 548,790
International 13,966 11,279 27,369 21,601
--------- --------- --------- ---------
330,220 297,697 667,432 570,391
Costs of revenue 272,750 224,933 538,108 433,862
Depreciation 13,564 13,183 26,882 26,661
Amortization 2,771 2,675 5,648 6,176
General and administrative expenses 36,164 21,930 84,078 45,042
Interest expense 5,152 4,303 9,864 9,859
Interest income 2,770 1,054 5,203 2,267
Other (loss) income, net (6,047) 4,873 (5,606) 5,253
--------- --------- --------- ---------
Income before provision for income
taxes and minority interest (3,458) 36,600 2,449 56,311
Benefit (provision) for income taxes 1,290 (15,120) (1,184) (23,499)
Minority interest 6 (138) (130) 7
--------- --------- --------- ---------
Net (loss) income $ (2,162) $ 21,342 $ 1,135 $ 32,819
========= ========= ========= =========
Basic weighted average common
shares outstanding 47,763 46,823 47,739 45,314
Basic earnings per share $ (0.05) $ 0.46 $ 0.02 $ 0.72
Diluted weighted average common
shares outstanding 47,763 49,055 48,980 47,445
Diluted earnings per share $ (0.05) $ 0.44 $ 0.02 $ 0.69
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2001 2000
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 14,970 $ 18,457
Accounts receivable, unbilled revenue
and retainage, net 354,057 386,480
Inventories 21,446 19,643
Other current assets 18,885 29,184
---------- ---------
Total current assets 409,358 453,764
Property and equipment, net 156,868 159,673
Intangibles, net 261,143 262,398
Other assets 137,669 80,510
---------- ---------
Total assets $ 965,038 $ 956,345
========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt $ 70,943 $ 5,685
Accounts payable 85,814 85,797
Other current liabilities 65,315 119,845
---------- ---------
Total current liabilities 222,072 211,327
---------- ---------
Other liabilities 42,896 38,530
---------- ---------
Long-term debt 199,337 206,160
---------- ---------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock 4,777 4,770
Capital surplus 347,118 346,099
Retained earnings 167,485 166,350
Foreign currency translation adjustments (18,647) (16,891)
---------- ---------
Total shareholders' equity 500,733 500,328
---------- ---------
Total liabilities and shareholders'
equity $ 965,038 $ 956,345
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Foreign
Common Stock Currency
---------------- Capital Retained Translation
Shares Amount Surplus Earnings Adjustments Total
----------------------------------------------------------------
Balance December 31, 2000 47,702 $ 4,770 $ 346,099 $ 166,350 $ (16,891) $ 500,328
Net income 1,135 1,135
Foreign currency translation
adjustments (1,756) (1,756)
Stock issued 70 7 1,019 1,026
------ ------- --------- --------- ---------- ---------
Balance June 30, 2001 47,772 $ 4,777 $ 347,118 $ 167,485 $ (18,647) $ 500,733
====== ======= ========= ========= ========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2001 2000
-------------------------
Cash flows from operating activities:
Net income $ 1,135 $ 32,819
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 32,530 32,837
Minority interest 130 (7)
Gain on sale of assets (484) (7,349)
Changes in assets and liabilities net
of effect of acquisitions:
Accounts receivables, unbilled revenue
and retainage, net (12,126) (25,920)
Inventories (1,564) (4,701)
Other assets, current and non-current portion (5,019) (13,415)
Accounts payable 465 (14,534)
Other current liabilities (22,238) (9,000)
Other liabilities (2,568) (1,329)
--------- ----------
Net cash used in operating activities (9,739) (10,599)
--------- ----------
Cash flows from investing activities:
Capital expenditures (23,529) (28,252)
Cash paid for acquisitions (net of cash
acquired) and contingent consideration (26,300) (17,374)
Repayment of notes receivable, net - 946
Investment in unconsolidated companies
and distribution to joint venture partner (1,451) (4,900)
Proceeds from sale of assets 1,285 15,232
--------- ----------
Net cash used in investing activities (49,995) (34,348)
--------- ----------
Cash flows from financing activities:
Borrowings (repayments) on revolving
credit facilities, net 56,814 (75,446)
Net proceeds from common stock issued 229 132,595
--------- ----------
Net cash provided by financing activities 57,043 57,149
--------- ----------
Net (decrease) increase in cash and
cash equivalents (2,691) 12,202
Effect of translation on cash (796) 316
Cash and cash equivalents -
beginning of period 18,457 27,635
--------- ----------
Cash and cash equivalents -
end of period $ 14,970 $ 40,153
========= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental disclosure of non-cash investing and financing
activities:
During the six months ended June 30, 2001, we completed
certain acquisitions which have been accounted for as purchases.
The fair value of the net assets excluding goodwill acquired
totaled $2.4 million and was comprised primarily of $3.0 million
of accounts receivable, $1.7 million of property and equipment,
$0.5 million of other assets and $0.2 million in cash, offset by
$3.0 million of assumed liabilities. The excess of the purchase
price over the fair value of net assets acquired was $2.7 million
and was allocated to goodwill. The total purchase price of $5.1
million is comprised of $4.2 million in cash and the balance in
seller financing. During the six months ended June 30, 2001, we
paid approximately $22.3 million related to contingent
consideration from earlier acquisitions of which $0.6 million was
reflected as additional goodwill and $21.7 million reflected as a
reduction in other current liabilities.
During the six months ended June 30, 2000, we completed
certain acquisitions which have been accounted for as purchases.
The fair value of the net assets excluding goodwill acquired
totaled $1.0 million and was comprised primarily of $3.3 million
of accounts receivable, $1.8 million of property and equipment,
$0.5 million of other assets and $1.4 million in cash, offset by
$6.0 million of assumed liabilities. The excess of the purchase
price over the fair value of net assets acquired was $16.4
million and was allocated to goodwill. The total purchase price
of $17.4 million was comprised of $12.1 million in cash, $4.7
million in stock and $0.6 million in seller financing. We also
issued 183,759 shares of common stock with a value of $14.9
million related to the payment of contingent consideration from
earlier acquisitions. Of the $14.9 million, $0.2 million was
recorded as a reduction of other current liabilities and $14.7
million as additional goodwill. During the six months ended June
30, 2000, we paid approximately $6.7 million related to
contingent consideration for earlier acquisitions of which $5.2
was reflected as additional goodwill and $1.5 reflected as a
reduction in other current liabilities.
The accompanying notes are an integral part of these consolidated
financial statements.
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, 2000. The
balance sheet data as of December 31, 2000 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 2001
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 (loss) for the six months ended
June 30, 2001 and 2000 was ($0.6) million and $32.6 million,
respectively. The components of comprehensive income (loss) are
net income (loss) and foreign currency translation adjustments.
In July 2001, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 141, Business Combinations. SFAS No. 141
requires that all business combinations initiated after June 30,
2001, be accounted for using the purchase method. The FASB also
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 142 requires that goodwill be assessed at least annually for
impairment by applying a fair-value based test. Goodwill will no
longer be subject to amortization over its estimated useful life.
In addition, acquired intangible assets are required to be
recognized and amortized over their useful lives if the benefit
of the asset is based on contractual or legal rights. While most
provisions of SFAS No. 142 are effective for the Company beginning
January 1, 2002, goodwill and intangible assets acquired after
June 30, 2001, will be subject immediately to the non-amortization
and amortization provisions of the statement, respectively. The
Company is currently analyzing the provisions of SFAS No. 142 and
has not yet made a determination of the impact the adoption will
have on the consolidated financial statements.
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Debt
Debt is comprised of the following (in thousands):
June 30, December 31,
2001 2000
--------- ---------
Revolving credit facility at LIBOR plus 1.0%
(4.75% at June 30, 2001 and 7.64% at
December 31, 2000) $ 65,221 $ 7,000
Other bank facilities at LIBOR plus 1.50%
(5.36% at June 30, 2001 and 8.06% at
December 31, 2000) 2,077 517
Notes payable for equipment, at interest rates
from 7.5% to 8.5% due in installments
through the year 2004 4,368 6,161
Notes payable for acquisitions, at interest
rates from 7.0% to 8.0% due in installments
through February 2002 2,796 2,362
7.75% senior subordinated notes due
February 2008 195,818 195,805
--------- ---------
Total debt 270,280 211,845
Less current maturities (70,943) (5,685)
--------- ---------
Long-term debt $ 199,337 $ 206,160
========= =========
We have a credit facility that provides for borrowings up to
an aggregate of $100.0 million. Amounts outstanding under the
revolving credit facility mature on June 9, 2002. We are
currently negotiating with our existing bank group to amend the
existing facility to extend the maturity date and modify other
terms and conditions including certain financial ratio coverages.
We are currently 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 1.0% 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.
The credit facility and the senior subordinated 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.
Note 3 - Operations by Segments and Geographic Areas
The following table sets forth, for the three months and six
months ended June 30, 2001 and 2000, certain information about
segment results of operations and segment assets (in thousands):
Datacom Energy Inter-
Network Network national Other Consol-
Three Months 2001 Services Services (1) (2) idated
- -------------------------------------------------------------------------------
Revenue $276,528 $ 39,726 $ 13,966 $ - $330,220
Depreciation 11,360 1,883 - 321 13,564
Amortization 2,326 222 223 - 2,771
Income (loss) before provision
for income taxes and minority
interest 6,219(3) 4,171 (274) (13,574) (3,458)
Datacom Energy Inter-
Network Network national Other Consol-
Three Months 2000 Services Services (1) (2) idated
- -------------------------------------------------------------------------------
Revenue $249,527 $ 36,891 $ 11,279 $ - $297,697
Depreciation 10,431 2,408 - 344 13,183
Amortization 1,496 202 977 - 2,675
Income (loss) before provision
for income taxes and minority
interest 35,640 3,486 4,214(4) 6,740 36,600
Datacom Energy Inter-
Network Network national Other Consol-
Six Months 2001 Services Services (1) (2) idated
- -------------------------------------------------------------------------------
Revenue $564,320 $ 75,743 27,369 $ - $667,432
Depreciation 22,640 3,594 - 648 26,882
Amortization 4,496 424 445 283 5,648
Income (loss) before provision
for income taxes and minority
interest 17,085(3) 7,085 (162) (21,559) 2,449
Capital expenditures 19,139 1,450 52 2,888 23,529
Total assets 724,909 87,434 63,235 89,460 965,038
Datacom Energy Inter-
Network Network national Other Consol-
Six Months 2000 Services Services (1) (2) idated
- -------------------------------------------------------------------------------
Revenue $474,536 $ 74,254 $ 21,601 $ - $570,391
Depreciation 20,519 5,349 - 793 26,661
Amortization 2,766 404 3,006 - 6,176
Income (loss) before provision
for income taxes and minority
interest 62,697 5,593 3,204(4)(15,183) 56,311
Capital expenditures 25,883 1,835 534 - 28,252
Total assets 540,115 81,769 89,414 109,318 820,616
(1) For the six months ended June 30, 2001 and 2000, consists
of our Brazilian operations. As of June 30, 2001 and 2000,
total assets for Brazil consisted of $47.1 million and $50.4
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. For the
three months ended June 30, 2001 and 2000, interest expense, net
of interest income, was $2.5 million and $3.5 million, respectively,
and $4.8 million and $8.2 million for the six months ended June 30,
2001 and 2000, respectively. The three and six months results for
the period ended June 30, 2001 include an impairment charge of $6.5
million related to our equity investment in a client.
(3) Includes a $16.0 million and $38.0 million reserve charge
for the three months and six months ended June 30, 2001,
respectively. Additionally, in 2001, margins were impacted by
excess personnel and equipment resulting from less than
anticipated demand for certain services provided by our datacom
services network, cost associated with inefficient workforce,
losses on projects not properly bid and inefficiencies due to
exiting contracts related to clients experiencing financial
difficulties.
(4) Includes a $4.5 million net gain on sale of a non-core
international asset.
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, non-core assets held for sale and
notes receivable.
Note 4 - Commitments and Contingencies
We have lawsuits pending in Florida federal court
against Sintel International Corp., a subsidiary of Artcom
Technologies, Inc., to recover more than $5.0 million due under
a promissory note and for breach of contract. We are also
pursuing other claims against Artcom affiliates totaling
approximately $4.0 million. Artcom has responded by suing us in
federal court in Florida to recover approximately $6.0 million
(subject to trebling) it alleges we received as a result of
certain allegedly unauthorized transactions by two former
employees of Artcom that occurred after we sold the company.
In a related matter, the labor union representing the
workers of Sistemas e Instalaciones de Telecomunicacion S.A.
("Sintel"), a sister company of Sintel International, has
instigated an investigative action with a Spanish federal court
alleging that five former members of the board of directors of
Sintel, including Jorge Mas, the Chairman of the Board of MasTec,
and his brother Juan Carlos Mas, a MasTec executive, approved a
series of allegedly unlawful transactions that led to the
bankruptcy of Sintel. We are also named as a potentially liable
party. The union alleges Sintel and its creditors were damaged
in the approximate amount of 13 billion pesetas ($66.0 million at
June 30, 2001 exchange rates). Neither we nor our executives
have yet been served in the action.
In January 2001, we filed suit in Florida state court
against Broward County, Florida, to recover approximately
$5.0 million for work performed to construct a detention facility
for the Broward Sheriff's Office ("BSO"). The BSO filed a
separate lawsuit in response to our lawsuit, claiming $13.0
million in damages for alleged delays in constructing the
facility. The court in which these actions are pending has
dismissed the BSO's complaint without prejudice to refile.
In November 1997, we filed a suit 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. The county has counterclaimed against us seeking
unspecified damages.
We are vigorously litigating the actions described above.
We are also 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.
In August, we agreed to pay our former president and chief
executive officer $10 million in severance, payable in five equal
installments on September 3, 2001 and January 2, April 1, July 1
and October 1, 2002. The agreement provides for a two-year
consulting and non-compete period.
In July, we agreed to purchase an additional 37% minority
interest of our Brazilian joint venture from our joint venture
partner for $10.0 million. The purchase price is payable $5.0
million at closing scheduled for no later than August 31, 2001,
and $5.0 million in October 2001. Following the closing, we will
own 88% of the joint venture.
Our operations in Brazil are 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
Brazilian operations.
Note 5 - Client Credit Risk
Recently, certain of our clients, including competitive local
exchange carriers, have filed for bankruptcy or have been experiencing
financial difficulties. We review all our clients on a regular basis,
and as a result increased our reserves by $16.0 million and $38.0
million during the three and six months ended June 30, 2001, to reflect
the fact that clients may be unable to meet their obligations to us
in the future.
Included in other non-current assets are amounts due from
two clients totaling $86.2 million who have defaulted, subsequent
to June 30, 2001, under the terms of their financing agreements
with us and other lenders. We have stopped substantially all work
for these clients. Additionally, we no longer accrue interest
income related to these arrangements. Subsequent to June 30, 2001,
one of these clients representing $42.5 million of the total and in
whom we have a $6.5 million equity investment, announced a layoff of
one-fourth of its workforce and is in negotiations with senior
lenders regarding a restructuring of its debt. We have
taken an impairment charge of $6.5 million related to our equity
investment in this client.
Should additional clients file for bankruptcy or experience
difficulties, or should anticipated recoveries in existing bankruptcy
and other workout situations fail to materialize, we could experience
reduced cash flows and losses in excess of current reserves.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Except for historical information, the matters discussed
below contain forward-looking statements, such as statements
regarding MasTec's future results and anticipated trends
in the industries and economies in which MasTec operates.
These forward-looking statements are based on MasTec's current
expectations and are subject to a number of risks, uncertainties,
and assumptions, including that our revenue may differ from
that projected, that we may be further impacted by slowdowns
in our clients' businesses, deterioration in our clients'
financial condition or in the economy in general, our reserves
may be inadequate or our equity investments may be impaired
and we may experience increased costs associated with realigning
our business or may be unsuccessful in those efforts any of which
may impact our compliance with our covenants under our
outstanding debt. 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 MasTec. These and other risks are detailed in documents
filed by MasTec with the Securities and Exchange Commission,
including our registration statement on Form S-3 (No. 333-90027).
MasTec does not undertake any obligation to revise these
forward-looking statements to reflect future events or
circumstances
General
We are a leading end-to-end voice, video, data and energy
network infrastructure solution for a broad range of
communications, broadband, energy and other corporate clients. We
have a diverse client base representing all the major segments of
the industries we serve. We design, build, install, maintain and
monitor internal and external networks and transmission
facilities for communication, computing and energy systems. We
are a national services provider, operating from more than 200
service locations throughout the United States, Canada and Brazil.
Results of Operations
The following tables state for the periods indicated our
consolidated operations in dollar and percentage of revenue terms
for 2000 and 2001 (dollars in thousands) :
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2001 2000 2001 2000
---------------- --------------- ---------------- ----------------
Revenue $330,220 100.0% $297,697 100.0% $667,432 100.0% $570,391 100.0%
Costs of revenue 272,750 82.6 224,933 75.5 538,108 80.6 433,862 76.0
Depreciation 13,564 4.1 13,183 4.4 26,882 4.0 26,661 4.7
Amortization 2,771 0.8 2,675 0.9 5,648 0.9 6,176 1.1
General and adminis-
trative expenses 36,164 11.0 21,930 7.4 84,078 12.6 45,042 7.9
Interest expense, net
of interest income 2,382 0.7 3,249 1.1 4,661 0.7 7,592 1.3
Other (loss) income,
net (6,047) (1.8) 4,873 1.6 (5,606) (0.8) 5,253 0.9
(Loss) income before
(benefit) provision
for income taxes and
minority interest (3,458) (1.0) 36,600 12.3 2,449 0.4 56,311 9.9
Benefit (provision)
for income taxes 1,290 0.4 (15,120) (5.1) (1,184) (0.2) (23,499) (4.1)
Minority interest 6 - (138) - (130) - 7 -
Net (loss) income $ (2,162) (0.6)% $ 21,342 7.2% $ 1,135 0.2% $ 32,819 5.8%
Three Months Ended June 30, 2001
Compared to Three Months Ended June 30, 2000
The following table sets forth the revenue and change
in revenue by operating segments, in dollar and percentage
terms (in thousands):
Three Months Ended
June 30, Change
------------------- ---------------
2001 2000 $ %
-------- -------- -------- -----
Datacom network services $276,528 $249,527 $ 27,001 10.8%
Energy network services 39,726 36,891 2,835 7.7
International 13,966 11,279 2,687 23.8
-------- -------- -------- ----
$330,220 $297,697 $ 32,523 10.9%
Our revenue was $330.2 million for the three months ended
June 30, 2001, compared to $297.7 million for the same period in
2000, representing an increase of $32.5 million or 10.9% primarily
due to datacom services. While we experienced growth in the second
quarter of 2001, the growth rate was lower than originally
anticipated and revenue for the remainder of 2001 is not expected
to increase due to a reduction in capital expenditures by incumbent
telecom clients and our decision to reduce services to emerging
telecommunications carriers.
Our costs of revenue were $272.8 million or 82.6% of revenue
for the three months ended June 30, 2001, compared to $224.9
million or 75.5% of revenue for the same period in 2000. In
2001, margins were impacted by excess personnel and equipment
resulting from less than anticipated demand for certain services
provided by our datacom services network, cost associated with
inefficient workforce, losses on projects not properly bid and
inefficiencies due to exiting contracts related to clients
experiencing financial difficulties.
Depreciation was $13.6 million or 4.1% of revenue for the
three months ended June 30, 2001, compared to $13.2 million or
4.4% of revenue for the same period in 2000. The decline in
depreciation as a percentage of revenue in 2001 was due to an
increase in our revenue base.
Amortization was $2.8 million or 0.8% of revenue for the
three months ended June 30, 2001, compared to $2.7 million or
0.9% of revenue for the same period in 2000. Amortization of
goodwill net of tax was $2.1 million in 2001 and $1.9 million in
2000.
General and administrative expenses were $36.2 million or
11.0% of revenue for the three months ended June 30, 2001,
compared to $21.9 million or 7.4% of revenue for the same period
in 2000. Included in general and administrative expense in 2001
is a provision of $16.0 million related to reserves for
receivables due from clients who have recently filed for
bankruptcy or who have experienced difficulties. Excluding the
reserve, general and administrative expenses were 6.1% of
revenue. The decline in general and administrative expenses as a
percentage of revenue in 2001, excluding the provision for bad
debts, was due primarily to our ability to continue to support
higher revenue with a comparatively lower administrative base.
Interest expense, net of interest income, was $2.4 million
or 0.7% of revenue for the three months ended June 30, 2001,
compared to $3.2 million or 1.1% of revenue for the same period
in 2000. The decrease in net interest expense of $0.8 million
was due primarily to interest accrued under our financing
arrangements with our clients. We have ceased accruing interest
income related to these arrangements.
Other (expense) income, was $(6.0) million or (1.8)% of
revenue for the three months ended June 30, 2001, compared to
$4.9 million or 1.6% of revenue for the same period in 2000. In
2001, the loss was primarily due to an impairment charge of $6.5
million related to our equity investment in a client. In 2000,
we recognized a net gain of $4.5 million related to non-core
international assets.
For the three months ended June 30, 2001, our effective tax
rate was approximately 40.3% for North American operations and
33.0% for Brazilian operations, compared to 42.0% and 33.0% in
2000 for North American and Brazilian operations, respectively.
Six Months Ended June 30, 2001
Compared to Six Months Ended June 30, 2000
The following table sets forth the revenue and change in
revenue by operating segments, in dollar and percentage terms (in
thousands):
Six Months Ended
June 30, Change
------------------ ---------------
2001 2000 $ %
-------- -------- -------- -----
Datacom network services $564,320 $474,536 $ 89,784 18.9%
Energy network services 75,743 74,254 1,489 2.0
International 27,369 21,601 5,768 26.7
$667,432 $570,391 $ 97,041 17.0%
Our revenue was $667.4 million for the six months ended June
30, 2001, compared to $570.4 million for the same period in 2000,
representing an increase of $97.0 million or 17.0% primarily due
to datacom services. While we experienced growth during the six
months of 2001, the growth rate was lower than originally
anticipated and revenue for the remainder of 2001 is not expected
to increase due to a reduction in capital expenditures by incumbent
telecom clients and our decision to reduce services to emerging
telecommunications carriers.
Our costs of revenue were $538.1 million or 80.6% of revenue
for the six months ended June 30, 2001, compared to $433.9
million or 76.0% of revenue for the same period in 2000. In
2001, margins were impacted by excess personnel and equipment
resulting from less than anticipated demand for certain services
provided by our datacom services network, cost associated with
inefficient workforce, losses on projects not properly bid and
inefficiencies due to exiting contracts related to clients
experiencing financial difficulties.
Depreciation was $26.9 million or 4.0% of revenue for the
six months ended June 30, 2001, compared to $26.7 million or 4.7%
of revenue for the same period in 2000. The decline in
depreciation as a percentage of revenue in 2001 was due to an
increase in our revenue base.
Amortization was $5.6 million or 0.9% of revenue for the six
months ended June 30, 2001, compared to $6.2 million or 1.1% of
revenue for the same period in 2000. Amortization of goodwill
net of tax was $4.2 million in 2001 and $4.4 million in 2000.
General and administrative expenses were $84.1 million or
12.6% of revenue for the six months ended June 30, 2001, compared
to $45.0 million or 7.9% of revenue for the same period in 2000.
Included in general and administrative expense in 2001
are provisions totaling $38.0 million related to reserves for
receivables due from clients who have recently filed for
bankruptcy or who have experienced financial difficulties.
Excluding the reserves, general and administrative expenses were
6.9% of revenue. The decline in general and administrative
expenses as a percentage of revenue in 2001, excluding the
provision for bad debt, was due primarily to our ability to
continue to support higher revenue with a comparatively lower
administrative base.
Interest expense, net of interest income, was $4.7 million
or 0.7% of revenue for the six months ended June 30, 2001,
compared to $7.6 million or 1.3% of revenue for the same period
in 2000. The decrease in net interest expense of $2.9 million
was due primarily to interest accrued under our financing
arrangements with clients. We have ceased accruing interest
income related to these arrangements.
Other (expense) income, was $(5.6) million or (0.8)% of
revenue for the six months ended June 30, 2001, compared to $5.3
million or 0.9% of revenue for the same period in 2000. In 2001,
the loss was primarily due to an impairment charge of $6.5
million related to our equity investment in a client. In 2000,
we recognized a net gain of $4.5 million related to non-core
international assets.
For the six months ended June 30, 2001, our effective tax
rate was approximately 40.3% for North American operations and
33.0% for Brazilian operations, compared to 42.0% and 33.0% in
2000 for North American and Brazilian operations, respectively.
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
and borrowings under revolving lines of credit.
Net cash used in operating activities was $9.7 million for
the six months ended June 30, 2001, compared to $10.6 million for
the same period in 2000. Net cash used in operating activities
in 2001 and 2000 was due principally to increased working capital
needs.
We have a credit facility that provides for borrowings up to
an aggregate of $100.0 million, under which $32.7 million was
available at June 30, 2001. Amounts outstanding under the credit
facility mature on June 9, 2002. We are currently negotiating
with our existing bank group to amend the existing facility to
extend the maturity date and modify other terms and conditions
including certain financial ratio coverages. We are currently
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 7.75% senior subordinated 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 financial ratio coverages at the end of
each fiscal quarter such as debt to earnings and earnings to
interest expense.
We also have $200 million, 7.75% senior subordinated notes
due in February 2008, with interest due semi-annually.
During the six months of 2001, we invested $23.5 million
primarily in our fleet to support revenue growth and $27.8
million in acquisitions and investments. We have reflected in
other current liabilities additional consideration related to
earnouts for acquisitions completed in prior years of
approximately $13.9 million that we expect will be paid during
2001 in cash or common stock.
In August, we agreed to pay our former president and chief
executive officer $10 million in severance, payable in five equal
installments on September 3, 2001 and January 2, April 1, July 1
and October 1, 2002. The agreement provides for a two-year
consulting and non-compete period.
In July, we agreed to purchase an additional 37% interest in
our Brazilian joint venture from our joint venture partner for
$10.0 million. The purchase price is payable $5.0 million at
closing scheduled for no later than August 31, 2001, and $5.0
million in October 2001. Following the closing, we will own 88%
of the joint venture
Impact of Inflation
The primary inflationary factor affecting our operations is
increased labor costs. We have not experienced significant
increases in labor costs to date. Our Brazilian operations may,
at times in the future, be exposed to high inflation or currency
devaluations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See Note 2 to Consolidated Financial Statements for
disclosure about market risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have lawsuits pending in Florida federal court
against Sintel International Corp., a subsidiary of Artcom
Technologies, Inc., to recover more than $5.0 million due under
a promissory note and for breach of contract. We are also
pursuing other claims against Artcom affiliates totaling
approximately $4.0 million. Artcom has responded by suing us in
federal court in Florida to recover approximately $6.0 million
(subject to trebling) it alleges we received as a result of
certain allegedly unauthorized transactions by two former
employees of Artcom that occurred after we sold the company.
In a related matter, the labor union representing the
workers of Sistemas e Instalaciones de Telecomunicacion S.A.
("Sintel"), a sister company of Sintel International has
instigated an investigative action with a Spanish federal court
alleging that five former members of the board of directors of
Sintel, including Jorge Mas, the Chairman of the Board of MasTec,
and his brother Juan Carlos Mas, a MasTec executive, approved a
series of allegedly unlawful transactions that led to the
bankruptcy of Sintel. We are also named as a potentially liable
party. The union alleges Sintel and its creditors were damaged
in the approximate amount of 13 billion pesetas ($66.0 million at
June 30, 2001 exchange rates). Neither we nor our executives
have yet been served.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Annual Meeting of shareholders of MasTec was held on May
8, 2001. The holders of MasTec's common stock, $0.10 par value,
were entitled to elect three Class III directors to serve until
2004 and until their successors are elected and qualified.
Proxies for 44,202,636 of the 47,719,144 shares entitled to vote
were received.
The following table sets forth the names of the three
persons elected at the Annual Meeting to serve as directors until
2004 and the number of votes cast for or against respect to each
person.
For Withheld
---------- ---------
Joseph P. Kennedy II 42,425,109 1,777,527
Arthur B. Laffer 43,815,655 386,981
Jose S. Sorzano 43,679,344 523,292
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MASTEC, INC.
Date: August 14, 2001 /s/ CARMEN M. SABATER
Carmen M. Sabater
Executive Vice President -
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 2001 /s/ ARLENE VARGAS
Arlene Vargas
Vice President and Controller
(Principal Accounting Officer)