SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 0-3797
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3155 N.W. 77th Avenue, Miami, FL 33122-1205 (305) 599-1800
(Address of principal executive offices) Registrant's telephone number,
including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
The number of shares of Common Stock outstanding as of March 26, 1999 was
27,341,385. The aggregate market value of the voting stock held by
non-affiliates of the registrant based on the $22 5/8 closing price for the
registrant's Common Stock on the New York Stock Exchange on March 26, 1999 was
approximately $304,703,626. Directors, executive officers and 10% or greater
shareholders are considered affiliates for purposes of this calculation but
should not necessarily be deemed affiliates for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the 1999 Annual Meeting
of Shareholders to be held on May 25, 1999, are incorporated by reference.
The following statement is made pursuant to the safe harbor provisions for
forward-looking statements described in the Private Securities Litigation Reform
Act of 1995. MasTec, Inc. and subsidiaries ("MasTec" or the "Company") may make
certain statements in this Annual Report on Form 10-K that are forward-looking,
such as statements regarding MasTec's future growth and profitability, growth
strategy 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
relating to MasTec's operations, financial condition and results of operations,
competitive factors, shifts in market demand, and other risks and uncertainties,
including risks and uncertainties relating to MasTec's dependence on key
customers and the telecommunications industry, MasTec's growth strategy, foreign
operations, restrictions imposed by MasTec's credit agreements, the impact of
competition, MasTec's dependence on the labor supply and on senior management,
the ability of MasTec to dispose of non-core assets and seasonality, among
others. 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 this Annual
Report on Form 10-K and in other documents filed by MasTec with the Securities
and Exchange Commission. MasTec does not undertake any obligation to revise
these forward-looking statements to reflect future events or circumstances.
BUSINESS
General
MasTec is one of the preeminent builders of internal and external voice,
video, data, internet and other computer and communications networks for leading
telecommunications service providers, cable television operators, Fortune 500
corporations and power companies. MasTec designs, installs, constructs and
maintains aerial, underground and buried copper, coaxial and fiber optic cable
networks as well as wireless antenna networks ("external network services").
Clients for MasTec's external network services include major domestic and
international telecommunication service providers, incumbent and competitive
local exchange carriers, cable television operators, long-distance carriers and
wireless phone companies. MasTec also provides external network services to the
electric power industry ("power") that are similar to the services it provides
to telecommunications customers. Additionally, MasTec designs, installs and
maintains integrated local and wide area networks and provides systems
integration and other value added services ("internal network services") for
corporate customers and other organizations with multiple locations.
MasTec was formed in March 1994 through the combination of two companies
providing services to the telecommunications and other utility infrastructure
construction industry since 1969 and 1929. MasTec has grown significantly in the
past five years expanding its customer base and its geographic presence across
the United States and Latin America. Since March 1994, MasTec has completed 31
domestic and seven foreign acquisitions. Currently, MasTec is consolidating its
existing domestic acquisitions and emphasizing domestic internal growth,
although it intends to continue to grow through selected acquisitions to take
advantage of consolidation opportunities in the fragmented telecommunications
and other utilities construction industry in the United States. MasTec is
currently evaluating strategic alternatives for its international operations and
investments in order to maximize their value. On December 31, 1998, MasTec sold
substantially all of its operations in Spain, Argentina, Chile, Colombia, Peru,
Puerto Rico and Venezuela.
Customers. MasTec provides a full range of infrastructure services to a
diverse customer base. Domestically, MasTec provides external network services
to incumbent local exchange customers ("ILEC's") such as BellSouth
Telecommunications, Inc. ("BellSouth"), US West Communications, Inc., Bell
Atlantic Corp., SBC Communications, Inc. and GTE Corporation. MasTec also
provides external network services to competitive local exchange carriers
("CLEC's") such as Qwest Communications, Inc. and MFS Communications Company,
Inc., cable television operators ("CATV's") such as Charter Cable, Inc.,
Cablevision Systems, Inc., Time Warner Inc., Tele-Communications, Inc., Comcast
Corporation, and Cox Communications, Inc., long distance carriers such as AT&T
Corporation and Sprint Corp. and wireless communications providers such as
Sprint Spectrum, L.P. Internationally, MasTec provides external network services
to the local, long distance and wireless telephone companies formed as a result
of the privatization of Telecomunicacoes Brasileiras S.A. ("Telebras"), the
Brazilian telecommunications system, primarily in Sao Paulo, Rio de Janeiro,
Parana and other states in the southern region of Brazil.
1
MasTec provides external network services to power companies such as
Carolina Power and Light Co., Florida Power and Light Co., Texas Utilities
Company, Virginia Power Co., the City of Austin Electric Department, City Public
Service of San Antonio, Georgia Power Co., and a number of regional electrical
cooperatives. MasTec provides internal network services to large corporate
customers with multiple locations such as First Union National Bank, Montgomery
Wards and Co., other major retailers, universities and health care providers.
MasTec believes that its customer base allows it to take advantage of
technological advances and other market developments that may favor one class of
customer over another. MasTec also believes that its diverse customer base makes
it less susceptible to downturns in any particular geographic region or industry
sector. For the year ended December 31, 1998, MasTec derived approximately 6.7%
of its revenue (or 10.6% of its North American revenue) from services performed
for BellSouth, its largest customer; no other on going customer accounted for
more than 5% of total revenue. See Note 9 of Notes to Consolidated Financial
Statements.
Turn-key Capabilities. MasTec believes it is one of the few contractors
capable of providing all of the design, construction, installation and
maintenance services necessary for a cable or wireless network starting from a
transmission point, such as a central office or head-end, and running
continuously through aerial, underground and buried cables or through wireless
transmission to the ultimate end users' voice and data ports, cable outlets or
cellular stations. MasTec can also install the switching devices at a central
office or set up local and wide area voice, video, data and internet networks to
expand a business' telecommunications infrastructure both inside a specific
structure or between multiple structures.
MasTec believes that its customers increasingly are seeking comprehensive
solutions to their infrastructure needs by turning to fewer qualified
contractors who have the size, financial capability and technical expertise to
provide a full range of infrastructure services. MasTec believes that this trend
will accelerate as industry consolidations increase and as these consolidated
entities begin to provide bundled services to end users. MasTec believes it has
positioned itself as a full service provider of external and internal network
services to take advantage of this trend.
Nationwide Presence. MasTec believes it is capable of servicing customers
across the United States. MasTec has significantly broadened its geographic
presence in recent years beyond its historical base in the Southeastern United
States. Currently, MasTec has external network operations in more than 40 states
in the Southeast, Northeast, mid-Atlantic, Southwest, West and upper Midwest
regions of the country. MasTec provides internal network services for corporate
customers and external network services for wireless communication companies
nationwide. MasTec believes that its customers are looking for contractors who
can provide services nationwide on a consistent and timely basis and that
MasTec's broad geographic presence is a competitive advantage with these
customers. MasTec is developing the brand name "MasTec" across all of its
operating units nationwide to further position itself as a single, national
company.
Growth Strategy
Internal Expansion. MasTec believes that current industry trends, including
deregulation and demonopolization, increased competition among
telecommunications and other utility providers, increased outsourcing, and
increased use of more powerful computers and the Internet, will lead to a
significant increase in the demand for its services over the next several years.
During 1998, MasTec realigned its North American operations along service and
customer lines to focus on its core businesses and believes it is
well-positioned to capitalize on this anticipated growth as one of the leading
telecommunications infrastructure contractors in the United States. MasTec
believes that its strong customer relationships, reputation for quality and
reliability, operating efficiency, financial strengths, technical expertise,
presence in key geographic areas and ability to offer a full range of
construction services make it well positioned to compete for this increased
business, particularly the larger, more technically complex infrastructure
projects.
Strategic Acquisitions. MasTec plans to continue to pursue selected
acquisitions in the fragmented telecommunications and utilities infrastructure
industry that either expand its geographic coverage and customer base or broaden
the range of services it can offer to clients. MasTec focuses its acquisition
efforts primarily on profitable companies with good reputations and strong
management. MasTec has acquired 38 companies, domestic and international, since
March 1994 and has significant experience in identifying, purchasing and
integrating telecommunications infrastructure businesses. MasTec believes that
it is able to improve the acquired companies' operating performance by providing
strategic guidance, administrative support, greater access to capital and
savings in the cost of capital, purchasing and insurance costs.
2
North American Service Lines
MasTec's principal business is providing telecommunications and other
utilities infrastructure construction services, consisting of external network
services for telecommunications service providers, external network services for
power companies, and internal network services. For the years ended December 31,
1996, 1997 and 1998, revenue expressed as a percentage of North American revenue
generated by external network services for telecommunications service providers
was 77.1%, 74.6% and 68.1%, respectively, by external network services for power
companies was 1.3%, 5.2% and 18.0%, respectively, and by internal network
services was 12.5%, 12.5% and 13.4%, respectively.
External Networks - Telecommunications
MasTec's principal domestic business consists of external network services
for telecommunications providers such as ILEC's, CLEC's, CATV's, long-distance
carriers and wireless communications providers. External network services
consist of all of the services necessary to design, install, construct and
maintain the physical facilities used to provide 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 of 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;
maintaining, removing and replacing these facilities; and installing
transmission and central office equipment. MasTec has developed expertise in
directional boring, a highly specialized and increasingly common method of
placing underground and buried cable networks.
MasTec provides a full range of external network services to its
telecommunications company customers, although certain of MasTec's customers
handle certain of these services in-house. MasTec's customers generally supply
materials such as cable, conduit and telephone equipment, and MasTec provides
the expertise, personnel, tools and equipment necessary to perform the required
installation, construction and maintenance services.
Services rendered to ILEC's, including BellSouth, are performed primarily
under master service agreements, which typically are exclusive service
agreements to provide all of the carrier's external network requirements up to a
specified dollar amount per job within certain geographic areas. These contracts
generate revenue ranging from $3.0 million to $30.0 million over their
respective contract terms, generally two to three years. Such contracts are
typically subject to termination at any time upon 90 to 180 days prior notice to
MasTec. Each master services agreement contemplates hundreds of individual
construction and maintenance projects generally valued at less than $100,000
each. These master services agreement are typically awarded on a competitive bid
basis, although customers are sometimes willing to negotiate contract extensions
beyond their original terms without opening them up to bid. MasTec currently has
43 master service agreements with telecommunications and other utility customers
covering defined regions within the United States, including 10 with BellSouth.
In addition to services rendered pursuant to master services agreement,
MasTec provides external network services on individual projects awarded on a
competitive bid basis or through individual negotiation. While such projects are
generally substantially larger than the individual projects covered by master
contracts, they typically require services identical to those rendered under
master services agreement. Most of MasTec's external network contracts, whether
master services agreement or individual projects, are based either on a fixed
price for the entire project or on a unit price basis for units of work
performed. MasTec also performs work under cost-plus contracts under which
MasTec is reimbursed for certain costs plus a fee in a fixed amount or equal to
a percentage of reimbursable costs. Many of MasTec's 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. MasTec typically agrees to indemnify its customers against certain
claims and warrants the quality of its services for specified time periods,
usually one year.
MasTec also provides turn-key design, installation and maintenance
services to the wireless communications industry, including project and
construction management, site acquisition and development, design and
construction of communications towers, placement of antennas and associated
wiring, construction of equipment huts, and site maintenance.
3
Technology convergence has led to the development of "smart highways,"
which employ video cameras, remote controlled traffic signals, "talking" message
signs, road sensors and other similar devices interconnected by fiber optic
cable to a central computer that monitors and controls traffic flow remotely.
MasTec provides infrastructure construction services to the traffic control and
highway safety industry, including the design, construction and maintenance of
"smart highway" equipment and networks. These services consist of installing and
maintaining traffic signals and their associated supporting mechanisms (such as
mast-arm poles, conduit, electrical wiring and sensors), installing and
maintaining traffic controllers, connecting signals and controllers with fiber
optic cables, and erecting signs on highways and expressways. The labor,
equipment and expertise required for traffic control and highway safety systems
construction are similar to those required for external network services for
telecommunications service providers, such as the installation of fiber optic or
coaxial cable and conduit for electronically controlled signage and other
traffic control systems. These services primarily are rendered on specific
projects awarded on a competitive bid basis. Customers include state
transportation departments, cities and counties, highway contractors and private
developers, principally in the Southeast. MasTec conducts this business both as
a prime contractor and as a subcontractor. MasTec currently has three master
service agreements to provide these services.
External Networks - Power
MasTec provides external network services to power companies, including
investor-owned utilities and rural cooperatives. These services, which are
substantially similar to the external network services provided to
telecommunications companies, include overhead and underground construction 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. The work often involves the
installation and splicing of high-voltage transmission and distribution lines.
Services to many of these customers are provided under exclusive master
contracts with 2 to 3 year initial terms expiring at various dates, as well as
on a project by project basis awarded under competitive bidding and individual
negotiations. MasTec currently has 42 master service agreements with power
companies.
Internal Network Services
MasTec provides design, installation and maintenance of internal networks
linking the customers' voice, video, data and internet computer and
communications networks at multiple locations. MasTec also provides 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 network services is less capital intensive than external
network construction but requires a more technically proficient work force.
MasTec provides these services to its customers nationwide, primarily on the
east and west coasts of the United States.
MasTec provides internal network services to certain customers under master
service agreements similar to those in the external network business that grant
MasTec the exclusive right to provide network services to the customer within
certain geographic regions. MasTec also provides inside wiring on individual
projects that are awarded on a competitive bid basis or through individual
negotiation. MasTec currently has two master service agreements to provide
internal network services. MasTec intends to take advantage of the fragmentation
of the internal network services industry by marketing a full range of network
services to organizations with multiple locations across the country. MasTec
believes that these types of customers increasingly are seeking a single vendor
to provide all of their network services needs.
International Operations and Investments
MasTec operated in 1998 principally in North America (the United States and
Canada), the Caribbean and Latin America ("CALA") and in Spain (CALA and Spain
combined are also referred to as "International"). Combined revenue generated by
International operations, as a percentage of total revenue was 39.8% in 1996,
42.8% in 1997 and 36.2% in 1998. See Note 9 of Notes to Consolidated Financial
Statements for a description of operations by geographic areas and segments.
MasTec provides external network construction outside of North America primarily
in Brazil through MasTec Inepar S/A Sistemas de Telecomunicacoes ("MasTec
Inepar"), a Brazilian company owned 51% by MasTec and 49% by Inepar SA
Industrias e Construcoes ("Inepar"), a leading telecommunications and power
infrastructure and equipment company in Brazil. MasTec Inepar provides external
network services to the local, long distance and wireless telephone companies
formed as a result of the privatization of Telebras, primarily in Sao Paulo, Rio
de Janeiro, Parana and other states in the more populous and developed southern
region of Brazil.
4
In December 1998, MasTec disposed of 87% of its Spanish operations, which
included affiliates in Argentina, Chile, Colombia, Peru, Puerto Rico, and
Venezuela to a group of investors. The investor group included the chief
executive officer of Sintel and a member of its board of directors. MasTec
received $0.9 million (130.5 million pesetas at an exchange rate of 142 pesetas
to the dollar) on the date of closing and through March 31, 1999 has received
$10.2 million. Payment terms are being re-negotiated not to extend beyond 1999.
The sale included the assumption of the remaining indebtedness of MasTec to
Telefonica S.A. for the purchase of the Spanish operations of $25.0 million (3.6
billion pesetas). See Notes 2 and 9 of Notes to Consolidated Financial
Statements for a description of the Spanish operations and additional terms of
the sale.
MasTec has invested in certain telecommunications businesses located in or
servicing Latin America. These include minority interests in Supercanal Holding,
S.A. ("Supercanal") and related entities, which operate a cable television
system in Argentina, and in Consorcio Ecuatoriano de Telecomunicaciones, S.A.
("Conecel"), an Ecuadorian cellular company. MasTec also has an investment in a
company with a license to construct and operate a personal communication system
("PCS") in Paraguay. MasTec is seeking to maximize the value of these
investments and has hired investment bankers to explore strategic alternatives.
Backlog
At December 31, 1998, MasTec had a backlog for domestic operations of
approximately $249.9 million consisting of the uncompleted portion of services
to be performed under project-specific contracts. MasTec does not include as
backlog the estimated amount of work under master services agreements because
the customer under these contracts is not committed to order a specific volume
of services from MasTec. MasTec expects to complete substantially all of its
backlog at December 31, 1998 during calendar years 1999 through 2002, of which
approximately 88.0% of the domestic backlog is expected to be completed during
1999. MasTec also has international backlog through its Brazilian subsidiary
MasTec Inepar of approximately R$148.2 million denominated in Brazilian reais,
representing approximately $123.4 million in U.S. dollars as of December 31,
1998, of which 75% is expected to be completed during 1999. Due to the recent
devaluation of the Brazilian currency and the likelihood of further devaluation
and deteriorating economic conditions in Brazil it is uncertain the amount of
revenue that MasTec will recognize from its international backlog. See Note 1 of
Notes to Consolidated Financial Statements.
Marketing
MasTec has developed a company-wide marketing plan to emphasize the
"MasTec" brand name to its customers. Marketing efforts are principally carried
out by management of MasTec's service lines. Executives of MasTec's service
lines market to existing and potential telecommunications and other utility
customers in order to negotiate new contracts or be placed on lists of vendors
invited to submit bids for master services agreement and individual construction
projects. External and internal network services are also marketed through
commissioned salespeople. These efforts are supported by MasTec's corporate
marketing department.
Suppliers
MasTec's customers supply the majority of the raw materials and supplies
necessary to carry out MasTec's contracted work, although MasTec is increasingly
supplying materials and supplies on turn-key projects. MasTec obtains materials
and supplies for its own account from independent third-party providers and does
not manufacture any significant amount of materials or supplies for resale.
MasTec is not dependent on any one supplier for any materials or supplies that
MasTec obtains for its own account. MasTec has not experienced any difficulty in
obtaining an adequate supply of materials and supplies.
MasTec also uses independent contractors to perform portions of its
services and to manage work flow. These independent contractors typically are
sole proprietorships or small business entities. Independent contractors
typically provide their own vehicles, tools and insurance coverage. MasTec is
not dependent on any single independent contractor.
5
Competition
The industry in which MasTec competes is highly competitive and fragmented.
MasTec competes with a number of contractors in the markets in which it
operates, ranging from small independent firms servicing local markets to larger
firms servicing regional markets, as well as with large national and
international engineering firms and equipment vendors on turn-key projects who
subcontract construction work to contractors other than MasTec. These
engineering firms and equipment vendors typically are better capitalized and
have greater resources than MasTec. Most companies engaged in the same or
similar business tend to operate in a specific, limited geographic area,
although larger competitors may bid on a particular project without regard to
location. Although MasTec believes it is the largest provider of external
network services for telecommunications service providers and power companies in
the United States and has a significant presence in Brazil, neither MasTec nor
any of its competitors can be considered dominant in the industry on a national
or international basis. MasTec also faces competition from the in-house
construction and maintenance departments of various customers and potential
customers, which employ personnel who perform some of the same types of services
as those provided by MasTec.
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. MasTec believes that as demand for its services
increases, customers will increasingly consider other factors in choosing a
contractor, including technical expertise and experience, financial and
operational resources, nationwide presence, industry reputation and
dependability, which should benefit larger, national contractors such as MasTec.
Employees
As of December 31, 1998, MasTec (excluding its unconsolidated companies)
had approximately 8,250 employees, 7,400 of whom were employed in North American
operations and 850 of whom were employed in International operations.
Approximately 250 employees are represented by a labor union, principally the
Communication Workers of America or the International Brotherhood of Electrical
Workers. MasTec believes that its employee relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), the information regarding executive
officers of MasTec called for by Item 401(b) of Regulation S-K is hereby
included in this Annual Report on Form 10-K.
The following is a list of the names and ages of all of the executive
officers of MasTec, indicating all positions and offices with MasTec held by
each such person, and each such person's principal occupation or employment
during the past five years. The executive officers hold office for one year or
until their successors are elected by the Board of Directors.
Name Age Position
Jorge Mas 36 Chairman of the Board of Directors,
President and Chief Executive Officer
Joel-Tomas Citron 36 Vice Chairman of the Board of Directors
Carmen M. Sabater 34 Senior Vice President-Finance
Jose Sariego 44 Senior Vice President-General Counsel
Arlene Vargas 32 Vice President and Controller
Jorge Mas has been President, Chief Executive Officer and a Director of
MasTec since March 1994 and was elected Chairman of the Board of Directors of
MasTec in January 1998. Prior to March 1994, Mr. Mas served as the President and
Chief Executive Officer of Church & Tower, Inc., MasTec's predecessor. In
addition, Mr. Mas is the Chairman of the Board of Directors of Neff Corporation,
a publicly-held construction equipment sales and leasing company, and Atlantic
Real Estate Holding Corp., a private real estate holding company controlled by
Mr. Mas and, during all or a portion of the past five years, has served as the
President and Chief Executive Officer of these corporations.
6
Joel-Tomas Citron has been a member of the Board of Directors of MasTec
since January 1998 and was elected Vice Chairman of the Board of Directors in
November 1998. Mr. Citron was the managing partner of Triscope Capital LLC, a
private investment partnership between January 1998 and December 1998; Chairman
of the Board of Directors of the United States subsidiary of Proventus AB, a
privately held investment company based in Stockholm, Sweden, and a member of
the Executive Committee of the group between January 1992 and December 1997; a
member of the Board of Directors of Neff Corporation since 1998; Chairman of the
Board of American Information Systems, Inc., a provider of intranet and internet
systems solutions between September 1996 and January 1999; between and a member
of the Board of Directors of Nesuah Zannex Limited, a publicly-traded full
service Israeli securities firm between May 1998 and February 1999.
Carmen M. Sabater has been MasTec's Corporate Controller since 1994 and was
elected Senior Vice President-Director of Finance in December 1998. Prior to
joining MasTec, Ms. Sabater was a Senior Manager with Deloitte & Touche, a
public accounting firm.
Jose Sariego has been Senior Vice President-General Counsel of MasTec since
September 1995. Prior to joining MasTec, 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 MasTec's Vice President and Corporate Controller
since September 1998. Prior to joining MasTec, 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.
PROPERTIES
MasTec's corporate headquarters are located in a 60,000 square foot
building owned by MasTec in Miami, Florida. MasTec's principal operations are
conducted from regional and field offices, equipment yards and temporary storage
locations, none of which MasTec believes is material to its operations because
most of MasTec's services are performed on the customers' premises or on public
rights of way. In addition, MasTec believes that equally suitable alternative
locations are available in all areas where it currently does business.
MasTec also owns a substantial amount of construction equipment, which at
December 31, 1998 had a gross book value of $170.9 million. This equipment
includes trucks, tractors, trailers, bucket trucks, backhoes, bulldozers,
directional boring machines, digger derricks and cranes. MasTec obtains
substantially all of its equipment from various third-party vendors, none of
which MasTec is dependent upon, and has not experienced any difficulties in
obtaining desired equipment.
LEGAL PROCEEDINGS
In December 1990, Albert H. Kahn, a shareholder of MasTec, filed a class
action and derivative suit in Delaware state court against MasTec, the
then-members of its Board of Directors and National Beverage Corporation
("NBC"), MasTec's then-largest shareholder. The complaint alleges, among other
things, that MasTec's Board of Directors and NBC breached their respective
fiduciary duties in approving certain transactions. The lawsuit seeks to rescind
these transactions and to recover damages in an unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative suit in the
same court against MasTec, the then members of its Board of Directors, and Jorge
L. Mas, Jorge Mas and Juan Carlos Mas, the principal shareholders of MasTec. The
lawsuit alleges, among other things, that MasTec's Board of Directors and NBC
breached their respective fiduciary duties by approving the terms of the
acquisition of MasTec by the Mas family, and that the Mas family had knowledge
of the fiduciary duties owed by NBC and MasTec's Board of Directors and
knowingly and substantially participated in the breach of these duties. The
lawsuit also claims derivatively that each member of MasTec's Board of Directors
engaged in mismanagement, waste and breach of fiduciary duties in managing
MasTec's affairs prior to the acquisition by the Mas family.
There has been no significant activity in either of these lawsuits in more
than two years. MasTec believes that the allegations in each of these lawsuits
are without merit and intends to defend these lawsuits vigorously.
7
In November 1997, Church & Tower, Inc., a wholly-owned subsidiary of
MasTec, 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 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 Church & Tower
seeking 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. MasTec is vigorously pursuing this lawsuit.
MasTec is a party to other pending legal proceedings arising in the normal
course of business, none of which MasTec believes is material to its financial
position or results of operations.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. MasTec's Common Stock currently is listed on the New
York Stock Exchange under the symbol "MTZ". The following table sets forth, for
the quarters indicated, the high and low sale prices of the Common Stock, as
reported by the New York Stock Exchange.
Fiscal Year Ended December 31,
-----------------------------------------------------------
1997 1998
High Low High Low
--------------------------- -----------------------------
First Quarter .... $ 46 11/32 $ 23 $ 34 3/16 $ 22 3/8
Second Quarter ... $ 48 5/8 $ 25 1/8 $ 34 $ 19 13/16
Third Quarter .... $ 55 1/4 $ 38 1/4 $ 26 3/8 $ 14 1/2
Fourth Quarter ... $ 45 1/2 $ 20 3/8 $ 28 3/4 $ 12 3/8
Holders. As of March 26, 1999, there were 4,679 shareholders of record of
the Common Stock.
Dividends. MasTec has not declared cash dividends since its inception and
does not anticipate paying any cash dividends in the foreseeable future, but
intends instead to retain any future earnings for reinvestment in its business.
On January 15, 1997, MasTec announced a three-for-two split of its outstanding
shares of Common Stock. The stock split was effected in the form of a stock
dividend and entitled each shareholder of record on February 3, 1997 to receive
an additional share of Common Stock for every two shares of Common Stock held by
such shareholder of record on the record date. The stock split was paid on
February 28, 1997. MasTec paid cash in lieu of fractional shares resulting from
the stock split based on the last sale price as reported on the New York Stock
Exchange on the record date. All references in this Annual Report to shares of
Common Stock have been adjusted to give effect to the stock split.
Any future determination as to the payment of dividends will be made at the
discretion of the Board of Directors of MasTec and will depend upon its
operating results, financial condition, capital requirements, general business
conditions and such other factors as the Board of Directors deem relevant. In
addition, certain credit agreements to which MasTec is a party prohibit from
paying dividends or making other distributions on the Common Stock without the
prior written consent of the lenders under such credit agreements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
8
SELECTED FINANCIAL DATA
The following statement of operations and balance sheet data have been
derived from MasTec's audited financial statements including the consolidated
balance sheets at December 31, 1998 and 1997 and the related consolidated
statements of operations, of changes in shareholders' equity and of cash flows
for each of the years in the three-year period ended December 31, 1998 and the
notes thereto, appearing elsewhere in this Annual Report. The following selected
financial data should be read in conjunction with such consolidated financial
statements and the notes thereto, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Year Ended December 31,
----------------------------------------------------------
1994(1) 1995 1996(2) 1997(3) 1998(4)
----------------------------------------------------------
(In thousands, except per share data)
Statement of Income Data:
Revenue ...................................... $111,294 $174,583 $472,800 $659,439 $1,048,922
Costs of revenue ............................. 83,952 130,762 352,329 496,230 803,112
Depreciation and amortization ................ 4,439 6,913 12,000 23,465 43,313
Compensation charge .......................... -- -- -- -- 33,765
General and administrative expenses .......... 13,022 19,081 58,529 82,261 140,472
-------------------------------------------------------------------------------------------------------------
Operating income ............................. 9,881 17,827 49,942 57,483 28,260
Interest expense ............................. 3,587 4,954 11,434 11,541 29,580
Interest income .............................. 1,469 3,349 3,246 1,783 9,093
Real estate and investment write-downs (5) ... -- 23,086 -- -- --
Other income (expense), net (6) .............. 2,386 4,424 769 8,332 (5,155)
-------------------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for
income taxes, equity in earnings (losses) of
unconsolidated companies and minority interest 10,149 (2,440) 42,523 56,057 2,618
Provision (benefit) for income taxes (7) ..... 2,877 (1,970) 15,591 20,944 12,550
Equity in earnings (losses) of unconsolidated
companies and minority interest (8) .......... 247 (139) 3,133 (449) (3,983)
=============================================================================================================
Net income (loss) ............................ $ 7,519 $ (609) $ 30,065 $ 34,664 $ (13,915)
=============================================================================================================
Weighted average common shares outstanding (9) 24,116 23,892 24,703 26,460 27,489
Basic earnings (loss) per share .............. $ 0.31 $ (0.03) $ 1.22 $ 1.31 $ (0.51)
Weighted average common shares outstanding (9) 24,116 23,892 25,128 27,019 27,489
Diluted earnings (loss) per share ............ $ 0.31 $ (0.03) $ 1.20 $ 1.28 $ (0.51)
As of December 31,
----------------------------------------------------------
1994 1995 1996 1997 1998(10)
----------------------------------------------------------
(In thousands)
Balance Sheet Data:
Property and equipment, net .................. $ 40,102 $ 44,571 $ 59,602 $ 86,109 $ 142,897
Total assets ................................. 142,452 170,163 483,018 630,224 735,486
Total debt ................................... 44,185 72,089 155,192 149,057 321,832
Total shareholders' equity ................... 50,874 50,504 103,504 223,697 204,273
(1) Includes the results of operations of Burnup & Sims Inc. from March
11, 1994.
(2) Includes the results of operations of MasTec's Spanish subsidiary
Sintel from May 1, 1996.
(3) Includes the results of operations of MasTec's Brazilian subsidiary
MasTec Inepar from July 31, 1997.
9
(4) Includes the results of operations of MasTec's Spanish subsidiary
Sintel through December 31, 1998, which includes severance charges of
$13.4 million, of which $1.9 million is reflected in costs of revenue
and $11.5 million in general and administrative expenses.
(5) As a result of the disposal of non-core real estate assets and other
investments, MasTec recorded $23.1 million in charges in the year
ended December 31, 1995.
(6) Included in 1997 results of operations is a gain of $7.1 million from
the partial sale of MasTec's interest in Conecel and in 1998 includes
a loss of $9.2 million related to the sale of MasTec's Spanish
subsidiary.
(7) MasTec's 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 MasTec's Spanish subsidiary, the
non-deductibility of the amortization of certain intangibles and the
non-deductibility of other expenses.
(8) Included in 1997 and 1998 results of operations is the minority
interest related to MasTec's Brazilian subsidiary MasTec Inepar.
(9) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997.
(10) As of December 31, 1998, MasTec sold 87% of its Spanish subsidiary,
therefore, the balance sheet data as of December 31, 1998 does not
include the financial position of these operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue is generated primarily from external and internal network services.
See Notes 1 and 9 of Notes to Consolidated Financial Statements. Services are
provided to telephone companies, public utilities, cable television operators,
other telecommunications providers, governmental agencies and private
businesses. Costs of revenue include operations payroll and employee benefits,
subcontractor costs and expenses, materials not supplied by the customer, fuel,
equipment rental and insurance. General and administrative expenses include
management salaries and benefits, rent, travel, telephone and utilities,
professional fees and clerical and administrative overhead.
The following tables sets forth for each of 1996, 1997 and 1998 income
statement data and its related percentage of revenue by geographic region.
During 1998, MasTec recharacterized as purchases two acquisitions consummated in
1997, which were originally accounted for as pooling of interests. See Note 1 of
Notes to Consolidated Financial Statements.
North America
Year Ended December 31,
------------------------------------------------------
1996 1997 1998(1)
---------------- ---------------- ----------------
Revenue ........................... $284,645 100.0% $377,046 100.0% $669,628 100.0%
Costs of revenue .................. 216,940 76.2% 279,394 74.1% 506,721 75.7%
Depreciation and amortization ..... 9,942 3.5% 20,452 5.4% 37,284 5.6%
General and administrative expenses 27,554 9.7% 41,167 10.9% 112,530 16.8%
======== ====== ======== ====== ======== ======
Operating income ............. $ 30,209 10.6% $ 36,033 9.6% $ 13,093 1.9%
======== ====== ======== ====== ======== ======
(1) General and administrative expenses includes a $33.8 million charge
for compensation and severance charges.
Year Ended December 31, 1998 Operating Income Compared to Year Ended
December 31, 1997 Operating Income
MasTec's North American revenue was $669.6 million for the year ended
December 31, 1998, compared to $377.0 million 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. During 1998, MasTec acquired 12 companies in North America
which generated revenue of approximately $255.1 million, representing 87.2% of
the total increase in revenue. MasTec's North American operations have
experienced an internal compounded annual growth rate of approximately 21.4%
since 1995. For the year ended December 31, 1998, the percentage of MasTec's
North American revenue generated by external network services for
10
telecommunication services providers was 68.1% (74.6% in 1997), by external
network services for power companies was 18.0% (5.2% in 1997) and by internal
network services was 13.4% (12.5% in 1997).
MasTec's 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, representing an increase of $227.3 million or 81.4%.
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 climactic condition known as "El Nino", poor performance in
three divisions and losses from a non-core 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.
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, representing an increase of $71.4 million or 173.4%. The
increase in general and administrative expenses was due primarily to a $33.8
million compensation charge for senior management at certain operating
subsidiaries, $1.4 million for start-up costs and charges of $4.5 million
related to bad debts. Excluding the previously mentioned expenses, general and
administrative expenses were $72.9 million or 10.9% of revenue in 1998.
Year Ended December 31, 1997 Operating Income Compared to Year Ended
December 31, 1996 Operating Income
Revenue from North America operations was $377.0 million for the year ended
December 31, 1997, compared to $284.6 million in 1996, representing an increase
of $92.4 million or 32.5%. The increase in North American revenue was due
primarily to revenue generated from acquired companies, as well as internal
growth. MasTec's North American operations experienced an internal compounded
annual growth rate of approximately 19.3% since 1995. For the year ended
December 31, 1997, the percentage of MasTec's North American revenue generated
by external network services for telecommunication service providers was 74.6%
(77.1% in 1996) external network services for electric power companies was 5.2%
(1.3% in 1996) and 12.5% (12.5% in 1996) was generated by internal network
services.
MasTec's North American costs of revenue were $279.4 million or 74.1% of
revenue for the year ended December 31, 1997, compared to $216.9 million or
76.2% of revenue in 1996, representing an increase of $62.5 million or 28.8%.
The increase in North American costs of revenue was due primarily to costs of
revenue generated from acquired companies as well as cost of revenue generated
by internal growth. The decrease in costs of revenue as a percentage of revenue
was due primarily to improved margins generated during 1997 in certain projects,
as well as improved costs of revenue management.
Depreciation and amortization expense was $20.5 million or 5.4% of revenue
for the year ended December 31, 1997, compared to $9.9 million or 3.5% of
revenue in 1996, representing an increase of $10.5 million or 105.7%. The
increase in depreciation and amortization was a result of increased capital
expenditures ($19.7 million in 1997 compared to $7.1 million in 1996), as well
as amortization of intangibles resulting from acquisitions.
General and administrative expenses were $41.2 million or 10.9% of revenues
for the year ended December 31, 1997, compared to $27.6 million or 9.7% of
revenue in 1996. The increase in general and administrative expenses was due
primarily to general and administrative expenses generated from acquired
companies. The increase of general and administrative expenses as a percentage
of revenue was due primarily to a $4.6 million reserve recorded by MasTec.
11
CALA
Year Ended December 31,
-----------------------------------
1997 (1) 1998
---------------- ----------------
Revenue ........................... $ 74,900 100.0% $141,954 100.0%
Costs of revenue .................. 63,266 84.5% 112,667 79.4%
Depreciation and amortization ..... 390 0.4% 3,349 2.4%
General and administrative expenses 1,615 2.2% 10,636 7.4%
-------- ------ -------- ------
Operating income ............. $ 9,629 12.9% $ 15,302 10.8%
======== ====== ======== ======
(1) CALA operations began on August 1, 1997
Year Ended December 31, 1998 Operating Income Compared to Five Months
Ended December 31, 1997 Operating Income
MasTec's CALA 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.
MasTec's CALA costs of revenue were $112.7 million for the year ended
December 31, 1998, compared to $63.3 million in 1997, representing an increase
of $49.4 million or 78.0%. 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. MasTec does not anticipate CALA margins to remain at
this level in the future.
Depreciation and amortization expense was $3.3 million for the year ended
December 31, 1998. 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.
General and administrative expenses were $10.6 million or 7.4% of revenue
for the year ended December 31, 1998, compared to $1.6 million or 2.2% in 1997,
representing an increase of $9.0 million or 558.6%. 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. Due to
recent economic conditions in Brazil, it is uncertain when, if at all, such
additional work will materialize.
Spain
Year Ended December 31,
------------------------------------------------------
1996 (1) 1997 1998 (2)
---------------- ---------------- ----------------
Revenue ........................... $188,155 100.0% $207,493 100.0% $237,340 100.0%
Costs of revenue .................. 135,389 71.9% 153,180 73.8% 183,724 77.4%
Depreciation and amortization ..... 2,058 1.1% 3,013 1.5% 2,680 1.1%
General and administrative expenses 30,975 16.5% 39,478 19.0% 51,070 21.5%
-------- ------ -------- ------ -------- -=----
Operating income ............. $ 19,733 10.5% $ 11,822 5.7% $ (134) 0.0%
======== ====== ======== ====== ======== ======
(1) Spanish operations began on April 30, 1996, the date of acquisition.
(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.
12
Year Ended December 31, 1998 Operating Income Compared to Year Ended
December 31, 1997 Operating Income
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,
representing an increase of $30.5 million or 19.9%. 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, representing an increase of $11.6 million or 29.4%. 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.
Year Ended December 31, 1997 Operating Income Compared to Eight Months
Ended December 31, 1996 Operating Income
Revenue generated by Spanish operations was $207.5 million for the year
ended December 31, 1997, compared to $188.2 million in 1996, representing an
increase of $19.3 million or 10.3%. The increase in revenue was due primarily to
a full year of operations in 1997, compared to eight months in the 1996.
MasTec's Spanish operations were negatively impacted during 1997 by a
devaluation of approximately 18% in the Spanish peseta and by work stoppages in
the second half of 1997.
Costs of revenue were $153.2 million or 73.8% of revenue for the year ended
December 31, 1997, compared to $135.4 million or 71.9% of revenue in 1996,
representing an increase of $17.8 million or 13.1%. The increase in costs of
revenue as a percentage of revenue was due primarily to lower productivity
during 1997 as a result of the work stoppages.
General and administrative expenses were $39.5 million or 19.0% of revenue
for the year ended December 31, 1997, compared to $31.0 million or 16.5% of
revenue in 1996, representing an increase of $8.5 million or 27.5%. The increase
in general and administrative expenses was due to a full year of operations in
1997, compared to eight months in 1996. The increase in general and
administrative expenses as a percentage of revenue was due mainly to increased
salaries and compensation expense resulting from increases in base salary.
13
Consolidated Results
The following table sets forth for each of 1996, 1997 and 1998 certain
consolidated income statement data and its related percentage of consolidated
revenue.
Year Ended December 31,
--------------------------------------------------------
1996 1997 1998
---------------- ---------------- -----------------
Operating income ............................. $ 49,942 10.6% $ 57,483 8.7% $ 28,260 2.7%
Interest expense ............................. 11,434 2.4% 11,541 1.8% 29,580 2.8%
Interest income .............................. 3,246 0.7% 1,783 0.3% 9,093 0.9%
Other income (expense), net .................. 769 0.1% 8,332 1.3% (5,155) 0.5%
-------- ------ -------- ------ -------- ------
Income before provision for income taxes,
equity in earnings (losses) of
unconsolidated companies and minority
interest .................................. 42,523 9.0% 56,057 8.5% 2,618 0.3%
Provision for income taxes ................... 15,591 3.3% 20,944 3.2% 12,550 1.2%
Equity in earnings (losses) of unconsolidated
companies and minority interest ........... 3,133 0.7% (449) (0.0)% (3,983) 0.4%
-------- ------ -------- ------ -------- ------
Net income (loss) ....................... $ 30,065 6.4% $ 34,664 5.3% $(13,915) (1.3)%
======== ====== ======== ====== ======== ======
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,"
"CALA" and "Spain" above.
Interest expense was $29.6 million for the year ended December 31, 1998,
compared to $11.5 million in 1997, representing an increase of $18.0 million or
156.3%. The increase in interest expense was due primarily to increased
indebtedness resulting from the issuance of the Senior Notes in early 1998, the
proceeds of which were used primarily for acquisitions and to fund international
operations investments. See Note 5 of Notes to Consolidated Financial
Statements.
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 MasTec's 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 42.2%, which is attributed to the non-deductibility of the
amortization of intangibles and other expenses. See Note 7 of Notes to
Consolidated Financial Statements.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Interest expense was $11.5 million or 1.8% of revenue for the year ended
December 31, 1997, compared to $11.4 million or 2.4% of revenue in 1996,
representing an increase of $107,000 or 0.9%. The decrease in interest expense
as a percentage of revenue was due to increased revenue while the average
balance on debt remained basically unchanged.
Included in other income for 1997 is a $7.1 million gain on sale of
MasTec's indirect interest in Conecel. See Note 11 of Notes to Consolidated
Financial Statements.
Liquidity and Capital Resources
MasTec's primary liquidity needs are for working capital, to finance
acquisitions, for capital expenditures and to service its indebtedness. MasTec's
primary sources of liquidity are cash flow from operations, borrowings under
revolving lines of credit and the proceeds from the sale of investments and
other assets held for sale.
14
Net cash used in operating activities was $13.9 million for the year ended
December 31, 1998, compared to cash provided by operating activities of $15.2
million in 1997. Net cash used by operating activities of $13.9 million was due
primarily to a net loss for the year ended December 31, 1998.
As of December 31, 1998, working capital was $244.5 million ($180.4 million
domestic and $64.1 million international) compared to working capital of $124.1
million ($76.8 million domestic and $47.3 million international) at December 31,
1997. As of December 31, 1998, working capital included $50.9 million related to
financing and $46.4 million of assets held for sale included in domestic
operations and $27.3 million of receivables from the sale of MasTec's Spanish
operations included in international operations. Working capital in 1998,
excluding previously described items, was $83.1 million for domestic compared to
$76.8 million in 1997. For international, working capital increased, excluding
Spanish operations, from $22.8 million in 1997 to $36.8 million at December 31,
1998.
MasTec invested cash (net of cash acquired of $5.0 million in 1998 and $3.3
million in 1997) in acquisitions and investments in unconsolidated companies
totaling $89.1 million during 1998 compared to $49.0 million in 1997. During
1998, MasTec 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. The increase in capital expenditures was due mainly to fleet upgrades for
acquired companies and internal growth. Of the total invested funds in 1998,
$64.5 million was related to North American acquisitions and $71.4 million was
related to North American capital expenditures.
MasTec entered into agreements with certain senior management personnel at
two of its operating subsidiaries. These senior managers agreed to multi-year
employment agreements and 10-year non-competition and non-solicitation
agreements. Under the agreements, MasTec paid the senior managers compensation
in the form of cash and common stock options. The cash portion totaled
approximately $33.3 million, of which approximately $13.3 million was paid in
1998 and approximately $20.0 million was paid in the first quarter of 1999. As a
result of these agreements, MasTec recorded a non-recurring compensation charge
of approximately $33.8 million (including the value of vested stock options) in
the fourth quarter of 1998.
During 1998, MasTec provided a customer financing in connection with the
sale of construction services. As of December 31, 1998, MasTec had $41.8 million
outstanding under this agreement. MasTec anticipates that it will provide an
additional $8.0 million of financing under this agreement. MasTec will terminate
financing agreement as of April 30, 1999.
Although the PCS system is held for sale, MasTec is committed to continue
developing the system in Paraguay. MasTec anticipates investing approximately
$13.0 million for the development of this system over the next 12 months.
Commercial operation of the system must be initiated no later than May 10, 1999,
unless extended. MasTec is seeking an extension of this date.
During 1998, MasTec sold 87% of its Spanish operations for $27.3 million
which is recorded in other current assets in the accompanying consolidated
balance sheet as of December 31, 1998. The proceeds from the sale will be used
for general corporate purposes including reducing indebtedness.
MasTec announced a stock repurchase program in April 1998. Through December
1998, MasTec had purchased a total of 667,000 shares at an average price of
$20.58.
In December 1998, MasTec increased its existing credit facility from $125.0
million to $165.0 million (the "Credit Facility"), with a group of financial
institutions led by BankBoston, N.A. Amounts outstanding under the Credit
Facility mature on June 9, 2000. Upon written request by MasTec and at the
bank's sole discretion, the maturity date of the Credit Facility may be extended
for successive annual periods up to a final maturity date of June 9, 2002.
MasTec is 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 MasTec's
subsidiaries. Interest under the Credit Facility accrues at rates based, at
MasTec's 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.
MasTec had outstanding $18.7 million in standby letters of credit as of
December 31, 1998.
15
In January 1998, MasTec issued $200.0 million principal amount of 7.75%
senior subordinated notes (the "Senior Notes") due 2008 with interest due
semi-annually. The net proceeds were used primarily for acquisitions and for
other corporate purposes.
The Credit Facility and the Senior Notes contain customary events of
default and covenants which prohibit, among other things, making certain
investments in excess of a specified amount, incurring additional indebtedness
in excess of a specified amount, paying dividends in excess of a specified
amount, making capital expenditures in excess of a specified amount, creating
liens, prepaying other indebtedness, including the Senior Notes, and engaging in
certain mergers or combinations without the prior written consent of the
lenders. The Credit Facility also provides that MasTec 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.
See Note 5 of Notes to Consolidated Financial Statements.
MasTec expects to finance its current working capital needs, capital
expenditures, debt service obligations and other commitments from cash generated
from operations, borrowings under its existing Credit Facility and the sale of
investments and other assets. Subsequent to December 31, 1998, MasTec has signed
letters of intent to acquire two external network and one internal network
services contractors, subject to a number of conditions. MasTec anticipates that
available cash, cash flows from operations and borrowing availability under the
Credit Facility will be sufficient to satisfy MasTec's liquidity and working
capital requirements for the foreseeable future; however, to the extent that
MasTec should desire to increase its financial flexibility and capital resources
or require or choose to fund future capital commitments from sources other than
operating cash or from borrowings under its existing Credit Facility, MasTec may
consider raising additional capital by increasing its Credit Facility or through
the offering of equity and/or debt securities in the public or private markets.
There can be no assurance, however, that additional capital will be available to
MasTec on acceptable terms, or at all.
MasTec owns interest in a number of foreign operations, primarily in Latin
America, which are subject to greater political, monetary, economic and
regulatory risks than its 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. The impact on the
devaluation on an operation depends on the devaluation's effect on the local
economy and the ability of an operation to raise prices and/or reduce expenses.
Additionally, the economies of other countries in Latin America could be
adversely impacted by Brazil's economic and monetary problems. The likelihood
and extent of further devaluation and deteriorating economic conditions in
Brazil and other Latin America countries and the resulting impacts on MasTec's
results of operations, financial position and cash flows cannot now be
determined. MasTec monitors its currency exchange risk but currently does not
hedge against this risk. There can be no assurance that currency exchange
fluctuations or other economic problems will not adversely affect MasTec's
results of operations, financial position and cash flows.
Year 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of MasTec's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure,
disruption of operations and/or a temporary inability to conduct normal business
activities.
MasTec has undertaken a Year 2000 project which includes an assessment of
telecommunications equipment, computer equipment, software, database, data
services, network infrastructure, and telephone equipment. MasTec's Year 2000
plan addresses the Year 2000 issue in four phases: (1) inventory and assessment;
(2) impact analysis and implementation planning; (3) implementation and testing;
and (4) on-going and monitoring. As each phase is completed, project progress
will be tracked against planned targets, and resource adjustments made as
necessary. At this time, a majority of MasTec's information systems and embedded
devices have been inventoried and assessed, and MasTec has begun impact analysis
and implementation planning, as well as some implementation and testing. The
project is estimated to be complete by the end of 1999, prior to any anticipated
impact on MasTec's operating systems. MasTec believes that with upgrades to
existing software, conversions to new software and replacement of certain
products and equipments, the Year 2000 issue will not pose significant
16
operational problems. Based on its current assessment efforts, MasTec does not
believe that Year 2000 issues will have a material adverse effect on its
financial condition or results of operations. If, however, necessary upgrades,
replacements and conversions are not made or are not completed on a timely
basis, the Year 2000 issue may have a material adverse effect on MasTec's
business, financial condition and results of operations. MasTec's Year 2000
issues and any potential business interruptions, costs, damages or losses
related thereto, are dependent, to a certain degree, upon the Year 2000
readiness of third parties such as vendors and suppliers. As part of MasTec's
Year 2000 efforts, formal communications with all significant vendors,
suppliers, banks and clients are being pursued to determine the extent to which
related interfaces with MasTec's systems are vulnerable if these third parties
fail to remediate their Year 2000 issues. There cannot be any assurance that any
such third parties will address any Year 2000 issues that they have or that such
third parties' systems will not materially adversely affect MasTec's systems and
operations.
MasTec continues to assess the Year 2000 issue with respect to internal
business systems, and has initiated the implementation of corrective measures to
address the issue. MasTec is evaluating the need for contingency planning at
this time of its system and embedded devices. The assessment of third parties
external to MasTec is underway, and may reveal the need for contingency planning
based on the progress and findings of the Year 2000 project.
MasTec will utilize both internal and external resources to complete and
test the Year 2000 project. At the present time, MasTec is estimating the cost
of this project. Through December 31, 1998, related costs incurred were not
material, and MasTec does not expect that the total cost of its Year 2000
project will be material to its financial position or results of operations.
Project costs and the targeted completion date will be based on management's
best estimates, which will be derived from utilizing numerous assumptions of
future events, including the continued availability of certain resources, the
ability to locate and correct all relevant computer codes, third party
modification plans and other factors. There can be no assurance these estimates
will be achieved or that the actual results will not differ materially from
those anticipated.
Seasonality
MasTec's North America operations have historically been seasonally weaker
in the first and fourth quarters of the year and have produced stronger results
in the second and third quarters. This seasonality is primarily the result of
customer budgetary constraints and preferences and the effect of winter weather
on external network activities. Certain U.S. customers, particularly the ILEC's,
tend to complete budgeted capital expenditures before the end of the year and
defer additional expenditures until the following budget year. Revenue in a
local currency from MasTec Inepar is not expected to fluctuate seasonally.
Impact of Inflation
The primary inflationary factor affecting MasTec's operations is increased
labor costs. MasTec has not experienced significant increases in labor costs to
date. Competition for qualified personnel could increase labor costs for MasTec
in the future. MasTec's international operations may, at times in the future,
expose it to high inflation in certain foreign countries. During 1998, MasTec
generated approximately 17.5% of its total revenue (excluding revenue generated
from MasTec's Spanish operations which were sold in December 1998) from
international operations that are susceptible to currency devaluation.
Management anticipates that revenue from MasTec's international operations will
be less significant to MasTec's operations in the foreseeable future due to its
current intentions to dispose of them, however, the likelihood and extent of
further devaluation and deteriorating economic conditions in Brazil and other
Latin America countries and the resulting impacts on MasTec's results of
operations, financial position and cash flows cannot now be determined.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 1 and 5 of Notes to Consolidated to Financial Statements for
disclosures about market risk.
17
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Reports of Independent Accountants........................................ 19
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997, and 1998....................................... 21
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. 22
Consolidated Statement of Changes in Shareholders' Equity for
the Years Ended December 31, 1995, 1996, 1997 and 1998............... 23
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997, and 1998.................................... 24
Notes to Consolidated Financial Statements................................ 27
18
REPORT OF INDEPENDENT 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, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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 consolidated
financial statements of Sintel, S.A., a wholly-owned subsidiary until December
31, 1998 which statements reflect total assets of $195.2 million at December 31,
1997 and total revenues of $207.2 million and $207.6 million for the years ended
December 31, 1997 and 1998, respectively. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Sintel, S.A.
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.
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
February 10, 1999
19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Sistemas e Instalaciones de Telecomunicacion, S.A.:
We have audited the consolidated balance sheet of SINTEL, S.A. and subsidiaries
("Sintel") as of December 31, 1998 and 1997, the related consolidated statements
of income and cash flows for the two years then ended, and the notes to the
financial statements, all expressed in Spanish pesetas. These financial
statements are the responsibility of Sintel's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
On December 31, 1998, the agreement signed with Telefonica de Espana, S.A.
terminated. Such contract guaranteed a minimum contract revenue amount. As a
result of this situation, the Company has a strategy to restructure its
operations as well as a planned expansion and diversification of its commercial
activities in Spain and Latin America, as explained in Note 1.
In relation to what is described in the previous paragraph, during 1998 a
restructure of its operations was executed which resulted in an extraordinary
expense of 1.810 millions pesetas related to severance payments to personnel. In
view of the extraordinary nature of such restructure, management considered it
appropriate to compensate part of such cost by reversing 1.000,8 millions
pesetas from the voluntary reserves with a corresponding increase to 1998
income, recorded as described in Notes 10 and 18. Although such voluntary
reserves are free to be disposed of by the Board of Directors, Spanish Generally
Accepted Accounting Principles does not permit such reversal and the ultimate
recording of extraordinary income in 1998. Therefore, in accordance with General
Accepted Accounting Principles, net income and the voluntary reserves should be
reduced and increased, accordingly, by 1000,8 millions pesetas. Such treatment
does not impact the capital accounts of the Company.
Certain accounting practices of Sintel used in preparing the consolidated
financial statements of Sintel conform with generally accepted accounting
principles in Spain, but do not conform with accounting principles generally
accepted in the United States. A description of these differences and the
adjustments required to conform the consolidated financial statements to
accounting principles generally accepted in the United States are set forth in
Note 22.
In our opinion, except for the effects of the matter described in the preceding
paragraph 4, the accompanying consolidated financial statements express, in all
material respects, the capital and the financial position of Sintel, S.A. and
consolidated subsidiaries at December 31, 1998 and 1997 and the result of its
operations for the two years then ended and includes all the necessary and
sufficient information for an adequate interpretation and comprehension, in
accordance with generally accepted accounting principles applied on a consistent
basis.
/s/ ARTHUR ANDERSEN
- ---------------------
ARTHUR ANDERSEN
Madrid, Spain
March 31, 1999
20
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Year Ended December 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
Revenue ...................................... $ 472,800 $ 659,439 $1,048,922
Costs of revenue ............................. 352,329 495,840 803,112
Depreciation and amortization ................ 12,000 23,855 43,313
Compensation charge .......................... -- -- 33,765
General and administrative expenses .......... 58,529 82,261 140,472
---------- ---------- ----------
Operating income ......................... 49,942 57,483 28,260
Interest expense ............................. 11,434 11,541 29,580
Interest income .............................. 3,246 1,783 9,093
Other income (expense), net .................. 769 8,332 (5,155)
---------- ---------- ----------
Income before provision for income taxes,
equity in earnings of unconsolidated
companies and minority interest .......... 42,523 56,057 2,618
Provision for income taxes ................... 15,591 20,944 12,550
Equity in earnings of unconsolidated companies 3,040 2,897 1,906
Minority interest ............................ 93 (3,346) (5,889)
========== ========== ==========
Net income (loss) ............................ $ 30,065 $ 34,664 $ (13,915)
========== ========== ==========
Weighted average common shares outstanding ... 24,703 26,460 27,489
Basic earnings (loss) per share .............. $ 1.22 $ 1.31 $ (0.51)
Weighted average common shares outstanding ... 25,128 27,019 27,489
Diluted earnings (loss) per share ............ $ 1.20 $ 1.28 $ (0.51)
The accompanying notes are an integral part of these consolidated financial
statements.
21
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
----------------------
1997 1998
--------- ---------
Assets
Current assets:
Cash and cash equivalents .............................. $ 6,063 $ 19,864
Accounts receivable, unbilled revenue and retainage, net 346,596 284,575
Inventories ............................................ 8,746 13,423
Assets held for sale ................................... 10,782 49,973
Other current assets ................................... 22,009 59,601
--------- ---------
Total current assets .............................. 394,196 427,436
Property and equipment, net ................................ 86,109 142,897
Investments in unconsolidated companies .................... 48,160 5,886
Intangibles, net ........................................... 99,890 142,245
Other assets ............................................... 1,869 17,022
--------- ---------
Total assets ...................................... $ 630,224 $ 735,486
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt ............................. $ 54,562 $ 11,143
Accounts payable and accrued expenses .................. 166,596 84,372
Other current liabilities .............................. 48,950 87,417
--------- ---------
Total current liabilities ......................... 270,108 182,932
--------- ---------
Other liabilities .......................................... 41,924 37,592
--------- ---------
Long-term debt ............................................. 94,495 310,689
--------- ---------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock ........................................... 2,758 2,738
Capital surplus ........................................ 154,013 149,479
Retained earnings ...................................... 70,392 56,477
Accumulated other comprehensive income ................. (3,466) (4,421)
--------- ---------
Total shareholders' equity ........................ 223,697 204,273
--------- ---------
Total liabilities and shareholders' equity ........ $ 630,224 $ 735,486
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
22
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Foreign Accumulated
Common Stock Currency Other
----------------- Capital Retained Translation Treasury Comprehensive
Shares Amount Surplus Earnings Adjustments Stock Total Income
- --------------------------------------------------------------------------------------------------------------------- ------------
Balance December 31, 1995 ................... 26,435 $ 2,643 $134,186 $ 5,663 $ 1 $(91,989) $ 50,504 $ 5,664
Net income .................................. 30,065 30,065 30,065
Foreign currency translation adjustment ..... (803) (803) (803)
Stock issued from treasury for stock
options exercised ....................... 48 523 571 --
Tax benefit resulting from stock
option plan ............................. 513 513 --
Stock issued from treasury for an
acquisition ............................. 8,844 2,201 11,045 --
Stock issued for debentures from
treasury ................................ 5,492 6,117 11,609 --
- --------------------------------------------------------------------------------------------------------------------- ------------
Balance December 31, 1996 ................... 26,435 2,643 149,083 35,728 (802) (83,148) 103,504 34,926
Net income .................................. 34,664 34,664 34,664
Foreign currency translation adjustment ..... (2,664) (2,664) (2,664)
Stock issued from treasury for options
exercised ............................... 206 979 1,185 --
Tax benefit resulting from stock
option plan ............................. 1,538 1,538 --
Stock issued for acquisitions ............... 1,621 162 76,219 76,381 --
Stock issued from treasury for an
acquisition ............................. 4,479 1,603 6,082 --
Stock issued for stock dividend from
treasury ................................ (75,802) 75,802 -- --
Stock issued from treasury .................. 3,007 3,007 --
- --------------------------------------------------------------------------------------------------------------------- ------------
Balance December 31, 1997 .................. 28,056 2,805 158,730 70,392 (3,466) (4,764) 223,697 66,926
Retirement of treasury stock ................ (476) (47) (4,717) -- -- 4,764 -- --
-------- -------- --------- --------- --------- --------- --------- ------------
Balance December 31, 1997 ................... 27,580 2,758 154,013 70,392 (3,466) -- 223,697 66,926
Net loss .................................... (13,915) (13,915) (13,915)
Accumulated other comprehensive income (955) (955) (955)
Stock issued, primarily for
acquisitions and stock options
exercised ............................... 469 47 8,721 8,768 --
Tax benefit resulting from stock
option plan ............................. 403 403 --
Repurchase of common stock .................. (667) (67) (13,658) (13,725) --
- --------------------------------------------------------------------------------------------------------------------- ------------
Balance December 31, 1998 ................... 27,382 $ 2,738 $149,479 $ 56,477 $ (4,421) $ -- $ 204,273 $ 52,056
===================================================================================================================== ============
The accompanying notes are an integral part of these consolidated financial
statements.
23
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) .................................. $ 30,065 $ 34,664 $ (13,915)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 12,000 23,855 43,313
Minority interest ................................ (93) 3,346 5,889
Equity in earnings of unconsolidated companies ... (3,040) (2,897) (1,906)
Deferred tax expense (benefit) ................... 2,574 (4,991) 6,974
(Gain) loss on sale of assets .................... (365) (6,848) 8,918
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable, unbilled revenue and retainage (12,013) (28,809) (34,942)
Inventories and other current assets ........... (2,448) 64 (16,759)
Other assets ................................... (2,102) (10,889) (27,341)
Accounts payable and accrued expenses .......... 24,492 5,348 (2,017)
Other current liabilities ...................... (6,706) 7,326 13,385
Other liabilities .............................. (4,942) (4,988) 4,548
---------- ---------- ----------
Net cash provided by (used in) operating activities ... 37,422 15,181 (13,853)
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures .............................. (7,059) (21,534) (76,445)
Cash paid for acquisitions, net of cash acquired .. (5,034) (45,606) (75,745)
Distributions from unconsolidated companies ....... -- 2,130 --
Investments in unconsolidated companies ........... (1,212) (3,364) (13,384)
Repayment (advances) of notes receivable, net .... 1,273 565 (18,667)
Repayment of notes from shareholders .............. -- 780 --
Net proceeds from sale of assets .................. 9,404 29,628 5,600
---------- ---------- ----------
Net cash used in investing activities ................. (2,628) (37,401) (178,641)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from revolving credit facilities ......... 17,476 57,328 5,032
Proceeds from Senior Notes ........................ -- -- 199,724
Other borrowings .................................. 21,739 19,936 35,106
Debt repayments ................................... (70,320) (59,059) (17,946)
Proceeds from issuance of common stock ............ 792 6,264 3,779
Stock repurchased ................................. -- -- (13,725)
Financing costs ................................... -- (587) (4,993)
---------- ---------- ----------
Net cash (used in) provided by financing activities ... (30,313) 23,882 206,977
---------- ---------- ----------
Net increase in cash and cash equivalents ............. 4,481 1,662 14,483
Net effect of translation on cash ..................... (803) (353) (682)
Cash and cash equivalents - beginning of period ....... 1,076 4,754 6,063
---------- ---------- ----------
Cash and cash equivalents - end of period ............. $ 4,754 $ 6,063 $ 19,864
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,029 $ 8,727 $ 21,795
========== ========== ==========
Income taxes $ 11,676 $ 10,377 $ 6,593
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
24
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
Year Ended December 31,
-------------------------------
1996 1997 1998
--------- -------- --------
Acquisitions accounted for under purchase
method of accounting:
Fair value of assets acquired:
Accounts receivable .................... $248,087 $ 43,966 $ 35,184
Inventories ............................ 2,980 1,681 2,565
Other current assets ................... 12,661 2,127 1,615
Property and equipment ................. 13,148 27,480 27,168
Investments in unconsolidated companies 9,373 -- --
Real estate and other assets ........... 6,385 3,973 3,830
-------- -------- --------
Total non-cash assets ................ 292,634 79,227 70,362
-------- -------- --------
Liabilities ................................. 162,928 32,238 20,623
Long-term debt .............................. 78,966 8,535 18,609
-------- -------- --------
Total liabilities assumed ............ 241,894 40,773 39,232
-------- -------- --------
Net non-cash assets acquired ................ 50,740 38,454 31,130
Cash acquired ............................... 1,130 3,304 4,975
-------- -------- --------
Fair value of net assets acquired ........... 51,870 41,758 36,105
Excess over fair value of assets acquired ... 4,956 98,088 55,314
-------- -------- --------
Purchase price .............................. $ 56,826 $139,846 $ 91,419
======== ======== ========
Notes payable issued in acquisitions ........ $ 36,561 $ 130 $ 10,199
Acquisition costs, cash paid and common
stock is acquisitions ..................... 18,015 129,809 81,220
Contingent consideration .................... 2,250 9,907 --
-------- -------- --------
Purchase price .............................. $ 56,826 $139,846 $ 91,419
======== ======== ========
Property acquired through financing arrangements$ 8,550 $ 413 $ --
======== ======== ========
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 liabilities ........................................... 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)
--------
Sale price ....................................................... $ 52,265
========
Assumption of debt ............................................... 25,013
Seller financing ................................................. 27,252
--------
Sale price ....................................................... $ 52,265
========
The accompanying notes are an integral part of these consolidated financial
statements.
25
MASTEC, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
In 1996, MasTec issued approximately 198,000 shares of common stock for an
acquisition. Common stock was issued from treasury at a cost of $2.2 million.
In 1996, MasTec converted $11.6 million of its 12% convertible subordinated
debentures into common stock. Common stock was issued from treasury at a cost of
$6.1 million.
In 1996, MasTec's purchase of an additional 3% interest in Supercanal was
financed in part by the sellers for $2 million.
In 1997, MasTec issued approximately 1,621,000 shares of common stock for
domestic acquisitions, of which 250,000 shares were issued from treasury stock
at a cost of approximately $1.6 million.
In 1997, MasTec converted a note receivable and accrued interest thereon
totaling $29 million into stock of
Conecel.
In 1998, MasTec issued approximately 158,200 shares of common stock
primarily as payment for contingent consideration related to 1997 acquisitions.
In addition, MasTec issued approximately 58,600 shares as bonuses to certain
employees and fees to directors.
The accompanying notes are an integral part of these consolidated financial
statements.
26
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
Note 1 - Nature of the Business and Summary of Significant Accounting
Policies
MasTec is one of the preeminent builders of internal and external voice,
video, data, internet and other computer and communications networks for leading
telecommunications service providers, cable television operators, Fortune 500
corporations and power companies. MasTec designs, installs, constructs and
maintains aerial, underground and buried copper, coaxial and fiber optic cable
networks as well as wireless antenna networks ("external network services").
Clients for MasTec's external network services include major domestic and
international telecommunication service providers, incumbent and competitive
local exchange carriers, cable television operators, long-distance carriers and
wireless phone companies. MasTec also provides external network services to the
electric power industry ("power") that are similar to the services it provides
to telecommunications customers. Additionally, MasTec designs, installs and
maintains integrated local and wide area networks and provides systems
integration and other value added services ("internal network services") for
corporate customers and other organizations with multiple locations.
For the years ended, December 31, 1996, 1997 and 1998, revenue expressed as
a percentage of North American revenue, generated by external network services
for telecommunications service providers was 77.1%, 74.6% and 68.1%,
respectively, by external network services for electric power companies was
1.3%, 5.2% and 18.0%, respectively, and by internal network services was 12.5%,
12.5% and 13.4%, respectively. MasTec operated in 1998 principally in North
America (the United States and Canada), the Caribbean and Latin America ("CALA")
and in Spain (CALA and Spain combined are also referred to as "International").
Combined revenue generated by International operations, as a percentage of total
revenue was 39.8% in 1996, 42.8% in 1997 and 36.2% in 1998. See Note 9.
On December 31, 1998, MasTec sold its Spanish operations, whose principal
customer was Telefonica.
In July and August 1997, MasTec consummated two acquisitions, which were
accounted for as pooling of interests. In July 1998, MasTec applied purchase
accounting to these acquisitions due to transactions contemplated with
management of such acquired companies that were later finalized in 1998 (see
Note 2). Accordingly, MasTec's consolidated financial statements include the
results of operations from the dates of such acquisitions and prior years have
been adjusted accordingly. The change in accounting resulted in increases in
capital surplus and intangibles assets of approximately $53.0 million as of
December 1997. As to the statement of income, the restated 1997 revenue, net
income and earnings per share are $659.4 million, $34.7 million and $1.28,
respectively, in comparison to the originally reported amounts of $703.4
million, $42.7 million and $1.44, respectively.
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 management 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 MasTec's
reserve for allowance for bad debts, accrued workers' compensation claims, and
the realizability 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. 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 of MasTec that result from transactions other
than with shareholders. Comprehensive income (loss) consists of net income
(loss) and foreign currency translation adjustments.
Foreign currency. 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
27
rates that prevailed during the period. The resulting net translation gains and
losses are reported as foreign currency translation adjustments in shareholders'
equity as a component of other accumulated comprehensive income. Exchange gains
and losses on transactions of MasTec and its equity investments denominated in a
currency other than their functional currency are generally included in results
of operations as incurred.
International Operations. MasTec owns interest in a number or foreign
operations, primarily in Latin America, which are subject to greater political,
monetary, economic and regulatory risks than its 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. The impact of the devaluation on an operation depends on the
devaluation's effect on the local economy and the ability of an operation to
raise prices and/or reduce expenses. Additionally, the economies of other
countries in Latin America could be adversely impacted by Brazil's economic and
monetary problems. The likelihood and extent of further devaluation and
deteriorating economy conditions in Brazil and other Latin America countries and
the resulting impacts on MasTec's results of operations, financial position and
cash flows is not known.
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. 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.
MasTec also provides 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 relates to options assumed exercised under the treasury method
of accounting of approximately 425,000 and 559,000 at December 31, 1996 and
1997, respectively.
Potentially dilutive shares, as of December 31, 1998 which have not been
included in the diluted per share calculation include 336,000 shares because
their effects would be anti-dilutive due to the loss incurred by MasTec.
Accordingly, for 1998, diluted net loss per common share is the same as basic
net loss per common share.
Cash and cash equivalent. MasTec considers all short-term investments with
maturities of three months or less when purchased to be cash equivalents. MasTec
places its temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of the F.D.I.C.
insurance limits. MasTec has not experienced any loss to date on these
investments. At December 31, 1998, MasTec had cash and cash equivalent in
Brazilian reais of approximately $9.1 million.
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.
Intangibles and other long lived assets. Assets and liabilities acquired in
connection with business combinations accounted for under the purchase method
28
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 22 years. At December 31, 1997
and 1998, MasTec had recorded intangibles, primarily consisting of goodwill of
$99.9 million and $142.2 million, respectively (net of accumulated amortization
of $3.5 million in 1997 and $14.9 million in 1998).
MasTec reviews long-lived assets, identifiable intangibles and goodwill and
reserves for 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. MasTec is self-insured for certain property and casualty
and worker's compensation exposure and, accordingly, accrues the estimated
losses not otherwise covered by insurance.
Income taxes. MasTec records 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 MasTec's
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. MasTec 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 6).
Fair value of financial instruments. MasTec estimates 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 MasTec could realize in a
current market exchange. MasTec's 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,
$199.8 million at December 31, 1998. The fair value of MasTec's Senior Notes was
approximately $195.0 million at December 31, 1998. MasTec uses 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.
Note 2 - Acquisitions and Investing Activities
During 1997 and 1998, MasTec completed 11 and 12 North America
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 MasTec's 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 1997 or 1998, pro forma results of operations would not
have differed materially from actual results based on historical performance
prior to their acquisition by MasTec. Acquisitions made in 1998 were: M.E.
Hunter, Inc. of Atlanta, Georgia, C & S Directional Boring, Inc. of Purcell,
Oklahoma, Office Communications Systems, Inc. of Inglewood, California, Phasecom
Systems, Inc. of Toronto, Canada, P&E Electric Company, Inc. of Nashville,
Tennessee, Lessard-Nyren Utilities, Inc. of Hugo, Minnesota, Electronic
Equipment Analyzers, Inc. of Raleigh, North Carolina, Cotton and Taylor of Las
Vegas, Nevada, Stackhouse, Inc. of Goldsboro, North Carolina, Martin Telephone
Contractors, Inc. of Cades, South Carolina, Barkers CATV Construction, Inc. of
Burleson, Texas and Fiber and Cable Works, Inc. of Roanoke, Virginia,
telecommunications infrastructure and utility contractors with operations
primarily in the western, northern and southeastern United States as well as
Canada. Of the total 1998 acquisitions, eight, two and two pertained to external
network services, power and internal network services, respectively.
Additionally, MasTec made four international acquisitions of telecommunications
infrastructure contractors: CIDE Engenharia Ltda. of Brazil, Acietel Mexicana,
S.A. of Mexico, Artcom Services, Inc. of Puerto Rico ("Artcom") and Proyco Ltda.
of Colombia ("Proyco"). During 1998, MasTec sold 87% of its Spanish operations
which included Artcom and Proyco.
29
MasTec entered into agreements with certain senior management personnel at
two of its operating subsidiaries. These senior managers have agreed to
multi-year employment agreements and 10-year non-competition and
non-solicitation agreements. Under the definitive agreements, MasTec paid the
senior managers compensation in the form of cash and common stock options. The
cash portion totals approximately $33.3 million, of which approximately $13.3
million was paid in 1998 and approximately $20.0 million was paid in the first
quarter of 1999. As a result of these agreements, MasTec recorded a
non-recurring compensation charge of approximately $33.8 million (including the
value of vested stock options) in the fourth quarter of 1998. Additionally at
December 31, 1998, MasTec had approximately $7.1 million due from these
employees which was received during February 1999.
On April 30, 1996, MasTec purchased from Telefonica, 100% of the capital
stock of Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel"), a
company engaged in telecommunications infrastructure construction services in
Spain, Argentina, Chile, and Peru. In Argentina, Chile and Peru, MasTec operated
through unconsolidated corporations in which it held a 50% interest. On December
31, 1998, MasTec sold 87% of its Spanish operations to a group of investors. The
investor group included the chief executive officer of Sintel and a member of
its board of directors. MasTec received $0.9 million (130.5 million pesetas at
an exchange rate of 142 pesetas to the dollar) on the date of closing and
through March 31, 1999 has received $10.2 million. Payment terms are being
re-negotiated not to extend beyond 1999. The sale included the assumption of the
remaining indebtedness of MasTec to Telefonica for the purchase of the Spanish
operations of $25.0 million (3.6 billion pesetas).
On July 31, 1997, MasTec completed its acquisition of 51% of MasTec Inepar
S/A-Sistemas de Telecomunicacoes ("MasTec Inepar"), a newly formed Brazilian
telecommunications infrastructure contractor, for 250,000 of MasTec's shares of
common stock and $29.4 million in cash, of which $7.3 million remains
outstanding.
Subsequent to December 31, 1998, MasTec has signed letters of intent to
acquire two external network and one internal network services contractors,
subject to a number of conditions.
Note 3 - Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts
of $3.1 million, $3.1 million, and $7.3 million at December 31, 1996, 1997 and
1998, respectively. MasTec recorded a provision for doubtful accounts of $1.2
million, $0.7 million and $4.5 million during 1996, 1997 and 1998, respectively.
In addition, MasTec recorded write-offs of $0.1 million, $0.7 million and $0.3
million during 1996, 1997 and 1998, respectively.
Accounts receivable include 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
$10.2 million and $16.1 million at December 31, 1997 and 1998, respectively.
Included in accounts receivable is unbilled revenue of $97.5 million and
$83.3 million at December 31, 1997 and 1998, respectively. Such unbilled amounts
represent work performed but not billable to customers as per individual
contract terms, of which $49.5 million and $45.2 million at December 31, 1997
and 1998, respectively, are related to MasTec's Brazilian operations.
During 1998, MasTec entered into a financing agreement to provide financing
to a customer. As of December 31, 1998, MasTec had $41.8 million outstanding
under this agreement, of which approximately $30.0 million and $11.8 million is
reflected in accounts receivable and other current assets, respectively, in the
accompanying consolidated balance sheet as of December 31, 1998. MasTec will
terminate the financing agreement as of April 30, 1999.
30
Note 4 - Property and Equipment
Property and equipment is comprised of the following as of December 31,
1997 and 1998 (in thousands):
Estimated
Useful Lives
1997 1998 (In Years)
--------- --------- ----------
Land ......................... $ 8,430 $ 10,230
Buildings and improvements ... 9,474 11,291 5 - 20
Machinery and equipment ...... 97,727 170,922 3 - 7
Office furniture and equipment 5,810 9,319 3 - 5
--------- ---------
121,441 201,762
Less-accumulated depreciation (35,332) (58,865)
--------- ---------
$ 86,109 $ 142,897
========= =========
Note 5 - Debt
Debt is comprised of the following at December 31, (in thousands):
1997 1998
--------- ---------
Revolving Credit Facility, at LIBOR plus 1.50% (6.96%
at December 31, 1997 and 7.06% at December 31, 1998) ........ $ 83,010 $ 106,300
Revolving Credit Facility, at MIBOR plus 0.30 (5.60% at
December 31, 1997) .......................................... 10,894 --
Other Spanish bank facilities at interest rates from
5.65% to 6.75% .............................................. 17,438 --
Other bank facilities at LIBOR plus 1.25% (6.31% at
December 31, 1998)........................................... -- 6,206
Notes payable for equipment, at interest rates from 7.5% to 8.5%
due in installments through the year 2000 ................... 14,500 6,145
Notes payable for acquisitions, at interest rates from 7% to 8%
due in installments through February 2000 .................. 23,215 3,431
Senior Notes, 7.75% due February 2008 .......................... -- 199,750
--------- ---------
Total debt ..................................................... 149,057 321,832
Less current maturities ........................................ (54,562) (11,143)
--------- ---------
Long-term debt ................................................. $ 94,495 $ 310,689
========= =========
In June 1997, MasTec entered into a revolving line of credit agreement with
a group of banks as amended, (the "Credit Facility"). The Credit Facility
provides for borrowings up to an aggregate amount of $165.0 million. Amounts
outstanding under the revolving credit facility mature on June 9, 2000. Upon
written request by MasTec and at the bank's sole discretion, the maturity date
of the Credit Facility may be extended for successive annual periods up to a
final maturity date of June 9, 2002. MasTec is 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 MasTec's
subsidiaries. Interest under the Credit Facility accrues at rates based, at
MasTec's 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.
MasTec had outstanding $18.7 million in standby letters of credit as of
December 31, 1998.
On January 30, 1998, MasTec issued $200.0 million, 7.75% senior
subordinated notes (the "Senior Notes") due in February 2008 with interest due
semi-annually. The net proceeds were used primarily for acquisitions and other
corporate purposes.
31
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 MasTec must maintain certain financial ratio
coverage, requiring, among other things minimum ratios at the end of each fiscal
quarter of debt to earnings and earnings to interest expense.
At December 31, 1998 debt matures as follows:
1999 $ 11,143
2000 109,063
2001 1,503
2002 345
2003 28
Thereafter 199,750
----------------
$ 321,832
================
Note 6 - Stock Option Plans
Shares underlying stock options and exercise prices have been adjusted to
reflect the three-for-two stock split declared in 1997 by the Board of
Directors. MasTec's only stock option plans currently in effect is the 1994
Stock Incentive Plan (the "1994 Plan") and the 1994 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan"). Under MasTec's 1976 stock option
plan, there are 5,250 shares available for grant and have been reserved for and
may still be issued in accordance with the terms of such plan.
The 1994 Plan authorizes the grant of options or awards of restricted stock
up to 2,500,000 shares of MasTec's common stock, of which 500,000 shares may be
awarded as restricted stock. As of December 31, 1998, options to purchase
1,567,695 (net of 464,255 stock options cancelled) shares had been granted under
the 1994 Plan. Options are exercisable at prices and over periods established by
the Compensation Committee of the Board of Directors and must be exercised no
later than 10 years from the date of grant.
The Directors' Plan authorizes the grant of options to purchase up to
600,000 shares of MasTec's common stock to the non-employee members of MasTec's
Board of Directors. Options to purchase 142,500 shares have been granted to
Board members through 1998. The options granted become exercisable ratably over
a three year period from the date of grant and may be exercised for a period of
up to ten years beginning the year after the date of grant at an exercise price
equal to the fair market value of such shares on the date the option is granted.
In addition, during 1994 options to purchase 150,000 shares of common stock
at $3.83 per share were granted to a director outside the Directors' Plan in
lieu of the Director's Plan and annual fees paid to the director. Compensation
expense of $42,500 in connection with the issuance of this option is being
recognized annually over the five-year vesting period. The options are
exercisable ratably over a three to five year period beginning the year after
the date of grant and may be exercised for a period of up to ten years beginning
the year after the date of grant. In 1997, options to purchase 110,000 shares of
common stock at fair market value on the date of grant were granted to two
executive officers outside the 1994 plan.
In connection with two acquisitions completed during 1997, options to
purchase 800,000 shares of MasTec's common stock at prices ranging from $17.50
to $20.19 were granted to individuals during 1998 outside the 1994 Plan subject
to varying vesting schedules.
32
The following is a summary of all stock option transactions:
Weighted
Average Fair
Weighted Value of
Stock Average Options
Options Exercise Price Exercise Price Granted
---------------- --------------- -------------------------------------- --------------
Outstanding December 31, 1995 676,800 $ 6.33 $ 0.10 - $ 8.92
Granted 306,000 17.05 7.42 - 28.58 $ 9.23
Exercised (82,200) 6.38 0.10 - 8.92
Canceled (2,700) 5.29 5.29 - 8.92
---------------- --------------- --------------------------------------
Outstanding December 31, 1996 897,900 9.98 0.10 - 28.58
Granted 1,254,950 24.96 21.09 - 48.19 $ 19.97
Exercised (201,950) 5.58 0.10 - 21.83
Canceled (343,475) 23.62 5.29 - 48.19
---------------- --------------- --------------------------------------
Outstanding December 31, 1997 1,607,425 17.06 0.10 - 31.63
Granted 1,234,250 19.17 12.97 - 31.88 $ 13.29
Exercised (101,990) 11.38 1.33 - 21.09
Canceled (110,580) 19.47 5.29 - 31.63
================ =============== ======================================
Outstanding December 31, 1998 2,629,105 $ 18.32 $ 0.10 - $ 31.88
================ =============== ======================================
The following table summarizes information about stock options outstanding
at December 31, 1998:
Stock Options Outstanding Options Exercisable
------------------------------------------------------------ ---------------------------------------
Range of Exercise Number of Stock Weighted Weighted Average Number of Stock Weighted Average
Prices Options Average Exercise Options Exercise
Remaining Price Price
Contractual Life
- --------------------- ------------------ -------------------- ------------------ ------------------ -------------------
.10 - .10 3,600 4.50 $ 0.10 3,600 $ 0.10
3.83 - 5.29 94,200 5.19 4.83 35,700 5.29
6.83 - 9.81 327,430 6.41 8.66 181,330 8.73
12.97 - 17.50 532,500 9.98 17.34 166,667 17.50
20.19 - 31.88 1,671,375 8.62 21.32 674,911 21.09
================== ==================== ================== ================== ===================
2,629,105 8.49 $ 18.32 1,062,208 $ 17.82
================== ==================== ================== ================== ===================
MasTec has reflected below the 1996, 1997 and 1998 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 1996, 1997 and 1998, respectively: a five, six and five year expected life
for 1996, 1997 and 1998, respectively; volatility factors of 57%, 82% and 72%,
respectively; risk-free interest rates of 6.1%, 5.5% and 4.3%, respectively; and
no dividend payments.
33
Had compensation cost for MasTec's options plans been determined and
recorded in accordance with SFAS No. 123, MasTec's net income and earnings per
share would have been reduced to the pro forma amounts as follows:
1996 1997 1998
--------- --------- ---------
Net income (loss):
As reported ........................ $ 30,065 $ 34,664 $(13,915)
========= ========= =========
Pro forma .......................... $ 29,211 $ 28,797 $(28,472)
========= ========= =========
Basic earnings (loss) per share:
As reported ........................ $ 1.22 $ 1.31 $ (0.51)
Pro forma .......................... $ 1.18 $ 1.09 $ (1.04)
Diluted earnings (loss) per share:
As reported ........................ $ 1.20 $ 1.28 $ (0.51)
Pro forma .......................... $ 1.16 $ 1.07 $ (1.04)
The 1996, 1997 and 1998 pro forma effect on net income (loss) is not
necessarily representative of the effect in future years because it does not
take into consideration pro forma compensation expense related to grants made
prior to 1995 and does not reflect a tax benefit related to the compensation
expense given that the options are considered incentive stock options and such
benefit, if any, cannot be presently determined.
Note 7 - Income Taxes
The provision (benefit) for income taxes consists of the following (in
thousands):
1996 1997 1998
-------- -------- --------
Current:
Federal ................ $ 10,891 $ 9,583 $ 3,198
Foreign ................ 5,347 4,465 1,376
State and local ........ 1,536 1,670 1,002
-------- -------- --------
17,774 15,718 5,576
-------- -------- --------
Deferred:
Federal ................ (1,965) 2,730 2,119
Foreign ................ -- 2,040 5,430
State and local ........ (218) 456 (575)
-------- -------- --------
(2,183) 5,226 6,974
-------- -------- --------
Provision for income taxes $ 15,591 $ 20,944 $ 12,550
======== ======== ========
34
The tax effects of significant items comprising MasTec's net deferred tax
liability as of December 31, 1997 and 1998 are as follows (in thousands):
1997 1998
-------- --------
Deferred tax assets:
Non-compete ............................... $ -- $ 5,951
Bad debts ................................. 1,104 5,680
Accrued self insurance .................... 2,100 4,566
Operating loss and tax credit carry forward 1,565 1,186
All other ................................. 6,446 6,603
-------- --------
Total deferred tax assets ..................... 11,215 23,986
-------- --------
Deferred tax liabilities:
Installment sale .......................... -- 6,271
Accounts receivable retainage ............. 3,866 6,973
Property and equipment .................... 7,536 9,208
Asset re-evaluations ...................... 6,066 5,677
All other ................................. 5 3,420
-------- --------
Total deferred tax liabilities ................ 17,473 31,549
Valuation allowance ....................... 1,376 211
-------- --------
Net deferred tax liability .................... $ (7,634) $ (7,774)
======== ========
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. Deferred tax assets of $1.2 million for 1997 have been
recorded in current assets in the accompanying consolidated financial
statements. The net change in the valuation allowance for deferred tax assets
was a decrease of $1.2 million.
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
l996 1997 1998
------ ------ ------
U.S. statutory federal rate
applied to pretax income ............ 35% 35% 35%
State and local income taxes ........... 2 2 10
Effect of non-U.S. tax rates ........... (1) (1) (23)
Amortization of intangibles ............ -- -- 58
Gain on sale of Spanish operations ..... -- -- 329
Non-deductible expenses ................ -- -- 37
Other .................................. 1 1 33
====== ====== ======
Provision for income taxes ............. 37% 37% 479%
====== ====== ======
No provision have been made for the years ended December 31, 1997 and 1998
for U.S. income taxes on the undistributed earnings of the foreign subsidiaries
since it is MasTec's 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, 1998, undistributed earnings of the remaining foreign
subsidiaries amounted to $11.8 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 (the "IRS") examined the tax returns for
the fiscal years ended April 30, 1989 through April 30, 1993. During 1998, the
IRS concluded its examination which resulted in a payment of approximately
$150,000. The IRS 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.
35
Note 8 - Capital Stock
MasTec has authorized 100,000,000 shares of common stock, $0.10 par value.
At December 31, 1997 and 1998, approximately 28,056,000 and 27,382,000 shares of
common stock were issued, 27,580,000 and 27,382,000 shares were outstanding
(adjusted for the stock split), respectively, and 476,000 and 0 were held in
treasury, at cost (after giving effect to the stock split paid in the form of a
dividend from treasury stock), respectively. At December 31, 1997 and 1998,
MasTec had 5,000,000 shares of authorized but unissued preferred stock.
Note 9 - Operations by geographic areas and segments
MasTec derives a substantial portion of its revenue from providing
telecommunications infrastructure services to Telefonica, BellSouth and
Telebras. For the year ended December 31, 1996, approximately 31% and 13% of
MasTec's revenue was derived from services performed for Telefonica and
BellSouth, respectively. For the year ended December 31, 1997, approximately
27%, 13% and 11% of MasTec's revenue was derived from services performed for
Telefonica, BellSouth and Telebras, respectively. For the year ended December
31, 1998, approximately 19%, 7% and 8% of MasTec's revenue was derived from
services performed for Telefonica, BellSouth and Telebras, respectively. For the
year ended December 31, 1997, revenue generated from Telebras is included from
August 1, 1997 (See Note 2). For the year ended December 31, 1998, revenue
generated from Telebras is included from January 1, 1998 through July 31, 1998,
subsequent to that period Telebras was privatized and divided into more than
eight unaffiliated companies owned by private investors. Accounts receivable
from MasTec's three largest customers approximated $192.0 million at December
31, 1997.
External Network Services. MasTec's principal domestic business consists of
external network services for telecommunications providers, including incumbent
and competitive local exchange carriers, cable television operators,
long-distance carriers and wireless communications providers. External network
services consist of all of the services necessary to design, install and
maintain the physical facilities used to provide telecommunications services
from the provider's central office, switching center or cable headed to the
ultimate consumer's home or business. These services include the placing and
splicing of cable, the excavation of trenches in which to place the cable, the
placing of related structures such as poles, anchors, conduits, manholes,
cabinets and closures, the placing of drop lines from the main transmission
lines to the customer's home or business, and the maintenance and removal of
these facilities. MasTec has developed expertise in directional boring, a highly
specialized and increasingly common method of placing buried cable networks in
congested urban markets without digging a trench. Services to many of these
customers are provided under exclusive master contracts with 2 to 3 year initial
terms expiring at various dates.
MasTec provides a full range of external network services to its
telecommunications company customers, although certain of MasTec's customers
handle certain of these services in-house. MasTec's customers generally supply
materials such as cable, conduit and telephone equipment, and MasTec provides
the expertise, personnel, tools and equipment necessary to perform the required
installation and maintenance services.
Internal Network Services. MasTec provides design, installation and
maintenance of internal networks linking the customers' voice, video, data and
internet computer and communications networks at multiple locations. MasTec also
provides 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 network services is less capital
intensive than external network construction but requires a more technically
proficient work force. MasTec provides these services to its customers
nationwide, primarily on the east and west coasts of the United States.
Internal network services consist of designing, installing and maintaining
local area networks and wide area networks linking the customers' voice
communications networks at multiple locations with their data and video
services. This type of work is similar to external network construction; both
involve the placing and splicing of copper, coaxial and fiber optic cables.
Inside wiring is less capital intensive than external network construction but
requires a more technically proficient work force. MasTec contracts with primary
contractors to provide services under subcontracts that are similar to master
contracts in the external network business. MasTec also provides internal
network services on individual projects that are awarded on a competitive bid
basis or through individual negotiation.
36
External Network Power. MasTec provides external network services to power
companies, including investor-owned utilities and rural cooperatives. These
services, which are substantially similar to the external network services
provided to telecommunications companies, include overhead and underground
construction 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. The work often
involves the installation and splicing of high-voltage transmission and
distribution lines. Services to many of these customers are provided under
exclusive master contracts with 2 to 3 year initial terms expiring at various
dates, as well as on a project by project basis awarded under competitive
bidding and individual negotiations. MasTec currently has 42 master service
agreements with power companies.
The following table set forth, for each of 1996, 1997 and 1998, certain
information about segment results of operations and segment assets (in
thousands).
1996 External Internal External
Network Network Network Inter-
Services Services Power national Other(1) Consolidated
- -----------------------------------------------------------------------------------------
Revenue ............... $219,559 35,524 3,773 188,155 25,789 $ 472,800
======== ======== ======== ======== ======== ==========
Operating income (loss) 35,838 4,303 566 19,733 (10,498) 49,942
Depreciation and
amortization ....... 8,718 484 522 2,058 218 12,000
Total assets .......... 105,333 16,140 2,890 259,624 99,031 483,018
Capital Expenditures .. 3,714 689 320 -- 2,336 7,059
1997 External Internal External
Network Network Network Inter-
Services Services Power national Other(1) Consolidated
- -----------------------------------------------------------------------------------------
Revenue ............... $281,426 47,285 19,693 282,393 28,642 $ 659,439
======== ======== ======== ======== ======== ==========
Operating income (loss) 39,888 3,565 607 21,450 (8,019) 57,483
Depreciation and
amortization ....... 15,686 1,022 2,888 3,403 856 23,855
Total assets .......... 154,074 36,167 33,805 250,277 155,901 630,224
Capital Expenditures .. 16,387 1,113 1,223 1,879 932 21,534
1998 External Internal External
Network Network Network Inter-
Services Services Power national Other(1) Consolidated
- -----------------------------------------------------------------------------------------
Revenue ............... $455,798 89,687 120,218 379,294 3,925 $1,048,922
======== ======== ======== ======== ======== ==========
Operating income (loss) 58,974 (3,411) 10,910 15,167 (53,380) 28,260
Depreciation and
amortization ...... 24,600 1,617 10,095 6,029 972 43,313
Total assets .......... 303,088 60,659 86,809 88,612 196,318 735,486
Capital Expenditures .. 41,946 2,361 25,872 5,003 1,263 76,445
(1) Consists of non-core construction and corporate operations.
37
There are no significant transfers between geographic areas and segments.
Operating income consists of revenue less operating expenses, and does not
include interest expense, interest and other income, equity in earnings of
unconsolidated companies, minority interest and income taxes. Operating income
is net of corporate general and administrative expenses. Total assets are those
assets used in MasTec's operations in each segment. Corporate assets include
cash and cash equivalents, investments in unconsolidated companies, assets held
for sale and notes receivable.
Note 10 - Commitments and Contingencies
In December 1990, Albert H. Kahn, a stockholder of MasTec, filed a
purported class action and derivative suit in Delaware state court against
MasTec, the then-members of its Board of Directors, and National Beverage
Corporation ("NBC"), MasTec's then-largest stockholder. The complaint alleges,
among other things, that MasTec's Board of Directors and NBC breached their
respective fiduciary duties in approving certain transactions.
In November 1993, Mr. Kahn filed a class action and derivative complaint
against MasTec, the then members of its Board of Directors, and Jorge L. Mas,
Jorge Mas and Juan Carlos Mas, the principal shareholders of MasTec. The 1993
lawsuit alleges, among other things, that MasTec's Board of Directors and NBC
breached their respective fiduciary duties by approving the terms of the
acquisition of MasTec by the Mas family, and that the Mas family had knowledge
of the fiduciary duties owed by NBC and MasTec's Board of Directors and
knowingly and substantially participated in the breach of these duties. The
lawsuit also claims derivatively that each member of MasTec's Board of Directors
engaged in mismanagement, waste and breach of fiduciary duties in managing
MasTec's affairs prior to the acquisition by the Mas Family.
There has been no activity in either of these lawsuits in more than two
years. MasTec believes that the allegations in each of the lawsuits are without
merit and intends to defend these lawsuits vigorously.
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 MasTec seeking 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. MasTec is vigorously pursuing this
lawsuit.
MasTec is a party to other pending legal proceedings arising in the normal
course of business, none of which MasTec believes is material to MasTec's
financial position or results of operations.
Federal, state and local laws and regulations govern MasTec's operation of
underground fuel storage tanks. MasTec is in the process of removing, restoring
and upgrading these tanks, as required by applicable laws, and has identified
certain tanks and surrounding soil which will require remedial cleanups. The
cost of these cleanups is not expected to be material.
In connection with certain contracts, MasTec has signed certain agreements
of indemnity in the aggregate amount of approximately $194.4 million, of which
approximately $145.3 million relate to the uncompleted portion of contracts in
process. These agreements are to secure the fulfillment of obligations and
performance of the related contracts.
During 1998, MasTec provided a customer financing in connection with the
sale of its services. As of December 31, 1998, MasTec had $41.8 million
outstanding under this agreement. MasTec anticipates that it will provide an
additional $8.0 million of financing under this agreement. MasTec will terminate
financing agreement as of April 30, 1999. MasTec has entered into an agreement
to expand the telephone network of the Nicaraguan telephone company. MasTec is
not currently rendering construction services in Nicaragua and has determined
not to proceed with the project unless MasTec obtains non-recourse outside
financing.
38
MasTec has committed to continue developing a PCS cellular phone system
through its investment in Paraguay. MasTec anticipates investing approximately
$13.0 million for the development of this system over the next 12 months. MasTec
will terminate financing agreement as of April 30, 1999.
MasTec announced a stock repurchase program in April 1998. Through December
31, 1998, MasTec had purchased a total of 667,000 shares at an average price of
$20.58. MasTec may continue to purchase shares from time to time. The Credit
Facility restricts the amount of shares that MasTec may repurchase up to an
additional amount of $5.5 million (see Note 5).
MasTec's 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.
MasTec 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
MasTec's international operations.
Note 11 - Assets Held for Sale
In previous years, MasTec has recorded a charge of $23.1 million to adjust
the carrying values of its real estate investment to estimated net realizable
value based on offers received by MasTec to dispose of certain real estate
investments in a bulk transaction. Included in assets held for sale in the
accompanying balance sheet is approximately $10.5 million of real estate at
December 31, 1998. MasTec is actively marketing this real estate and expects to
dispose of substantially all these assets in 1999.
MasTec has a 28% voting interest in Supercanal Holding, S.A.
("Supercanal"), a holding company of numerous cable television operators
predominately in Argentina. MasTec does not exercise significant influence over
the management of Supercanal. During 1998, MasTec contributed an additional $1.7
million. Based on the most recent available financial information, for the nine
months ended September 30, 1998, Supercanal incurred losses of $53.0 million
(unaudited) and reflected a shareholders' deficiency of $5.0 million
(unaudited).
In July 1995, MasTec made a $25 million non-recourse term loan
collateralized by 40% of the capital stock of a holding company that owned 52.6%
of the capital stock of Consorcio Ecuatoriano de Telecomunicaciones, S.A.
("Conecel"), one of two cellular phone operators in the Republic of Ecuador. In
June 1997, MasTec converted its loan and accrued interest into the stock of the
holding company. In December 1997, MasTec sold its investment in the holding
company for $20.0 million in cash and 7.5 million shares of Conecel common stock
valued at $25.0 million. Accordingly, MasTec recognized a gain of $4.4 million
net of tax based of the percent of cash received to the total transaction value.
During January 1999, MasTec engaged investment bankers to dispose of its
investments in Supercanal and Conecel which have a carrying value at December
31, 1998 of $33.9 million. MasTec also has other international investments with
a carrying value of $5.6 million recorded as assets held for sale as of December
31, 1998. MasTec estimates that the carrying value of such assets held for sale
will be realized upon their ultimate disposition.
39
Note 12 - Quarterly Information (Unaudited)
The following table presents unaudited quarterly operating results for the
two years ended December 31, 1998. 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, 1997 and 1998.
Results of operations for any particular quarter are not necessarily indicative
of results of operations for a full year or predictive of future periods.
Quarterly results have been adjusted to reflect the application of purchase
accounting to acquisitions previously accounted for as pooling of interests (see
Note 1).
1997 1998
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)
Statement of Income Data
Revenue .................... $130,143 $141,499 $184,562 $203,235 $186,095 $246,106 $288,606 $328,115
Gross profit, excluding
depreciation and
amortization ............ 36,928 39,675 41,688 44,918 33,129 59,878 $ 70,093 82,710
Operating income (loss) .... 15,495 17,614 16,772 7,602 (13,599) 20,011 26,289 (4,441)
Net income (loss) .......... 9,287 10,826 8,498 6,053 (12,099) 9,395 13,413 (24,624)
Basic earnings (loss) per .. $ 0.36 $ 0.42 $ 0.32 $ 0.22 $ (0.44) $ 0.34 $ 0.49 $ (0.90)
share
Diluted earnings (loss) .... $ 0.36 $ 0.41 $ 0.31 $ 0.22 $ (0.44) $ 0.33 $ 0.48 $ (0.90)
per share
MasTec believes that the effects of inflation have not had a significant
impact on its results of operations or financial condition. 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.
During the third quarter of 1997, MasTec commenced operations in Brazil,
through its subsidiary MasTec Inepar.
During the fourth quarter of 1997, MasTec sold at a gain of $4.4 million
net of taxes, a portion of Conecel.
First quarter of 1998 was negatively affected by severe weather, a $4.0
million related to charges incurred in North American operations and $13.4
million of severance expenses related to MasTec's Spanish operations.
During the fourth quarter of 1998, MasTec sold at a loss of $9.2 million
($17.0 million net of taxes) 87% of its Spanish operations.
During the fourth quarter of 1998, MasTec recorded a $33.8 million
compensation charge for senior management at certain operating subsidiaries,
$4.5 million for losses on a non-core contract, $1.4 million for startup costs
and $500,000 associated with bad debts reserves.
* * * * * * * * * * * *
40
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding MasTec's executive officers is included in this
Annual Report under the caption "Executive Officers of the Registrant."
Information regarding MasTec's directors and nominees for directors will be
contained in MasTec's Proxy statement relating to the 1999 Annual Meeting of
Shareholders to be held on May 25, 1999 (the "Proxy Statement"), and is
incorporated in this Annual Report by reference.
EXECUTIVE COMPENSATION
Information regarding compensation of MasTec's executive officers will be
contained in the Proxy Statement and is incorporated in this Annual Report by
reference, except the Compensation Committee Report and Performance Graph
contained in the Proxy Statement, which are not incorporated in this Annual
Report by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the ownership of MasTec's Common Stock will be
contained in the Proxy Statement and is incorporated in this Annual Report by
reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will
be contained in the Proxy Statement and is incorporated in this Annual Report by
reference.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - The financial statements and the reports of
Independent Accountants are listed on page 18 and included on pages 19
through 41.
2. Financial Statements Schedules - The financial statement schedule
information required by Item 14(a)(2) is included as part of "Note 3 -
Accounts Receivable" of the Notes to Consolidated Financial
Statements.
3. Exhibits including those incorporated by reference:
Exhibit
No. Description
1.1 Articles of Incorporation, filed as Appendix B to MasTec's definitive
Proxy Statement for its 1998 Annual Meeting of Stockholders dated
April 14, 1998 and filed with the Securities and Exchange Commission
on April 14, 1998, and incorporated by reference herein.
1.2 By-laws, filed as Exhibit 3.2 to MasTec's Form 8-K dated May 29, 1998
and filed with the Commission on June 26, 1998, and incorporated by
reference herein.
4.1 7 3/4% Senior Subordinated Notes Due 2008 Indenture dated as of
February 4, 1998, filed as Exhibit 4.2 to MasTec's Registration
Statement on Form S-4 (file No. 333-46361) and incorporated by
reference herein.
41
10.1 Stock Option Agreement dated March 11, 1994 between MasTec and Arthur
B. Laffer, filed as Exhibit 10.6 to MasTec's Form 10-K for the year
ended December 31, 1995 and incorporated by reference herein.
10.2 Stock Option Agreement dated December 29, 1997 between MasTec and
Henry N. Adorno, filed as Exhibit 10.2 to MasTec's Form 10-K for the
year ended December 31,1997 and incorporated by reference herein.
10.3 Stock Option Agreement dated December 29, 1997 between MasTec and
Joel-Tomas Citron, filed as Exhibit 10.3 to MasTec's Form 10-K for the
year ended December 31, 1997 and incorporated by reference herein.
10.4 Revolving Credit Agreement dated as of June 9, 1997 between MasTec,
certain of its subsidiaries, and BankBoston, N.A. as agent.
10.5 Agreement dated July 21, 1997 between MasTec and Inepar S/A Industrias
e Construcoes, filed as Exhibit 10.5 to MasTec's Form 10-K for the
year ended December 31, 1997 and incorporated by reference herein.
10.6 First Amendment to Revolving Credit Agreement, filed as Exhibit 10.1
to MasTec's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 and incorporated by reference herein.
10.7 Second, Third, Fourth and Fifth Amendments to Revolving Credit
Agreement.
10.8 Agreement between Joel-Tomas Citron and MasTec dated as of November
18, 1998.
10.9 Stock purchase and sale agreement dated as of December 31, 1998
between MasTec and a group of investors regarding the sale of MasTec's
Spanish operations.
21.1 Subsidiaries of MasTec.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
99.1 Cautionary Statements Regarding Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
(b) Reports on Form 8-K:
On January 14, 1999, MasTec filed a Current Report on Form 8-K dated
December 31, 1998 with the Securities and Exchange Commission reporting
information under Item 2, Acquisition or Disposition of Assets.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Miami,
State of Florida, on March 29, 1999.
MASTEC, INC.
/S/ CARMEN M. SABATER
--------------------------------------------
Carmen M. Sabater
Senior Vice President - Director of Finance
(Principal Financial Officer)
/S/ ARLENE VARGAS
--------------------------------------------
Arlene Vargas
Vice President and Controller
(Principal Accounting Officer)
POWER OF ATTORNEY
The undersigned directors and officers of MasTec, Inc. hereby constitute
and appoint Carmen M. Sabater and Jose Sariego and each of them with full power
to act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below this Annual Report on Form 10-K and any
and all amendments thereto and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratify and confirm all that such attorneys-in-fact, or any
of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29, 1999.
/S/ JORGE MAS
- --------------------------------------
Jorge Mas, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/S/ ELIOT C. ABBOTT
- --------------------------------------
Eliot C. Abbott, Director
/S/ ARTHUR B. LAFFER
- --------------------------------------
Arthur B. Laffer, Director
/S/ JOSE S. SORZANO
- --------------------------------------
Jose S. Sorzano, Director
/S/ JOEL-TOMAS CITRON
- --------------------------------------
Joel-Tomas Citron, Director
43
MasTec, Inc.
Exhibit Index
Exhibit
No. Description
1.1 Articles of Incorporation, filed as Appendix B to MasTec's definitive
Proxy Statement for its 1998 Annual Meeting of Stockholders dated
April 14, 1998 and filed with the Securities and Exchange Commission
on April 14, 1998, and incorporated by reference herein.
1.2 By-laws, filed as Exhibit 3.2 to MasTec's Form 8-K dated May 29, 1998
and filed with the Commission on June 26, 1998, and incorporated by
reference herein.
4.1 7 3/4% Senior Subordinated Notes Due 2008 Indenture dated as of
February 4, 1998, filed as Exhibit 4.2 to MasTec's Registration
Statement on Form S-4 (file No. 333-46361) and incorporated by
reference herein.
10.1 Stock Option Agreement dated March 11, 1994 between MasTec and Arthur
B. Laffer, filed as Exhibit 10.6 to MasTec's Form 10-K for the year
ended December 31, 1995 and incorporated by reference herein.
10.2 Stock Option Agreement dated December 29, 1997 between MasTec and
Henry N. Adorno, filed as Exhibit 10.2 to MasTec's Form 10-K for the
year ended December 31,1997 and incorporated by reference herein.
10.3 Stock Option Agreement dated December 29, 1997 between MasTec and
Joel-Tomas Citron, filed as Exhibit 10.3 to MasTec's Form 10-K for the
year ended December 31, 1997 and incorporated by reference herein.
10.4 Revolving Credit Agreement dated as of June 9, 1997 between MasTec,
certain of its subsidiaries, and BankBoston, N.A. as agent.
10.5 Agreement dated July 21, 1997 between MasTec and Inepar S/A Industrias
e Construcoes, filed as Exhibit 10.5 to MasTec's Form 10-K for the
year ended December 31, 1997 and incorporated by reference herein.
10.6 First Amendment to Revolving Credit Agreement, filed as Exhibit 10.1
to MasTec's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998 and incorporated by reference herein.
10.7 Second, Third, Fourth and Fifth Amendments to Revolving Credit
Agreement.
10.8 Agreement between Joel-Tomas Citron and MasTec dated as of November
18, 1998.
10.9 Stock purchase and sale agreement dated as of December 31, 1998
between MasTec and a group of investors regarding the sale of MasTec's
Spanish operations.
21.1 Subsidiaries of MasTec.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
99.1 Cautionary Statements Regarding Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995