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, 20002001
Commission File Number 0-3797001-08106
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
(StateState 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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Exchange 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 Exchange 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_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. [ ]_X_
The number of shares of common stock outstanding as of March 21, 200125,
2002 was 47,719,061.47,914,099. The aggregate market value of the voting stock held
by non-affiliates of the registrant based on the $12.89$7.47 closing price for
the registrant's common stock on the New York Stock Exchange on March 19, 200125,
2002 was approximately $615,098,696.$200,834,812. 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 20012002
Annual Meeting of Shareholders are incorporated by reference.reference in Part III
of this Annual Report on Form 10-K.
TABLE OF CONTENTS
BUSINESS .......................................................... 3
PROPERTIES ........................................................ 7
LEGAL PROCEEDINGS ................................................. 7
EXECUTIVE OFFICERS ................................................ 8
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 8
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ......................................................... 8
SELECTED FINANCIAL DATA ........................................... 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................. 11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........ 17
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................... 18
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .............................................. 36
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 36
EXECUTIVE COMPENSATION ............................................ 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .... 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 36
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ... 37
Except for historical information, the matters discussed below are forward
looking statements made pursuant to the safe harbor provisions formay
contain forward-looking statements, describedsuch as statements regarding our
future growth and profitability, growth strategy and anticipated trends
in the Private Securities Litigation Reform
Act of 1995.industries and economies in which we operate. These forward-lookingforward-
looking statements are based on our current expectations and are subject
to a number of risks, uncertainties, and assumptions, relating toincluding that our
operations,revenue or profit may differ from that projected, that we may be further
impacted by slowdowns in our clients' businesses or deterioration in our
clients' financial condition, that our reserves may be inadequate or our
equity investments may be impaired, that the outcome of pending litigation
may be adverse to us, and results of operations.that we may experience increased costs associated
with realigning our business or may be unsuccessful in those efforts.
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 us
in this Annual Report.us. These and other risks are detailed in this annual
report and in other documents filed by us with the Securities and
Exchange Commission, including our registration statement on Form S-3
(No.333-90027)(No. 333-90027). We aredo not obligatedundertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
BUSINESS
General
We are a leading end-to-end voice, video, datacommunication, broadband and energy
network
infrastructure solutionservice provider for a broad range of communications, broadband, energyclients in North
America and other corporate clients. We have a diverse client base representing all the
major segments of the industries we serve. Our broad suite of services allows
our clients to connect with their customers.Brazil.
We design, build, install, maintain, upgrade and monitor internal
and external networks transmission facilities and data
storage centers supporting e-commerce and other communications, computing and
energy systems.facilities for our clients. We are a national services provider, operating from 200 service
locations throughout the United States and Canada. We also operate in Brazil
through a 51% owned joint venture.
Strategy
We believe we are one
of the few national, multi-disciplinary infrastructure providers capable of providingthat
furnishes a comprehensive solution to our clients' bandwidth infrastructure needs
ranging from basic installation and construction to sophisticated
engineering, design and integration. Our diverse and long-standing client
base, experienced management and integrated value added service offering
provide a stable base of repeat business and enable us to quickly and
efficiently meet client demands.
Our strategy is to use these competitive strengths to increase market
share in the fragmented network infrastructure industry by expanding
relationships across multiple service offerings with long-time clients across multiple service offerings. We also provide
turn-key solutions toand
selected new clients who are seeking a single source for their
infrastructure requirements.have both financial liquidity and end-user
customers. We target predictable recurring maintenance and upgrade work
under exclusive, multiple year master service and other agreements. We
are also focused on leveraging our administrative base and achieving other
cost savings and efficiencies through better utilization of our equipment,
facilities and personnel and through economies of scale.
We continue to expand our capabilities and geographic scope through
selected acquisitions and investments although our primary focus is organic
growth. We believe these strategies will permit us to continue to grow
profitably. However, current economic conditions may impact our ability to grow
at historical levels.
Clients
Our clients include some of the largest and most prominent companies
in the communications, broadband and energy fields, including:
o- - incumbent local exchange carriers,
o telecommunications equipment vendors,
o competitive local exchange- - cable television operators,
- - long distance carriers,
o- - wireless service providers,
- - government agencies such as departments of transportation,
o cable television operators,
o data storage and co-location facilities providers,
o long distance carriers,
o- - public and private energy companies o wireless service providers, and
o- - financial institutions and other corporate clients.
We have over 200 clients, none of which accounted for 10% or more of
our revenue in 2000.2001. Our top 10 clients combined accounted for
approximately 44%40.3% of our domestic revenue.revenue in 2001. Representative clients include:
AT&TAdelphia Communications Corporation
Lucent Technologies, Inc.
BellSouth Corporation NEC Corporation
Carolina Power and Light Company
Qwest Communications International,Inc.
Charter Cable, Inc. SBC Communications, Inc.
Comcast Corporation
Sprint Corp.
Cox Communications, Inc.
Telergy,DirecTV, Inc.
Enron Corporation Texas Utilities Company
First Union Corporation Time Warner, Inc.Florida Department of Transportation
Georgia Department of Transportation
SBC Communications, Inc.
Sprint Corp.
Texas Utilities Company
Time Warner, Inc.
Qwest Communications International, Inc. (US West)
Verizon Communications, Inc.
Global Crossing, Ltd. Williams Communications Group
Level 3 Communications, Inc.
We provide the majority of our services to our clients under master service
agreements, which typically are exclusive multi-year service agreements to
satisfy our client's network requirements up to a specified dollar amount per
job within defined geographic areas. We currently have 88 master service
agreements across all service lines. Revenue from master service agreements
represents approximately 50% of our annual domestic revenue.Wachovia Corp.
Services
We market our services individually and in combination to provide
the most efficient and effective solution to meet our clients' demands,
which increasingly require resources from multiple disciplines. Through
our unified "MasTec"(R) brand and an integrated organizational structure
designed to permit rapid deployment of labor, equipment and materials,
we are able quickly and efficiently to allocate resources to meet client
needs.
We offer our services under two broad categories organized around our
clients:
Datacom Network Services. We design, build, install, maintain, upgrade and monitor the
physical facilities used to provide end-to-end voice, video and data
service from the provider's central office, switching center or cable
television head-end to the ultimate consumer's home or business.
We provide similar services to electrical and other utility providers.
We provide these services both externally on public or private rights-of-waysrights-
of-ways or in our clients' premises. Our services include:
- - comprehensive project management, coordination, consulting and
administration;administration,
- - designing, installing, testing and documenting switching and
transmission equipment and supporting components at point-of-presence locations;point-of-
presence locations,
- - network route development, right of way and other site acquisition,
and permitting;permitting,
- - designing conduit networks and fiber rings;rings,
- - placing and splicing fiber optic, coaxial and copper cable; excavating
trenches in which to place the cable; and furnishing and placing
related structures such as poles, anchors, conduits, manholes,
cabinets and closures;closures,
- - overhead and underground installation and maintenance of electrical and
other utilities' transmission and distribution networks, substation
construction and maintenance, and right-of-way maintenance and
restoration,
- - placing drop lines from our clients' main distribution terminals to
their customer's home or business;business,
- - installing set-top boxes, satellite dishes and other connection devices
in homes and businesses;businesses,
- - erecting wireless communication towers, constructing related structures
and installing associated equipment;equipment,
- - designing and installing intelligent traffic networks;networks,
- - engineering, furnishing and installing integrated voice, video and data
networks inside client premises,
as well as the infrastructure required to
support complex e-commerce solutions;
- - systems integration, which includes selecting, configuring and
installing software, hardware and other computing and communications
equipment and cabling to provide an integrated computing and
communications system;system,
- - monitoring, maintaining and restoring clients' networks 24 hours a day,
seven days a week;week,
- - network device security and optimization,
- - procuring materials;materials,
- - providing acceptance testing and as-built documentation;documentation, and
- - maintaining, upgrading, removing and replacing these systems.
Energy Network Services. We provide external network and energy
infrastructure services to public and private utilities. These services consist
of overhead and underground installation and maintenance of electrical and other
utilities' transmission and distribution networks, substation construction and
maintenance, right-of-way maintenance and restoration of asphalt and concrete
surfaces. These services are substantially similar to the services we provide to
our datacom clients, but the work often involves the installation and splicing
of high-voltage transmission and distribution lines.
Brazil. We operate in Brazil through a 51% joint venture which we
consolidate net of a 49% minority interest after tax. Our Brazilian operations
provide datacom infrastructure services to a diverse group of telecommunication
companies primarily in the heavily populated states of southern Brazil.
Backlog
At December 31, 2001 and 2000, we had a backlog in our domestic
operations of approximately $1.4 billion and $1.5 billion, as compared to a backlog of approximately $970.1
million at December 31, 1999.respectively.
Our backlog consists of the uncompleted portion of services we are to
perform under project-specific contracts as well as estimated work on
master service agreements. We expect to complete substantially all of
our backlog at December 31, 20002001 during the next 18 months.
Sales and Marketing
We have developed a marketing plan emphasizing the "MasTec"(R)
registered trade nameservice mark and an integrated service offering to position
ourselves as a seamless, end-to-end nationwide infrastructure services
solution, providing services ranging from basic infrastructureinstallation to
sophisticated engineering, design and integration. We believe our
long-standing relationships with our clients and reputation for
reliability and efficiency facilitatesfacilitate our repeat business. Our
marketing efforts are principally carried out by the management of our
service lines,offerings, most of whom have many years' experience in the
industries they serve, both at the service provider level and in some
cases with the clients we serve. Our service lineoffering leadership markets
to existing and potential telecommunications and other clients to negotiate new contracts or to be
placed on lists of vendors invited to submit proposals for master
service agreements and individual projects. Our executive management
supplements their efforts at the national level. We also market through
commissioned salespeople and our corporate marketing department.
Safety and Insurance
Performance of our services require the use of equipment and
exposure to conditions that can be dangerous. Although we are committed
to a policy of operating safely and prudently, we have been and will
continue to be subject to claims by team members, customers and third
parties for property damage and personal injuries resulting from the
performance of our services. We perform on-site services using team
members who have completed our applicable safety and training programs.
Our policies require that team members complete the prescribed training
and service program for which they work in addition to those required
by applicable law.
We are committed to ensuring that our team members perform their
work safely and strive to instill safe work habits in all of our team
members. We evaluate our team members not only on the basis of the
efficiency and quality of their work but also on their safety records
and the safety records of the employeesteam members they supervise. We also hold
regular training sessions and seminars with our team members devoted
to safe work practices. We have established a company-wide safety
committee to share best practices among our units and to monitor and improve compliance
with safety regulations.
The primary claims we face in our operations are workers'
compensation, automobile liability and various general liabilities.
We maintain insurance policies with respect to these claims, but these
policies are subject to deductibles for worker'sworkers' compensation, automobile
liability and general liability up to $250,000 per claim. We have
umbrella coverage up to a policy limit of $25.0$100 million and stop loss
coverage of $16.1$24.8 million for 2000 claims.
Wethe 2001-2002 policy period. An
independent third party actuarially determinedetermines any liabilities for
unpaid claims and associated expenses, including incurred but not
reported losses, and we reflect those liabilities in our balance sheet
as an accrued liability. We continually review these claims and expenses
and the appropriateness of the accrued liability.
Suppliers and Materials
Our clients supply the majority of the raw materials and supplies
necessary to carry out our contracted work, although we are increasingly supplying
materials and supplies on turnkey projects.work. We obtain materials and
supplies for our own account from independent third-party providers and
do not manufacture any significant amount of materials or supplies for
resale. We are not dependent on any one supplier for any materials or
supplies that we obtain for our own account. We have not experienced
any significant difficulty in obtaining an adequate supply of materials
and supplies.
We also use independent contractors to perform portions of our
services and to manage work flow. These independent contractors
typically are sole proprietorships or small business entities.
Independent contractors typically provide their own employees, vehicles,
tools and insurance coverage. We are not dependent on any single
independent contractor. Our contracts with our subcontractors typically
contain provisions limiting our obligation to pay the subcontractor if
our client has not paid us. These provisions may not be available to us
in certain cases.
Competition
There is no dominant provider in the network infrastructure services
industry. The industry is highly fragmented and we compete with other
companies in most of the markets in which we operate ranging from small
independent firms servicing local markets to larger firms servicing
regional markets, as well as
largeand national and international engineering firms and equipment vendors on
turnkey projects who subcontract work to companies other than us.markets. Despite the current trend toward
outsourcing, we also face competition from existing or prospective
clients who employ in-house personnel to perform some of the same types
of services we provide. Historically, there have been relatively few
significant barriers to entry into the markets in which we operate and,
as a result, any organization that had adequate financial resources and
access to technical expertise may become one of our competitors. We are,
however, one of the few providers with a nationwide comprehensive
services offering.
We believe our clients consider a number of factors in choosing a
service provider, including technical expertise and experience, financial
and operational resources, nationwide presence, industry reputation and
dependability. BecauseA significant portion of the highly competitive bidding environment for
infrastructure services,our revenue is currently derived
from unit price agreements and price historically has often been the
principal factor in determining whether the services provider is awarded
the work on smaller, less complex projects. Smaller competitors are
sometimes able to win bids for these projects based on price alone due to
their lower overhead costs.costs and financial return requirements. We believe our size,
nationwide presence, integrated value added service offering, financial
strength and reputation provide a competitive advantage in obtaining
larger, more complex infrastructure projects and gaining market share in
the fragmented infrastructure services industry. There can be no
assurance, however, that our competitors will not develop the expertise,
experience and resources to provide services that are superior in both
price and quality to our services or that we will be able to maintain or
enhance our competitive position.
Regulation
Our operations are subject to various federal, state and local laws,
including:
- - Contractor licensing requirements;requirements,
- - Building and electrical codes;codes,
- - Permitting and inspection requirements;requirements, and
- - Regulations related to labor relations, worker safety, and
environmental protectionprotection.
We believe we have all material licenses and permits required to
conduct our operations and that we are in substantial compliance with all
applicable regulatory requirements.
Employees
As of December 31, 2000,2001, we had approximately 9,8008,200 team members in
North American operations and approximately 2,6002,200 in Brazil. Approximately
600300 of our team members are represented by a labor union,unions, principally the
Communication Workers of America or the International Brotherhood of
Electrical Workers. We believe that our employee relations are good.
Recruiting. Our primary hiring sources for our team members include
promotion from within, team member referrals, print and Internet
advertising and direct recruiting. We attract and retain team members
by offering technical training opportunities, bonus opportunities, stock
ownership, competitive salaries, and a comprehensive benefits package.
Our "MasTec"(R) brand and integrated service offering also has created a
unified corporate culture that we believe helps attract and retain team
members. Team members are exposed to numerous technologies being
deployed by our clients which serves as a recruitment tool. We attract
talent from numerous sources including higher learning institutions,
colleges, and industry.
Training and Career Development. We believe that our continuous
focus on training and career development helps us to retain our team
members. Team members participate in on-going educational programs,
many of which are internally developed, to enhance their technical and
management skills through classroom and field training. Manufacturers of
telecommunications equipment also sponsor training programs covering the
installation and maintenance of their equipment, which our team members
regularly attend. We also provide opportunities for promotion and
mobility within our integrated service organization that we believe
helps retain our team members.
We believe our corporate culture and organizational structure
creates a cooperative, entrepreneurial atmosphere and shared vision.
We are dedicated to maintaining an innovative, creative and empowering
corporate culture that provides our team members with personal and
professional growth opportunities.
Other
We are organized as a Florida corporation. Our predecessor company
was formed in 1969, and we have operated as "MasTec" since 1994.
PROPERTIES
Our corporate headquarters is located in a 60,000 square foot
building owned by us in Miami, Florida. Our principal operations are
conducted from approximately 200 service facilities, none of which we
believe is material to our operations because most of our services are
performed in the clients' premises or on public rights of way. In
addition, we believe that equally suitable alternative locations are
available in all areas where we currently conduct business.
We also own a substantial amount of machinery and equipment, which
at December 31, 2001 had a gross value of $290.6 million (see Note 5 to
Notes to Consolidated Financial Statements). This machinery and equipment
includes vans, trucks, tractors, trailers, bucket trucks, backhoes,
bulldozers, directional boring machines, digger derricks, cranes and
testing equipment. We obtain our equipment from various third-party
vendors, none of which we depend upon, and have not experienced any
difficulties in obtaining desired equipment.
LEGAL PROCEEDINGS
We have two lawsuits pending in the U.S. District Court for
the Southern District of Florida against Sintel International Corp., a
subsidiary of Artcom Technologies, Inc., to recover more than $5.0
million due under a promissory note and for breach of contract. We are
also pursuing other claims in Spain against Artcom affiliates totaling
approximately $4.0 million. In February 2002, we tentatively settled the
breach of contract lawsuit against Sintel International for $180,000
payable to us. On January 29, 2001, subsequent to the filing of our
lawsuit against Sintel International under the promisory note, Artcom
sued us in the U.S. District Court for the Southern District of
Florida, alleging fraud, negligent misrepresentation, breach of
fiduciary duty, unjust enrichment, conspiracy and violation of the
federal and Florida Racketeer Influenced and Corrupt Oragnizations Act.
The suit seeks to recover approximately $6.0 million (subject to
trebling) that we allegedly received as a result of certain allegedly
unauthorized transactions by two former employees of Artcom.
In a related matter, the labor union representing the workers of
Sistemas e Instalaciones de Telecomunicacion S.A. ("Sintel"), a sister
company of Sintel International, has instigated an investigative action
with a Spanish federal court commenced in July 2001 alleging that five
former members of the board of directors of Sintel, including Jorge Mas,
the Chairman of the Board of MasTec, and his brother Juan Carlos Mas, a
MasTec executive, approved a series of allegedly unlawful transactions
that led to the bankruptcy of Sintel. We are also named as a potentially
liable party. The union alleges Sintel and its creditors were damaged in
the approximate amount of 13 billion pesetas ($69.5 million at December
31, 2001 exchange rates). The Spanish court is seeking a bond from the
subjects of the inquiry in this amount as well as security for the bond.
Neither we nor our executives have been served in the action.
In November 1997, we filed a suit against Miami-Dade County in
Florida state court in Miami alleging breach of contract and seeking
damages exceeding $3.0 million in connection with the county's refusal
to pay amounts due to us under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department, a
department of the county. The county has counterclaimed against us
seeking unspecified damages.
On January 9, 2002, Harry Schipper, a MasTec shareholder, filed a
shareholder derivative lawsuit in the U.S. District Court for the
Southern District of Florida against us as nominal defendant and against
certain current and former members of the Board of Directors and senior
management, including Jorge Mas, our Chairman of the Board, and Austin
Shanfelter, our President and Chief Executive Officer. The lawsuit
alleges mismanagement, misrepresentation and breach of fiduciary duty as
a result of a series of allegedly fraudulent and criminal transactions,
including the matters described above, the severance we paid our former
chief executive officer, and our investment in and financing of a client
that subsequently filed for bankruptcy protection, as well as certain
other matters. The lawsuit seeks damages and injunctive relief against
the individual defendants on MasTec's behalf. The Board of Directors
has formed a special committee, as contemplated by Florida law, to
investigate the allegations of the complaint and to determine whether
it is in the best interests of MasTec to pursue the lawsuit. An
unopposed motion to stay the action for six months to permit the
committee to complete its investigation is pending before the court.
We are vigorously pursuing and believe we have meritorious defenses
to the actions described above. We are also a party to other pending
legal proceedings arising in the normal course of business, none of
which we believe is material to our financial position or results of
operations.
EXECUTIVE OFFICERS
The following is a list of the names and ages of all of our executive
officers as of March 11, 2002, indicating all positions and offices
they hold with us. Our executive officers hold office for one year or
until their successors are elected by our Board of Directors.
Name Age Position
Joel-Tomas Citron 38---------------------------------------------------------------------
Austin J. Shanfelter 44 President and Chief Executive Officer
Austin J. Shanfelter 43Jose R. Mas 30 Executive Vice President and Chief Operating Officer
Carmen M. Sabater 36President-Business
Development
Donald P. Weinstein 37 Executive Vice President and Chief
Financial Officer
Jose Sariego 4647 Senior Vice President and General
Counsel
Arlene Vargas 3435 Vice President and Controller
Joel-Tomas CitronAustin J. Shanfelter has been our Chief Executive Officer since October 1999
and our President
since May 1999. He has been a member ofAugust 2001. From February until August 2001, Mr. Shanfelter was our Board of Directors
since January 1998. Mr. Citron was the managing partner of Triscope Capital LLC,
a private investment partnership, from January to December 1998 and Chairman of
the Board of Directors of the United States subsidiary of Proventus AB, a
privately held investment company based in Stockholm, Sweden, from January 1992
to December 1997 (Proventus AB was publicly traded on the Stockholm Exchange
until 1995). Mr. Citron is also a member of the Board of Directors of Neff
Corporation; Oxigene Inc.; Proflowers.com, an e-commerce company; Telergy, Inc.,
a facilities-based provider of integrated communications services and high
bandwidth fiber optic capacity in the East Coast; and past Chairman of the Board
of Directors of American Information Systems, Inc. (now owned by Exodus
Communications, Inc.), a provider of Internet and Internet systems solutions.
Austin J. Shanfelter has been
Chief Operating Officer since March 2000 and
Executive Vice President since February 2001.Officer. Prior to being named Chief Operating Officer, he
served as President of one of our Broadband Services groupservice offerings from January 1997.
Mr. Shanfelter has been in the datacom infrastructure industry since 1981.
Mr. Shanfelter has been a member of the Board of Directors of the Power and
Communications Contractors Association (PCCA), an industry trade group,
since 1993. He is also the Chairman of the Cable Television Contractors
Council of the PCCA. Mr. Shanfelter is also a member of the Society of
Cable Television Engineers since 1982 and the National Cable Television
Association since 1991.
Carmen M. SabaterJose R. Mas has been our Executive Vice President-Business Development
since September 2001. Mr. Mas has served in a number of capacities at the
operating level with us since 1991, most recently as President of one of
our service offerings from May 1999 to August 2001.
Donald P. Weinstein has been our Executive Vice President and Chief
Financial Officer since MayJanuary 2002. From November 1999 and
Executiveto April 2001,
Mr. Weinstein was Senior Vice President since February 2001.and Chief Financial Officer of
AGL Resources, Inc., a publicly traded energy services holding company,
as well as President of the company's telecommunications subsidiary,
AGL Networks. From 1994 until MayAugust 1989 to November 1999, Ms.
SabaterMr. Weinstein was
our Controller. Prior to joining us, Ms. Sabater wasemployed by Citizens Communications Co., a Senior
Manager with Deloitte & Touche, a public accounting firm.telecommunications and
utility company, the last two years as Vice President - Planning and
Development.
Jose Sariego has been our Senior Vice President and General Counsel
since September 1995. Prior to joining us, Mr. Sariego was Senior Corporate
Counsel and Secretary of Telemundo Group, Inc., a Spanish language
television network, from August 1994 to August 1995. From January 1990 to
August 1994, Mr. Sariego was a partner in the Miami office of Kelley Drye
& Warren, an international law firm.
Arlene Vargas has been our Vice President and Controller since
September 1998. Prior to joining us, Ms. Vargas was a Senior Manager
from July 1997 to September 1998 and a Manager from July 1994 to July
1997 with PricewaterhouseCoopers LLP, a public accounting firm.
PROPERTIES
Our corporate headquarters are located in a 60,000 square foot building
owned by us in Miami, Florida. Our principal operations are conducted from
approximately 200 service facilities, none of which we believe is material to
our operations because most of our services are performed in the clients'
premises or on public rights of way. In addition, we believe that equally
suitable alternative locations are available in all areas where we currently
conduct business.
We also own a substantial amount of equipment, which at December 31, 2000
had a gross book value of $269.0 million. This equipment includes vans, trucks,
tractors, trailers, bucket trucks, backhoes, bulldozers, directional boring
machines, digger derricks, cranes and testing equipment and software. We obtain
our equipment from various third-party vendors, none of which we depend upon,
and have not experienced any difficulties in obtaining desired equipment.
LEGAL PROCEEDINGS
We have filed lawsuits in Florida state court against a subsidiary of
Artcom Technologies, Inc., a holding company for a Spanish infrastructure
provider that we formerly owned, to recover more than $5.0 million due under a
promissory note and for breach of contract. We are also pursuing other claims
against Artcom affiliates totalling approximately $4.0 million. Artcom has
responded by suing us in federal court in Florida to recover approximately $6.0
million (subject to trebling) it alleges we received as a result of certain
allegedly unauthorized transactions by two former employees of Artcom that
occurred after we sold the company.
In January 2001, we filed suit in Florida state court against Broward
County, Florida, to recover approximately $5.0 million for work performed to
construct a detention facility for the Broward Sheriff's Office ("BSO"). The BSO
has filed a separate lawsuit in response to our lawsuit claiming $13.0 million
in damages for alleged delays in constructing the facility.
In November 1997, we filed a suit against Miami-Dade County in Florida
state court alleging breach of contract and seeking damages exceeding $3.0
million in connection with the county's refusal to pay amounts due to us under a
multi-year agreement to perform road restoration work for the Miami-Dade Water
and Sewer Department ("MWSD"), a department of the county. The county has
counterclaimed against us seeking unspecified damages.
We are a party to other pending legal proceedings arising in the normal
course of business, none of which we believe is material to our financial
position or results of operations.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information. Our 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.
Year Ended December 31,
-------------------------------------------
1999 2000
High Low High Low
--------------------- -----------------
Year Ended December 31,
---------------------------------------------
2000 2001
High Low High Low
---------------------------------------------
First Quarter $ 20.00 $ 13.46 $ 57.52 $ 27.81 $ 24.75 $ 12.26
Second Quarter $ 19.54 $ 14.25 $ 58.96 $ 32.63 $ 19.45 $ 11.40
Third Quarter $ 24.19 $ 17.94 $ 43.19 $ 27.31 $ 15.42 $ 4.30
Fourth Quarter $ 29.27 $ 19.31 $ 34.16 $ 19.25
$ 6.95 $ 3.98
Holders. As of December 31, 2000,March 25, 2002, there were 4,5273,259 shareholders of
record of the common stock.
Dividends. We have not declared cash dividends since our inception
and we do not anticipate paying any cash dividends, in the foreseeable future, but intend instead to
retain any future earnings for reinvestment in our business. On February
28, 1997 and June 19, 2000 we effected three-for-two splits of our
outstanding shares of common stock by paying each of our shareholders a
stock dividend of one share of common stock for every two shares of common
stock held by the shareholder on the record date for each split. We paid
cash in lieu of fractional shares resulting from the stock splits 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 or share prices have been adjusted to give retroactive effect to
the stock splits.
Any future determination as to the payment of dividends will be made
at the discretion of our Board of Directors and will depend upon our
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 we are a
party prohibitrestrict us from paying cash dividends or making other distributions
on the common stock without the prior written consent
of the lenders under such credit agreements.except in certain circumstances. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--LiquidityOperations-
Liquidity and Capital Resources."
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data, which
are derived from our audited consolidated financial statements. The
operating data for 1996, 1997 and 1998 includes the results of our Spanish
operations, 87% of which we sold effective December 31, 1998. You should
read the following selected financial data together with our consolidated
financial statements and their notes as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Historical results are not necessarily indicative of results to be
expected in the future.
Year Ended December 31,
----------------------------------------------------------------------
1996(1) 1997(1)-------------------------------------------------------
1997 (1) 1998 (2) 1998(1) 1999 2000 ------------- -------------- ------------- ------------- -------------2001
-------------------------------------------------------
(dollars in thousands, except per share amounts)
Statement of Operations Data:
Revenue:
North America
Statement of Operations Data:
Revenue $ 284,645 $ 377,046 $ 669,628 $ 1,003,802 $ 1,274,985
Brazil - 74,900 141,954 55,220 55,311
Spain 188,155 207,493 237,340 - -
------------- ------------- ------------- ------------- -------------
Total revenue 472,800 659,439 1,048,922 1,059,022 1,330,296$1,048,922 $1,059,022 $1,330,296 $1,222,580
Costs of revenue (1) 352,329(2) 495,840 803,112 803,799 1,017,878 988,198
Depreciation 9,471 17,222 32,288 46,447 52,413 51,707
Amortization 2,529 6,633 11,025 9,701 11,042 10,810
General and administrative
expenses (1) 58,529(2)(7) 82,261 140,472 91,898 98,521 290,040
Interest expense 11,434 11,541 29,580 26,673 18,283 20,426
Interest income 3,246 1,783 9,093 9,398 4,973 5,775
Other income (expense), net
(1)(2)(3)(4)(5)(6) 769(7) 8,332 (38,920) (10,092) (25,756) ------------- ------------- ------------- ------------- -------------(14,618)
--------- --------- -------- --------- ---------
Income (losses) before
provision(provision) benefit for
income taxes, 42,523 56,057 2,618 79,810 111,376 equity in
earnings (losses) of
unconsolidated companies
and minority interest Provision56,057 2,618 79,810 111,376 (147,444)
(Provision) benefit for
income taxes(1) 15,591 20,944 12,550 33,266 45,877taxes (2) (20,944) (12,550) (33,266) (45,877) 54,858
Equity in earnings (losses)
of unconsolidated 3,133companies
and minority interest (449) (3,983) (1,818) (352) companies and minority interest
============= ============= ============= ============= =============232
--------- -------- -------- -------- ---------
Net income (loss) $ 30,065 $ 34,664 $ (13,915)$(13,915) $ 44,726 $ 65,147 ============= ============= ============= ============= =============$ (92,354)
========= ======== ======== ======== =========
Basic weighted average common
shares 37,055outstanding (8) 39,690 41,234 41,714 46,390 outstanding(7)47,790
Basic earnings (loss)
per share $ 0.81 $ 0.87 $ (0.34) $ 1.07 $ 1.40 $ (1.93)
Diluted weighted average
common shares
37,692outstanding (8) 40,529 41,234 42,624 48,374 outstanding(7)47,790
Diluted earnings (loss)
per share $ 0.80 $ 0.86 $ (0.34) $ 1.05 $ 1.35 $ (1.93)
December 31,
--------------------------------------------------------------------------------------------------------------------
Balance Sheet Data(1): 1996Data: 1997 (1) 1998 (2) 1999 2000 -------------------------------------------------------------------2001
-------------------------------------------------
(in thousands)
Working capital $ 151,780 $ 124,088 $ 197,587 $ 169,619 $ 233,903$124,088 $197,587 $169,619 $242,437 $248,062
Property and equipment, net 59,602 86,109 137,382 153,527 159,673 151,774
Total assets 483,018 630,224 732,221 728,409 964,879956,345 851,372
Total debt 155,192 149,057 321,832 279,658 211,845209,483 269,749
Total shareholders' equity 103,504 223,697 204,273 256,833 500,328 406,803
(1) Includes the results ofOur Brazilian operations of our Spanish subsidiary from Maybegan August 1, 1996, 87% of which we sold effective December 31, 1998.1997.
(2) Included in 1998 are severance charges relating to our Spanish
operations of $13.4 million, of which $1.9 million is reflected in
costs of revenue and $11.5 million in general and administrative
expenses, and a loss of $9.2 million related to the sale of our
Spanish subsidiary. Our effective tax rate for the year ended December
31, 1998 was mainly affected by a tax liability of approximately $7.8
million resulting from the sale of 87% of our Spanish subsidiary,
the non-deductibility of the amortization of intangibles and the
non-deductibility of other expenses. Because of the sale, the balance
sheet data as of December 31, 1998 does not include the financial
position of our Spanish operations.
(2) Our Brazilian operations began August 1, 1997. Information for the year
ended December 31, 1997 includes the results of operations of our Brazilian
operations from August 1, 1997.
(3) Included in 1998 is a non-recurring charge for payments to operational management
of $33.8 million.
(4) Included in 1997 results of operations is a gain of $7.1 million from
the partial sale of our interest in an Ecuadorian cellular company.
(5) Included in 1999 is a write-down of $10.2 million related to non-core
international assets held for sale.assets.
(6) Included in 2000 is a net write-down and other charges of $35.9$26.3
million related primarily to non-core assets, offset byassets.
(7) Included in 2001 is a gain on sale of $9.6 million.
(7)$16.5 million charge in other expense and
$193.7 million in selling general and administrative expense for
bad debt expense related to clients who filed for bankruptcy
protection and for severance charges.
(8) Amounts have been adjusted to reflect the three-for-two stock splits
effected on February 28, 1997 and June 19, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
We are a leading end-to-end voice, video, datacommunication, broadband and energy
network
infrastructure solutionservice provider for a broad range of communications, broadband, energyclients in North
America and other corporate clients. We have a diverse client base representing all the
major segments of the industries we serve. Our broad suite of services allows
our clients to connect with their customers.Brazil.
We design, build, install, maintain, upgrade and monitor internal
and external networks transmission facilities and data
storage centers supporting e-commerce and other communications, computing and
energy systems.facilities for our clients. We are a national services provider, operating from 200 service
locations throughout the United States and Canada. We also operate in Brazil
through a 51% owned joint venture.
We believe we are one
of the few national, multi-disciplinary infrastructure providers capable of providingthat
furnishes a comprehensive solution to our clients' bandwidth infrastructure needs
ranging from basic installation and construction to sophisticated
engineering, design and integration. Our diverse and long-standing client
base, experienced management and integrated value added service offering
provide a stable base of repeat business and enable us to quickly and
efficiently adapt to meet client demands.
Our revenue has increased significantly in the past five years through both
acquisitions and internal growth. We intend to continue to emphasize internal
growth, although we also intend to grow through selected acquisitions following
a disciplined model to take advantage of consolidation opportunities in the
fragmented infrastructure services industry in the United States. We regularly
evaluate potential acquisition opportunities, but we are not currently engaged
in any negotiations to make any material acquisitions. However, current economic
conditions may impact our ability to grow at historical levels.
For the year ended December 31, 2000, our top 10 clients combined account
for approximately 44% of our domestic revenue.
We report our operations in four segments:
- Datacom network services,
- Energy network services,
- International, and
- Other
Datacom network services includes services to:
- Telecommunication companies, - Departments of Transportation,
- Equipment vendors, - Cable TV operators,
- Corporations, - Broadband providers,
- Wireless providers,
to meet their datacom network needs. Energy network services includes
services to public and private energy companies that are substantially similar
to datacom services. International operations currently consist of services
rendered in Brazil where we operate a 51% joint venture which we consolidate net
of a 49% minority interest after tax.
Our primary types of contracts with our clients include:
- design and installation contracts for specific projects, - master service agreements for all specified design, installation and
maintenance services within a defined geographic territory,
- - design and installation contracts for specific projects, and
- - turnkey agreements for comprehensive design, engineering,
installation, procurement and maintenance services.
The majority of our contracts whether master service agreements or
contracts for specific projects, provide that we will furnish a
specified unit of service for a specified unit of price.price per unit. We recognize
revenue as the related work is performed. Turnkey agreements are invoiced on a unit basis. A portion of our work isduring
2001 was performed under percentage-of-completion contracts. Under
this method, revenue is recognized on a cost-to-cost method based on the
percentage of total cost incurred to date in proportion to total
estimated cost to complete the contract. We anticipate that percentage-
of-completion contracts will constitute a smaller percentage of our total
contracts in 2002 as compared to prior years. We also recognize revenue
for monitoring services and for project management services ratably over
the term of the agreement. Clients are billed with varying
frequency-weekly, monthly or upon attaining specific milestones.
We perform the majoritya significant portion of our services under master
service agreements, which typically are exclusive service agreements to
provide all of the client's network requirements up to a specified dollar
amount per job within defined geographic areas. These contracts are
generally for two to three years but are typically subject to termination
at any time upon 90 to 180 days prior notice. Each master service agreement
contemplatesconsists of hundreds of individual projects generally valued at less than
$100,000 each. These master service agreements are typicallyfrequently awarded on a
competitive bid basis, although clients are sometimesoften willing to negotiate
contract extensions beyond their original terms without re-bidding.
Master service agreements are invoiced on a unit basis as work is
completed. We currentlyIn addition, we have 88a significant number of long-term
maintenance and upgrade contracts with our broadband clients that are
similar to master service agreements across all segments.
Revenue from multi-yearexcept they typically are not
exclusive. Taken together, our master service agreements represent approximately 50%and master
service-like agreements constitute a majority of our annual domestic revenue.contracts by prior
years volume.
We derive a significant amount of our revenue from telecommunications
clients. During the latter part of 2000 and all of 2001, certain segments
of the telecommunications industry suffered a severe downturn that resulted
in a number of our clients filing for bankruptcy protection or experiencing
financial difficulties. As a result, we incurred a net loss of $92.4
million for the year ended December 31, 2001, primarily attributable to
increases in bad debt expense of $182.2 million during the year. The
downturn adversely affected capital expenditures for infrastructure
projects even among clients that did not experience financial difficulties.
Capital expenditures by telecommunications clients in 2002 are expected to
remain at low levels in comparison with prior years, and there can be no
assurance that additional clients will not file for bankruptcy protection
or otherwise experience financial difficulties in 2002. Although we
refocused our business on long-time, stable telecommunications and other
clients, there can be no assurance that these clients will continue to
fund capital expenditures for infrastructure projects at current levels
or that we will be able to increase our market share with these stronger
clients. Additional bankruptcies or further decreases in our client's
capital expenditures could reduce our cash flows and adversely impact our
liquidity.
Direct costs include:
- - operations payroll and benefits,
- - fuel,
- - subcontractor costs,
- - equipment rental,
and- - materials not provided by our clients, and
- - insurance.
Our clients generally supply materials such as cable, conduit and
telephone equipment, although on some turnkey projects, we supply these materials.equipment.
General and administrative costs include all costs of our management
personnel, severance, reserves for bad debts, rent, utilities, travel and
business development efforts and back office administration such as
financial services, insurance administration, professional costs and
clerical and administrative overhead.
ManySome of our contracts require performance and payment bonds. Bonding
capacity in the infrastructure industry has become increasingly difficult
to obtain, and bonding companies are denying or restricting coverage to
certain contractors. We are currently negotiating our bonding agreements
with our carriers. There can be no assurance that we will be able to
maintain the same level of bonding capacity in the future, which could
adversely impact our ability to seek work from certain clients.
Contracts often include paymentretainage provisions under which 5% to 10%
of the contract price is withheld from paymentus until the contract work has been
completed.completed and accepted by the client. We typically agree to indemnify
our clients against adverse claims and warrant the qualityworkmanship of our
services for specified time periods, usually one year.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results
of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to revenue
recognition, allowance for doubtful accounts, intangible assets, income
taxes, and litigation and contingencies. We base our estimates on
historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the
basis of making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements.
We recognize revenue and profits as work progresses on long-term,
fixed price contracts using the percentage-of-completion method, which
relies on estimates of total expected contract revenue and costs. We
follow this method since reasonably dependable estimates of the revenue
and costs applicable to various stages of a contract can be made.
Recognized revenues and profits are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to
income in the period in which the facts that give rise to the revision
become known. If we do not accurately estimate costs, the profitability
of such contracts can be affected adversely.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments.
Our management must make estimates of the uncollectability of our
accounts receivables. Management specifically analyzes accounts
receivable and analyzes historical bad debts, client concentrations,
client credit-worthiness and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. If the financial
condition of our clients were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
Prior to 2001, provisioning for bad debts have averaged approximately
$3.0 to $6.0 million annually, as we have not incurred significant bad
debts or experienced significant client bankruptcies. However, during
2001, we recorded a bad debt reserve of $182.2 million primarily due to
clients that filed for bankruptcy protection.
Intangibles, long-lived assets and goodwill are recorded at
estimated fair value and then amortized on a straight-line basis over
periods of between five and 40 years. We assess the impairment of
identifiable intangibles, long-lived assets and related goodwill
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Some of these events or
changes include:
- - significant underperformance relative to expected historical or
projected future operating results,
- - significant changes in the manner of our use of the acquired assets
or the strategy for our overall business,
- - significant decline in our stock price for a sustained period, and
- - our market capitalization relative to net book value.
When we determine that the carrying value of intangibles, long-lived
assets and related goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we
measure any impairment based on projected undiscounted cash flows.
In 2002, Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142"), became effective and as
a result, we will cease to amortize goodwill. In lieu of amortization,
we are required to perform an initial impairment review of our goodwill
in 2002 and an annual impairment review thereafter. We are currently
evaluating the impact that SFAS No. 142 will have on our financial
position or results of operations. However, with the recent decline
in our market capitalization and other factors affecting our industry,
the application of the methodology within SFAS No. 142 may result in
the write-down of a portion of our goodwill.
As part of the process of preparing our consolidated financial
statements we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items, such as deferred revenue, for
tax and accounting purposes. These differences result in deferred tax
assets and liabilities, which are included within our consolidated balance
sheet. We may not be able to realize all or part of our deferred tax
assets in the future and an adjustment would be charged to income in the
period such determination was made.
Litigation and contingencies are reflected in our consolidated
financial statements based on managements' assessment, along with legal
counsel, of the expected outcome from such litigation. If the final
outcome of such litigation and contingencies differs adversely from that
currently expected, it would result in a charge to earnings when
determined.
Results of Operations
The following tables state for the periods indicated our consolidated
operations in dollar and percentage of revenue terms for 1999, and 2000 and
our
combined results for Brazil and North America for 19982001 (dollars in thousands):
Year Ended December 31,
1998(1) 1999 2000
--------------- ---------------- ----------------
1999 2000 2001
-------------------------------------------
Revenue $ 811,582 $ 1,059,022 $ 1,330,296$1,059,022 $1,330,296 $1,222,580
Costs of revenue 619,388 803,799 1,017,878 988,198
Depreciation 29,608 46,447 52,413 51,707
Amortization 11,025 9,701 11,042 10,810
General and administrative
expenses 89,402 91,898 98,521 290,040
Interest expense, net of
interest income 15,265 17,275 13,310 14,651
Other expense, net 32,582 10,092 25,756
--------------- ---------------- ----------------(10,092) (25,756) (14,618)
---------- --------- ---------
Income (loss) before provision(provision)
benefit for income taxes
equity in 14,312 79,810 111,376
earnings of unconsolidated companies and minority interest Provision79,810 111,376 (147,444)
(Provision) benefit for
income taxes 4,563 33,266 45,877
Equity in earnings of unconsolidated companies 615 - -(33,266) (45,877) 54,858
Minority interest (5,402) (1,818) (352) =============== =============== =================232
---------- --------- ---------
Net income $ 4,962(loss) $ 44,726 $ 65,147 =============== ================ ================$ (92,354)
========== ========= =========
Year Ended December 31,
1998 (1)
1999 2000 --------------- ---------------- ----------------2001
------ ------ ------
Revenue 100.0% 100.0% 100.0%
Costs of revenue 76.3 75.9 76.5 80.8
Depreciation 3.6 4.4 4.0 4.2
Amortization 1.4 0.9 0.8 0.9
General and administrative
expenses 11.0 8.7 7.4 23.7
Interest expense, net of
interest income 1.9 1.6 1.0 1.2
Other expense, net 4.0 1.0 1.9
--------------- ---------------- ----------------(1.0) (1.9) (1.3)
------ ------ ------
Income (loss) before provision(provision)
benefit for income taxes,
equity in 1.8 7.5 8.4
earnings of unconsolidated companies and minority interest Provision7.5 8.4 (12.1)
(Provision) benefit for
income taxes 0.5 3.1 3.4
Equity in earnings of unconsolidated companies - - -(3.1) (3.4) 4.4
Minority interest (0.7) (0.2) (0.1) =============== ================ ================0.1
------ ------ ------
Net income 0.6%(loss) 4.2% 4.9% =============== ================ ================(7.6)%
====== ====== ======
(1) Adjusted to exclude our Spanish operations which were sold effectiveOur revenue was $1.2 billion for the year ended December 31, 1998.2001,
compared to $1.3 billion for the same period in 2000, representing a
decrease of $107.7 million or 8.1%. The decline was primarily due to a
reduction in capital expenditures by telecommunications clients and a
downturn in the economy generally.
Our costs of revenue were $988.2 million or 80.8% of revenue for
the year ended December 31, 2001, compared to $1.0 billion or 76.5% of
revenue for the same period in 2000. In 2001, margins were impacted by
under-utilization of personnel, leased equipment and other properties;
losses related to our internal network service offerings; and demobilization
and redeployment costs, all related to reduced capital spending by
telecommunication carriers.
Depreciation was $51.7 million or 4.2% of revenue for the year ended
December 31, 2001, compared to $52.4 million or 4.0% of revenue for the
same period in 2000. The decrease in the amount of depreciation expense
in 2001 was due primarily to reduced capital expenditures.
Amortization of goodwill was $10.8 million or 0.9% of revenue for
the year ended December 31, 2001, compared to $11.0 million or 0.8% of
revenue for the same period in 2000. Beginning January 1, 2002, we will
no longer be amortizing goodwill as a result of the adoption of SFAS 142.
General and administrative expenses were $290.0 million or 23.7%
of revenue for the year ended December 31, 2001, compared to $98.5
million or 7.4% of revenue for the same period in 2000. Included in
general and administrative expense in 2001 is a reserve for bad debt of
$182.2 million related to receivables from clients that have filed for
bankruptcy protection or are experiencing financial difficulties and a
charge of $11.5 million primarily related to severance for our former
president and chief executive officer. Excluding these charges and
reserves, general and administrative expenses were $96.3 million or
7.9% of revenue, a reduction of $2.2 million from the prior year.
Interest expense, net of interest income, was $14.7 million or
1.2% of revenue for the year ended December 31, 2001, compared to $13.3
million or 1.0% of revenue for the same period in 2000. The increase
in net interest expense of $1.4 million was due primarily to higher
debt balances in 2001.
Other expense was $14.6 million or 1.3% of revenue for the year ended
December 31, 2001, compared to $25.8 million or 1.9% of revenue for the
same period in 2000. In 2001, we recorded an impairment charge of $6.5
million related to our equity investment in a client and a $10.0 million
write-down of non-core international assets. In 2000, we recognized a
net charge of $26.3 million primarily related to write-downs of non-core
international assets.
For the year ended December 31, 2001, our effective tax rate was
approximately 37.2%, compared to 41.2% in 2000. The decline in effective
rate was due to the nondeductibility of certain expenses which reduced
the overall tax benefit in 2001 proportionately more than increased the
tax provision in 2000 due to the greater amount of the loss in 2001
compared to the amount of income in 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The following table states revenue and change in revenue by operating
segments, in dollar and percentage terms (dollars in thousands):
Change
1999 2000 $ %
-------------- -------------- -------------- -------------
Datacom network services $ 849,201 $ 1,132,599 $ 283,398 33.4
Energy network services 153,179 142,386 (10,793) (7.1)
International 55,220 55,311 91 0.2
Other 1,422 - (1,422) (100.0)
-------------- -------------- --------------
$ 1,059,022 $ 1,330,296 $ 271,274
============== ============== ==============
Our revenue was $1.3 billion for the year ended December 31, 2000,
compared to $1.1 billion for the same period in 1999, representing an
increase of $271.3 million or 25.6%, primarily from organic growth.growth and
acquisitions. The fastest growing operating
segment is our datacom network services segmentincreased growth resulted primarily due to thefrom increased
demand for bandwidth by end-users which has spurred increased network
construction and upgrades by our clients. We also are experiencingexperienced growth in
services provided at central office facilities resulting from regulatory
co-location requirements to open thesecentral office facilities to new
competitors. Revenue generated by our energy network services segmentservice offering
decreased because we did not pursue certain less profitable work in an
effort to improve margins in the future.
Our costs of revenue were $1.0 billion or 76.5% of revenue for the
year ended December 31, 2000, compared to $803.8 million or 75.9% of
revenue for the same period in 1999. In 2000, margins were impacted by
adverse weather.weather conditions.
Depreciation was $52.4 million or 4.0% of revenue for the year
ended December 31, 2000, compared to $46.4 million or 4.4% of revenue
for the same period in 1999. The decline in depreciation as a percentage
of revenue in 2000 was due to our ability to more efficiently utilize
our equipment.
Amortization was $11.0 million or 0.8% of revenue for the year
ended December 31, 2000, compared to $9.7 million or 0.9% of revenue
for the same period in 1999. Amortization of goodwill net of tax was $7.8 million in 2000 and
$7.3 million in 1999.
General and administrative expenses were $98.5 million or 7.4% of
revenue for the year ended December 31, 2000, compared to $91.9 million
or 8.7% of revenue for the same period in 1999. The decline in general
and administrative expenses as a percentage of revenue in 2000 was due
primarily to our ability to support higher revenue with a comparatively
lower administrative base.
Interest expense, net of interest income, was $13.3 million or
1.0% of revenue for the year ended December 31, 2000, compared to $17.3
million or 1.6% of revenue for the same period in 1999. The decrease in
net interest expense of $4.0 million was due primarily to the repayment
of debt under our revolving credit facility with a portion of the $126.0
million in net proceeds from our offering of 3.75 million shares in
February 2000.
Other expense in 2000 included primarilynet write-downs of $35.9$26.3 million of
international non-core assets, offset by a gain of $9.6 million on the sale of
our PCS system in Latin America.assets. Reflected in other expense, net for the
year ended December 31, 1999, are charges related to non-core assets of
approximately $13.8 million due to disposal or write-down to net
realizable value. We also reserved $1.0 million for a 1994 lawsuit from
a predecessor company following a $1.1 million judgment awarded in
October 1999. Offsetting these amounts was a
feewere fees of $4.8 million
collected from a telecommunications client related to extensions to
the maturity date of a client financing arrangement.
For the year ended December 31, 2000, our effective tax rate was
approximately 40.5% for North American operations and 33% for Brazilian
operations,41.2%, compared to 41.5% and 33%41.7% in 1999 for North American and Brazilian
operations, respectively.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The following table states revenue and change in revenue by operating
segments, in dollar and percentage terms (dollars in thousands):
Change
1998 1999 $ %
------------- -------------- ------------- ----------
Datacom network services $ 545,485 $ 849,201 $ 303,716 55.7
Energy network services 120,218 153,179 32,961 27.4
International 141,954 55,220 (86,734) (61.1)
Other 3,925 1,422 (2,503) (63.8)
------------- -------------- -------------
$ 811,582 $ 1,059,022 $ 247,440
============= ============== =============
Our revenue was $1.06 billion for the year ended December 31, 1999,
compared to $811.6 million for the same period in 1998, representing an increase
of $247.4 million or 30.5%. The fastest growing operating segment is our datacom
network services segment primarily due to the increased demand for bandwidth by
end-users which has spurred increased network construction and upgrades by our
clients. We experienced growth in services provided at central office facilities
resulting from regulatory co-location requirements to open central office
facilities to new competitors. Our energy network services segment grew
primarily through two acquisitions made in March and April of 1998. Brazilian
revenue decreased primarily due to the devaluation of the Brazilian real and to
a reduction in work performed. Revenue in local currency was R$96.0 million real
during the year ended December 31, 1999, compared to R$160.4 million real for
the same period in 1998, representing a decrease of 40.1%.
Our costs of revenue were $803.8 million or 75.9% of revenue for the year
ended December 31, 1999, compared to $619.4 million or 76.3% of revenue for the
same period in 1998. In 1999, margins in our Brazilian operations improved as a
result of amounts paid by a client for costs incurred during prior periods for
which no revenue had been recorded due to the uncertainty of its collection.
North American margins were impacted by increased revenue derived from the sale
of materials on turnkey projects, which carry a lower mark-up. Additionally, our
energy network services segment experienced reduced productivity by unusually
poor weather conditions in the mid-Atlantic states during the third quarter of
1999. Adverse weather conditions impacted productivity during the first quarter
of 1998.
Depreciation was $46.4 million or 4.4% of revenue for the year ended
December 31, 1999, compared to $29.6 million or 3.6% of revenue for the same
period in 1998. The increased depreciation expense as a percent of revenue
resulted from our investment in our fleet to support current and projected
revenue growth.
Amortization was $9.7 million or 0.9% of revenue for the year ended
December 31, 1999, compared to $11.0 million or 1.4% of revenue for the same
period in 1998.
General and administrative expenses were $91.9 million or 8.7% of revenue
for the year ended December 31, 1999, compared to $89.4 million or 11.0% of
revenue for the same period in 1998. The decline in general and administrative
expenses as a percent of revenue for the year ended December 31, 1999 was due
primarily to our ability to support higher revenue with a comparatively lower
administrative base.
Interest expense, net of interest income, was $17.3 million or 1.6% of
revenue for the year ended December 31, 1999, compared to $15.3 million or 1.9%
of revenue for the same period in 1998. The increase in net interest expense of
$2.0 million was due primarily to increased indebtedness to support additional
growth.
Reflected in other expense, net for the year ended December 31, 1999, are
charges related to non-core assets of approximately $13.8 million. We also
reserved $1.0 million for a 1994 lawsuit from a predecessor company following a
$1.1 million judgment awarded in October 1999. Offsetting these amounts was a
fee of $4.8 million collected from a telecommunications client related to
extensions to the maturity date of a vendor financing arrangement. Other expense
in 1998 includes predominantly a $33.8 million charge related to signing bonuses
and extended non-competition payments made under agreements with operating
management that could not be attributed to future services.
For the year ended December 31, 1999, our effective tax rate was
approximately 41.5% for North American operations and 33% for Brazilian
operations, compared to 40% and 33% in 1998 for North American and Brazilian
operations, respectively.
Spain
The following table states the results of operations of our Spanish
operations for the year ended December 31, 1998, in dollar and percentage of
revenue terms (dollars in thousands):
Year Ended December 31,
1998
----------------------------
Revenue $ 237,340 100.0%
Costs of revenue (1) 183,724 77.4
Depreciation 2,680 1.1
General and administrative expenses (1) 51,070 21.5
Interest expense, net of interest income 5,222 2.2
Other expense, net 6,338 2.7
Loss before provision for income taxes, equity in earnings of (11,694) (4.9)
unconsolidated companies and minority interest
Provision from income taxes 7,987 3.2
Equity in earnings of unconsolidated companies 1,291 0.1
Minority interest (487) -
-------------- ----------
Net loss $ (18,877) (8.0)%
============== ==========
(1) 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.
Financial Condition, Liquidity and Capital Resources
Our primary liquidity needs are for working capital, capital
expenditures, acquisitions and investments,(including the payment of contingent
consideration related to prior acquisitions) and debt service.
Our primary sources of liquidity are cash flows from operations
and borrowings under our revolving lines of credit.credit facility.
Net cash used inprovided by operating activities was $11.9$54.8 million for
the year ended December 31, 2000,2001, compared to $11.9 million used in
2000. The net cash provided by operations of $120.1 million for
the same period in 1999 and cash used of $13.9 million in 1998. Net cash used in
operating activities in 2000 was2001 changed
in part due principally to increased working capital
needs as a resultcollection of growth in revenuereceivables and changes in client mix. Cash provided
by operationsworking
capital. In February 2002, we received a $42.9 million income tax
refund resulting from losses incurred in 1999 included collections of $81.4 million from prior periods
from2001.
We completed a client to which we were providing vendor financing. From time to time,new credit facility in exchange for one or more of long-term exclusive infrastructure services
agreements, interest, financing and other fees, and warrants or other equity
interests in the client, we may grant payment terms typically for six to
eighteen months to our clients. At December 31, 2000, we had $31.5 million under
these arrangements.
We have a credit facilityFebruary 2002 that provides
for borrowings up to an aggregate of $100.0 million.$125.0 million, based on a
percentage of eligible accounts receivable and work in process as well
as a fixed amount of equipment. Although the credit facility provides
for borrowings of up to $125.0 million, the amount that can actually be
borrowed at any given time is based upon a formula that takes into
account, among other things, our eligible accounts receivable, which
can result in borrowing availability of less than the full amount of the
facility. Amounts outstanding under the revolving credit facility mature
on June
9, 2002. We are required to payJanuary 22, 2007. The credit facility is collateralized by a first
priority security interest on substantially all of our assets and a
pledge of the stock of our operating subsidiaries. Interest under the
facility accrues at rates based, at our option, on the agent bank's base
rate plus a margin of between 0.50% and 1.50% depending on certain
financial covenants or its LIBOR rate (as defined in the credit facility)
plus a margin of between 2.0% and 3.0%, depending on certain financial
covenants. The facility includes an unused facility fee ranging from .25%of 0.50%, which
may be adjusted to .50%
annuallyas low as 0.375% or as high as 0.625% depending on
the facility, depending uponachievement of certain financial covenants.thresholds.
The credit facility contains customary events of default (including
cross-default) provisions and covenants whichrelated to our North American
operations that prohibit, among other things, making investments and
acquisitions in excess of a specified amount, incurring additional
indebtedness in excess of a specified amount, paying cash dividends,
making other distributions in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated
notes, and engaging in certain mergers or combinations without the prior
written consent of the lenders. The credit facility also providescontains
financial covenants that require us to maintain (a) tangible net worth on
or after March 31, 2002 of $180.0 million plus an amount equal to 50% of
net income from North American operations after January 1, 2002 and (b) a
fixed charge coverageratio of at least 2:1 (all as defined in the credit
facility) for the successive periods of three, four, five, six, seven,
eight, nine, ten and eleven consecutive calendar months beginning January
1, 2002 and each period of 12 consecutive calendar months ending on or
after December 31, 2002. Failure to achieve certain results could cause
us not to meet these covenants. There can be no assurance that we must maintain financialwill
meet these covenant tests. If we violate one or more of these covenants
in the future, and we are unable to cure or obtain waivers from our
lenders or amend or otherwise restructure the credit facility, we could
be in default under the facility and we may be required to sell assets
for less than their carrying value to repay this indebtedness. As a
result of these covenants, our ability to respond to changing business
and economic conditions and to secure additional financing, if needed,
may be restricted significantly, and we may be prevented from engaging
in transactions that might otherwise be considered beneficial to us.
Further, to the extent additional financing is needed, there can be no
assurance that such financing would be available at all or on terms
favorable to us. In addition, a deterioration in the quality of
our receivables or work in process will reduce availability under our
credit facility.
Our North American operations typically are seasonally slower in the
first quarter of the year primarily as the result of client budgetary
constraints and preferences and the effect of winter weather on external
network activities. Because our new credit facility measures the fixed
charge coverage ratio coverages atdescribed above for the endfirst time during the
seasonally slower first quarter of each fiscal2002, a delay or reduction in our
client's capital expenditures in the first quarter such as debtof 2002 from those
projected could affect our ability to earnings and earnings to interest
expense.meet the required coverage ratio.
We also have $200$200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually.
semi-annually, of which $195.8 million
is outstanding. The notes also contain default (including cross-default)
provisions and covenants restricting many of the same transactions as
under our credit facility.
During 2000,the year ended December 31, 2001, we invested $52.6$35.4 million
primarily in our fleet to support
revenue growth. We collected $54.1replace or upgrade equipment, $8.5 in
technology enhancement and $11.5 million primarily to acquire an
additional 36.5% interest in net proceedsour Brazilian operations. During 2001,
our financing activities primarily consisted of borrowings under our
credit facility to fund working capital needs.
The following table sets forth our contractual commitments as of
December 31, 2001 (in thousands):
Less than After 5
Contractual Obligations Total 1 year 1-3 years 4-5 years years
- ------------------------------------------------------------------------------
Long-term debt $195,832 $ - $ - $ - $195,832
Other obligations 3,070 1,746 1,324 - -
Obligations related to
acquisitions(1) 21,246 21,246 - - -
Obligations related to
severance(2) 7,250 7,250 - - -
Capital leases 847 596 251 - -
Operating leases 36,597 12,874 17,871 5,058 794
-------- ------- ------- ------ --------
Total $264,842 $43,712 $19,446 $5,058 $196,626
======== ======= ======= ====== ========
(1) Primarily related to assets
sold, primarily from the sale of our PCS system in Latin America and our Spanish
operations. We also invested $55.3 million in acquisitions and investments and
contingent consideration from prior acquisitions during the year. We have
reflected in other current liabilities contingent consideration of $35.0 million
that we expect will be paid during 2001.for acquisitions.
(2) Severance for our former president and chief executive officer.
Total
Other Commercial Amounts Less than Over 5
Commitments Committed 1 year 1-3 years 4-5 years years
- ------------------------------------------------------------------------
Credit facility $70,000 $ - $ - $ - $70,000
Standby letters of
credit 7,024 7,024 - - -
------- ------ ------ ------ -------
Total $77,024 $7,024 $ - $ - $70,000
======= ====== ====== ====== =======
Seasonality
Our North America operations have historically beentypically are seasonally slower in the
first quarterand fourth quarters of the year. During the last two years, we have generally
experienced sequential increases in revenue following the first quarter of every year. This seasonality is primarily the
result of client budgetary constraints and preferences and the effect of
winter weather on external network activities. Some of our U.S. clients,
particularly the incumbent local exchange carriers, tend to complete
budgeted capital expenditures before the end of the year and defer
additional expenditures until the following budget year. Revenue in
local currency from our Brazilian operations is not expected to fluctuate
seasonally.
Impact of Inflation
The primary inflationary factor affecting our operations is increased
labor costs. We have not experienced significant increases in labor costs
to date. Competition for qualified personnel could increase labor costs for us in the
future. Our Brazilian operations may at times in the future, be exposed to risks associated
with high inflationinflation.
Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, Business Combinations. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001, be accounted for
using the purchase method. The FASB also issued SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142 requires that goodwill be
assessed at least annually for impairment by applying a fair-value based
test. Goodwill will no longer be amortized over its estimated useful
life. In addition, acquired intangible assets are required to be
recognized and amortized over their useful lives if the benefit of the
asset is based on contractual or currency devaluations.legal rights. While we will be subject
to most provisions of SFAS No. 142 beginning January 1, 2002, goodwill
and intangible assets acquired after June 30, 2001, became subject to the
statement immediately.
We are currently evaluating the impact that SFAS No. 142 will have
on our financial position or results of operations. However, with the
recent decline in our market capitalization and other factors affecting
our industry, the application of the methodology within SFAS No. 142 may
result in the write-down of a portion of our goodwill.
In October 2001, the FASB issued FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") and establishes a single
accounting model, based on the framework established in SFAS 121,
for long-lived assets to be disposed of by sale. We adopted SFAS 144
effective January 1, 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 1 and 56 of Notes to Consolidated Financial Statements
for disclosures about market risk.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Certified Public Accountants......................... 20Accountants ............. 19
Consolidated Statements of Operations for the Three
Years Ended December 31, 2000..................................................... 212001 ................................ 20
Consolidated Balance Sheets as of December 31,
19992000 and 2000............... 222001 ................................................ 21
Consolidated StatementStatements of Changes in Shareholders'
Equity for the Three Years Ended December 31, 2000............................................... 232001 ........... 22
Consolidated Statements of Cash Flows for the Three
Years Ended December 31, 2000..................................................... 242001 ................................ 23
Notes to Consolidated Financial Statements................................. 26Statements ..................... 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of MasTec, Inc.:
In our opinion, 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 at December 31,
19992000 and 2000,2001, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 20002001 in
conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
January 30, 2001February 18, 2002
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Year Ended December 31,
1998 (1) 1999 2000 --------------- --------------- --------------
2001
---------- ---------- ----------
Revenue $ 1,048,922 $ 1,059,022 $ 1,330,296$1,059,022 $1,330,296 $1,222,580
Costs of revenue 803,112 803,799 1,017,878 988,198
Depreciation 32,288 46,447 52,413 51,707
Amortization 11,025 9,701 11,042 10,810
General and administrative expenses 140,472 91,898 98,521 290,040
Interest expense 29,580 26,673 18,283 20,426
Interest income 9,093 9,398 4,973 5,775
Other expense, net 38,920 10,092 25,756
--------------- --------------- --------------(10,092) (25,756) (14,618)
---------- --------- ----------
Income (loss) before provision(provision)
benefit for income taxes equity in 2,618 79,810 111,376
earnings of unconsolidated companies and
minority interest Provision79,810 111,376 (147,444)
(Provision) benefit for income taxes 12,550 33,266 45,877
Equity in earnings of unconsolidated companies 1,906 - -(33,266) (45,877) 54,858
Minority interest (5,889) (1,818) (352) =============== =============== ==============232
---------- --------- ----------
Net (loss) income $ (13,915)(loss) $ 44,726 $ 65,147 =============== =============== ==============$ (92,354)
========== ========= ==========
Basic weighted average common
shares outstanding 41,234 41,714 46,390 47,790
Basic earnings (loss) earnings per share $ (0.34) $ 1.07 $ 1.40 $ (1.93)
Diluted weighted average common
shares outstanding 41,234 42,624 48,374 47,790
Diluted earnings (loss) earnings per share $ (0.34)1.05 $ 1.051.35 $ 1.35(1.93)
(1) Includes the results of our Spanish operations which were sold effective
December 31, 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
----------------------------------
1999-----------------------
2000 ---------------- ---------------2001
---------- ---------
Assets
Current assets:
Cash and cash equivalents....................................equivalents $ 27,63518,457 $ 18,45748,478
Accounts receivable, unbilled revenue and
retainage, net..... 251,576 386,480
Inventories.................................................. 14,264net 392,585 251,715
Inventories 19,643 25,697
Income tax refund receivable - 44,904
Other current assets......................................... 34,634 29,184
---------------- --------------assets 23,079 23,078
--------- ---------
Total current assets..................................... 328,109assets 453,764 393,872
Property and equipment, net...................................... 153,527net 159,673 151,774
Intangibles, net................................................. 151,555net 262,398 264,826
Other assets..................................................... 95,218 89,044
================ ==============assets 80,510 40,900
--------- ---------
Total assets.............................................assets $ 728,409956,345 $ 964,879
================ ==============851,372
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt...................................debt $ 12,2003,323 $ 5,6851,892
Accounts payable and accrued expenses........................ 74,408 85,797 75,508
Other current liabilities.................................... 71,882 128,379
---------------- --------------liabilities 122,207 68,410
--------- ---------
Total current liabilities................................ 158,490 219,861
---------------- --------------liabilities 211,327 145,810
--------- ---------
Other liabilities................................................ 45,628liabilities 38,530 ---------------- --------------30,902
--------- ---------
Long-term debt................................................... 267,458debt 206,160 ---------------- --------------267,857
--------- ---------
Commitments and contingencies
(Note 11)
Shareholders' equity:
Common stock................................................. 4,235stock 4,770 4,791
Capital surplus.............................................. 167,387surplus 346,099 348,022
Retained earnings............................................ 101,203earnings 166,350 73,996
Foreign currency translation adjustments..................... (15,992)adjustments (16,891) ---------------- --------------(20,006)
--------- ---------
Total shareholders' equity............................... 256,833equity 500,328 ================ ==============406,803
--------- ---------
Total liabilities and shareholders' equity............... $ 728,409 $ 964,879
================ ==============equity $956,345 $851,372
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Common Stock Foreign Accumulated
--------------------------------- Currency Other
Shares Amount
Capital Retained Translation Total Comprehensive
Shares Amount Surplus Earnings Adjustments Total Income
---------- ---------------- ------ -------- -------- ----------- ---------- ------------------ -----------
------------
Balance December 31, 1997 41,3701998 41,073 $4,107 $148,110 $ 4,13756,477 $ 152,634(4,421) $204,273 $ 70,392 $ (3,466) $ 223,697 $ 66,92652,056
Net loss........................... (13,915) (13,915) (13,915)income - - - 44,726 - 44,726 44,726
Foreign currency translation
(955) (955) (955)
adjustment......................adjustment - - - - (11,571) (11,571) (11,571)
Stock issued, primarily for
704 70 8,698 8,768 -
acquisitions and stock
options exercised.......................exercised 1,277 128 17,344 - - 17,472 -
Tax benefit resulting from
stock 403 403option plan - option plan.....................
Repurchase of common stock......... (1,001) (100) (13,625) (13,725) - ---------- ---------- ----------- ---------- ---------- ----------- ------------1,933 - - 1,933 -
------- ------ -------- -------- --------- -------- --------
Balance December 31, 1998 41,073 4,107 148,110 56,477 (4,421) 204,273 52,0561999 42,350 $4,235 $167,387 $101,203 $(15,992) $256,833 $ 85,211
Net income......................... 44,726 44,726 44,726income - - - 65,147 - 65,147 65,147
Foreign currency translation
(11,571) (11,571) (11,571)
adjustment......................adjustment - - - - (899) (899) (899)
Stock issued, primarily for
1,277 128 17,344 17,472 -
acquisitions and stock
options exercised.......................exercised 5,352 535 173,804 - - 174,339 -
Tax benefit resulting from
stock 1,933 1,933option plan - option plan.....................
---------- ---------- ----------- ---------- ---------- ----------- ------------- 4,908 - - 4,908 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 1999.......... 42,350 $ 4,235 $ 167,387 $ 101,203 $ (15,992) $ 256,833 $ 85,2112000 47,702 $4,770 $346,099 $166,350 $(16,891) $500,328 $149,459
Net income......................... 65,147 65,147 65,147loss - - - (92,354) - (92,354) (92,354)
Foreign currency translation
(899) (899) (899)
adjustment......................adjustment - - - - (3,115) (3,115) (3,115)
Stock issued, primarily due to 5,352 535 173,804 174,339
offeringfor
acquisitions and acquisitions.......
Tax benefit resulting from stock
4,908 4,908
option plan.....................
========== ========== =========== ========== ========== =========== ============options exercised 203 21 1,923 - - 1,944 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 2000.......... 47,7022001 47,905 $4,791 $348,022 $ 4,77073,996 $(20,006) $406,803 $ 346,099 $ 166,350 $ (16,891) $ 500,328 $ 149,459
================================================================================53,990
====== ====== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------------------------------
1998 1999 2000
--------------- -------------- --------------
------------------------------
1999 2000 2001
-------- -------- --------
Cash flows from operating activities:
Net income (loss) income................................. $ (13,915) $ 44,726 $ 65,147 $(92,354)
Adjustments to reconcile net income (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization.................. 43,313amortization 56,148 63,455 62,517
Minority interest.............................. 5,889interest 1,818 352 Equity in earnings(232)
Gain on sale of unconsolidated companies. (1,906)assets - (450) (863)
Bad debts related to bankrupt clients - - Deferred tax expense (benefit)................. 6,974 (1,961) 727
Loss on sale or write-down182,200
Write-down of assets........... 8,918assets 9,798 22,57423,024 16,500
Changes in assets and liabilities net
of effect of acquisitions and divestitures:acquisitions:
Accounts receivable, unbilled revenue
and retainage, net.......................... (34,942)net 5,707 (109,470) (17,121)
Inventories 4,527 (4,347) (5,807)
Income tax refund receivable - - (44,904)
Other assets, current and other current assets........ (16,759) 564 (13,313)
Other assets................................ (27,341) (1,946) (47,699)non-current
portion (5,909) (56,665) (525)
Accounts payable and accrued expenses....... (2,017) (2,858) (1,433) (3,701)
Other liabilities, current liabilities................... 13,385 5,653 13,159
Other liabilities........................... 4,548 2,486 (5,370)
--------------- -------------- --------------and
non-current portion 6,178 8,516 (40,898)
-------- -------- --------
Net cash provided by (used in)
provided by operating activities... (13,853)activities 120,135 (11,871) --------------- -------------- --------------54,812
-------- -------- --------
Cash flows from investing activities:
Capital expenditures.............................. (76,445)expenditures (69,507) (52,638) (43,915)
Cash paid for acquisitions and
contingent consideration,
net of cash acquired............... (75,745)acquired (18,706) (55,303) (30,313)
Investments in unconsolidated companies and
distribution to joint venture partner............. (13,384)partner (25,528) (4,900) (Advances) repayment(11,450)
Repayment of notes receivable net..... (18,667) 15,667 1,100 -
Net proceeds from sale of assets.................. 5,600assets 27,791 54,065 --------------- --------------- --------------2,336
-------- -------- --------
Net cash used in investing activities................. (178,641)activities (70,283) (57,676) --------------- --------------- --------------(83,342)
-------- -------- --------
Cash flows from financing activities:
Proceeds (repayments) from revolving
credit....... 5,032credit facilities, net (45,384) (71,538) facilities, net...................................
Proceeds from senior notes........................ 199,724 - -
Other borrowings.................................. 35,106 - -
Debt repayments................................... (17,946) - -58,645
Proceeds from issuance of common stock............ 3,779stock 6,593 133,695 Stock repurchased................................. (13,725) - -
Financing costs................................... (4,993) - -
--------------- --------------- -------------1,146
-------- -------- --------
Net cash (used in) provided by (used in) financing
activities... 206,977activities (38,791) 62,157 --------------- --------------- -------------59,791
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.. 14,483equivalents 11,061 (7,390) 31,261
Net effect of translation on cash..................... (682)cash (3,290) (1,788) (1,240)
Cash and cash equivalents--beginning
of period........ 6,063period 19,864 27,635 =============== =============== =============18,457
-------- -------- --------
Cash and cash equivalents--end of period.............. $ 19,864period $ 27,635 $ 18,457 =============== =============== =============$ 48,478
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................... $ 21,795Interest $ 25,510 $ 18,042 =============== =============== =============$ 20,115
======== ======== ========
Income taxes...................................... $ 6,593taxes $ 9,726 $ 44,618 =============== =============== =============$ 10,016
======== ======== ========
(continued)
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
In 1998, we disposed of our Spanish operations. The book value ofDuring the net
assets totaled $65.6 million and was comprised primarily of $137.3 million of
accounts receivable, $17.3 million of property and equipment, other assets and
inventories of $43.3 million and cash of $2.2 million, offset by $134.5 million
of assumed liabilities. We retained a 13% interest valued at $4.1 million
resulting in $61.5 million in net assets sold at $52.3 million resulting in a
loss of $9.2 million. The terms of the sale included $25.0 million in the form
of debt assumed by the buyers and we financed $27.3 million which was
substantially collected in 1999.
In 1998, we issued approximately 0.16 million shares of common stock
primarily as payment for contingent consideration related to 1997 acquisitions.
In addition, we issued approximately 0.1 million shares as bonuses to certain
employees and fees to directors. In 1998, we completed certain acquisitions
which have been accounted for as purchases. The fair value of the net assets
excluding goodwill acquired totaled $36.2 million and was comprised primarily of
$35.2 million of accounts receivable, $27.2 million of property and equipment,
$8.0 million of other assets and $5.0 million in cash, offset by $39.2 million
of assumed liabilities. The excess of the purchase price over the net assets
acquired was $55.3 million and was allocated to goodwill.
Inyear ended December 31, 1999, we completed certain
acquisitions which have been accounted for as purchases. The fair value
of the net assets acquired excluding goodwill acquired totaled $3.75 million and
was comprised primarily of $7.0 million of accounts receivable, $2.4
million of property and equipment, $0.68 million of other assets and
$0.27 million in cash, offset by $6.6 million of assumed liabilities.
The excess of the purchase price over the fair value of net assets
acquired was $7.4 million and was allocated to goodwill. The total
purchase price of $11.2 million was primarily paid in cash. We also
issued 0.53 million shares of common stock with a value of $11.3 million
related to the payment of contingent consideration from earlier
acquisitions. Of the $11.3 million, $2.3 million was recorded as a
reduction of other current liabilities and $9.0 million as additional
goodwill. Additionally, $7.8 million of contingent consideration was
paid in cash and was recorded as goodwill.
InDuring the year ended December 31, 2000, we completed certain
acquisitions which have been accounted for as purchases. The fair value
of the net assets acquired excluding goodwill totaled $16.2 million and
was comprised primarily of $26.9 million of accounts receivable, $9.4
million of property and equipment, $1.1 million of other assets and $5.8
million in cash, offset by $27.0 million of assumed liabilities. The
excess of the purchase price over the net assets acquired was $73.4
million and was allocated to goodwill. The total purchase price of $89.6
million was paid by issuing $36.5 million of common stock (0.6 million
shares) and notes and $53.1 million in cash. We also issued 207,171
shares of common stock with a value of $15.8 million related to the
payment of contingent consideration from earlier acquisitions. Of the
$15.8 million, $0.2 million was recorded as a reduction of other current
liabilities and $15.6 million as additional goodwill. Additionally,
$8.0 million of contingent consideration was paid in cash and was
recorded as goodwill.
During the year ended December 31, 2001, we completed certain
acquisitions which have been accounted for as purchases. The fair
value of the net assets excluding goodwill acquired totaled $2.6 million
and was comprised primarily of $3.0 million of accounts receivable, $2.0
million of property and equipment, $0.5 million of other assets and $0.2
million in cash, offset by $3.1 million of assumed liabilities. The
excess of the purchase price over the fair value of net assets acquired
was $2.7 million and was allocated to goodwill. The total purchase price
of $5.3 million is comprised of $4.0 million in cash and the balance in
seller financing. We also paid approximately $25.9 million related to
contingent consideration from earlier acquisitions of which $0.6 million
was reflected as additional goodwill and $25.3 million reflected as a
reduction in other current liabilities.
The accompanying notes are an integral part of these consolidated
financial statements.
Note 1 - Nature of the Business and Summary of Significant Accounting
Policies
We are a leading end-to-end voice, video, datacommunication, broadband and energy
network
infrastructure solutionservice provider for a broad range of communications, broadband, energyclients in North
America and other corporate clients. We have a diverse client base representing all the
major segments of the industries we serve. Our broad suite of services allows
our clients to connect with their customers.Brazil.
We design, build, install, maintain, upgrade and monitor internal
and external networks transmission facilities and data
storage centers supporting e-commerce and other communications, computing and
energy systems.facilities for our clients. We are one
of the few national, multi-disciplinary infrastructure providers that
furnishes a national services provider, operatingcomprehensive solution to our clients' infrastructure needs
ranging from 200basic installation and construction to sophisticated
engineering, design and integration. Our diverse and long-standing client
base, experienced management and integrated value added service locations throughout the United Statesoffering
provide a stable base of repeat business and Canada. We also operate in Brazil
through a 51% owned joint venture.
Revenue generated by North American operations, as a percentage of total
revenue, was 63.8%, 94.8%enable us to quickly and
95.8% in 1998, 1999 and 2000, respectively. For
the years ended December 31, 1998, 1999 and 2000, revenue expressed as a
percentage of North American revenue generated by datacom network services was
81.5%, 84.6% and 88.8%, respectively, and by energy network services was 18.0%,
15.3% and 11.2%, respectively. See Note 10. For 1999 and 2000, international
operations consisted primarily of our operations in Brazil. In 1998,
international operations included our Spanish operations. Effective December 31,
1998, we sold 87% of our Spanish operations.efficiently meet client demands.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is
presented below:
Management'sManagement estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires us to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The more significant estimates
relate to our revenue recognition, allowance for doubtful accounts,
accrued insuranceintangible assets, income taxes, and litigation and contingencies.
We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the realizationcircumstances,
the results of certain intangibles.which form the basis of making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results couldmay differ from those estimates.these
estimates under different assumptions or conditions.
Principles of consolidation. The consolidated financial statements
include MasTec, Inc. and its subsidiaries including our 51% interest in our Brazilian
operations.subsidiaries. All material intercompany
accounts and transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to the current year presentation.
Comprehensive income (loss). As reflected in the consolidated
statementstatements of changes in shareholders' equity, comprehensive income is a
measure of net income and all other changes in equity that result from
transactions other than with shareholders. Comprehensive income (loss)
consists of net income (loss) and foreign currency translation adjustments.
Foreign currency. We operate in Brazil, which is subject to greater
political, monetary, economic and regulatory risks than our domestic
operations. During January 1999, the Brazilian government allowed its
currency to trade freely against other currencies resulting in an
immediate devaluation of the Brazilian real. Assets and liabilities of
foreign subsidiaries and equity with a functional currency other than
U.S. dollars are translated into U.S. dollars at exchange rates in effect
at the end of the reporting period. Foreign entity revenue and expenses
are translated into U.S. dollars at the average rates that prevailed
during the period. The resulting net translation gains and losses are
reported as foreign currency translation adjustments in shareholders'
equity as a component of other accumulated comprehensive income.
Exchange gains and losses on transactions and equity investments
denominated in a currency other than their functional currency are
included in results of operations as incurred.
Revenue recognition. Revenue and related costs for short-term
construction projects (i.e., generally projects with a duration of less
than one month) are recognized as the services are rendered. 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. Monitoring service and support revenue is recognized ratably over
the term of the agreement. We also provide management, coordination,
consulting and administration services for network infrastructure
projects. Compensation for such services is recognized ratably over
the term of the service agreement.
Note 1 - Nature of the Business and Summary of Significant Accounting Policies
(cont'd)
Losses, if any, on 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 clients as per
individual contract terms.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments.
Our management must make estimates of the uncollectability of our
accounts receivables. Management specifically analyzes accounts
receivable and analyzes historical bad debts, client concentrations,
client credit-worthiness and current economic trends when evaluating
the adequacy of the allowance for doubtful accounts.
Earnings per share. Basic earnings per common share is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding. Diluted earnings per common share
include the dilutive effect of stock options using the treasury stock
method. The difference between the weighted average common shares
outstanding used to calculate basic and diluted earnings per share
relates to stock options assumed exercised under the treasury method of
accounting of approximately 910,000 and 1,984,000 at December 31, 1999
and 2000, respectively. Included in the diluted earnings per share
computation are approximately 167,000 shares for the year ended December
31, 2000, to be issued in connection with an acquisition of a datacom network
service provider. Potentially dilutive shares as of December 31, 19982001
totaling 504,000199,000 shares were not included in the diluted per share
calculation because their effect would be anti-dilutive as we incurred
a loss that year. Accordingly, for 1998,2001 diluted net loss per common
share is the same as basic net loss per common share.
Cash and cash equivalent.equivalents. We consider all short-term investments
with maturities of three months or less when purchased to be cash
equivalents. At December 31, 19992000 and 2000,2001, we had cash and cash
equivalentequivalents denominated in Brazilian reals that translate to
approximately $20.5$6.0 million and $6.0$4.0 million, respectively.
Inventories. Inventories (consisting principally of materials 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 other income.income or expense.
Intangibles and other long lived assets. Assets and liabilities
acquired in connection with business combinations accounted for under the
purchase method are recorded at their respective estimated fair values.
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired, including the recognition of applicable
deferred taxes, and is amortized on a straight-line basis over a period
ranging from 5 to 40 years, with a weighted average amortization period
of 33 years. At December 31, 19992000 and 2000,2001, we had recorded intangibles
primarily consisting of goodwill of $151.6$262.4 million and $262.4$264.8 million,
respectively (net of accumulated amortization of $24.5 million in 1999 and $35.5 million in 2000). For the year ended December
31, 19992000 and
2000, we had goodwill deductible for tax purposes of $5.8$46.3 million and $6.8 million, respectively.in 2001). As of December 31, 2000,2001, we reflected in other
current liabilities $35.0additional consideration related to earnouts for
acquisitions completed in prior years of approximately $19.4 million, of contingent consideration expected towhich
we expect will be paid primarily during the first six months of 2001.2002.
We review long-lived assets, identifiable intangibles and goodwill and
record an impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of the assets to future undiscounted net cash flows
expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets or expected future cash flows on an undiscounted basis. Assets to
be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
Note 1 - Nature of the Business and Summary of Significant Accounting Policies
(cont'd)
Accrued insurance. We maintain insurance policies subject to
deductibles of $250,000 per occurrence for certain property and casualty
and worker's compensation claims and, accordingly, accrue the estimated
losses. For the year
endedAs of December 31, 2000,2001, we have an aggregate stop loss
coverage of $16.1$24.8 million adjusted for certain exposures.and our insurance accrual is reflected in
current and non-current liabilities.
Income taxes. We record income taxes using the liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax
consequence of temporary differences between the financial statement
and income tax bases of our assets and liabilities. A valuation allowance
is established when it is more likely than not that any or all of the
deferred tax assets will not be realized.
Stock based compensation. We adopted the disclosure provision of
Statement of Financial Accounting Standard No. 123, Accounting for Stock
Based Compensation ("SFAS 123") and retained the intrinsic value method
of accounting for such stock based compensation (see Note 7)8).
Fair value of financial instruments. We estimate the fair market
value of financial instruments through the use of public market prices,
quotes from financial institutions and other available information.
Judgment is required in interpreting data to develop estimates of market
value and, accordingly, amounts are not necessarily indicative of
the amounts that we could realize in a current market exchange. Our
short-term financial instruments, including cash and cash equivalents,
accounts and notes receivable, accounts payable and other liabilities,
consist primarily of instruments without extended maturities, the fair
value of which, based on management's estimates, equaled their carrying
values. Long-term debt is carried at face value less unamortized
discount. The fair value of our 7.75% senior subordinated notes was
approximately $188.0$163.7 million at December 31, 2000.2001. We use letters of
credit to back certain insurance policies. The letters of credit reflect
fair value as a condition of their underlying purpose and are subject
to fees competitively determined in the marketplace.
New pronouncements. In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin No. 101 "Revenue
Recognition" ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 is applicable beginning with our fourth quarter 2000 consolidated
financial statements. The application of SAB 101 did not have a material impact
on our financial results. In June 1998,July 2001, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities."141, Business Combinations.
SFAS No. 133 requires a company to recognize all derivative
instruments (including certain derivative instruments embedded in other
contracts) as assets or liabilities in its balance sheet and measure them at
fair value. The statement141 requires that changes inall business combinations initiated after
June 30, 2001, be accounted for using the derivative's fair valuepurchase method. The FASB also
issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142
requires that goodwill be assessed at least annually for impairment by
applying a fair-value based test. Goodwill will no longer be amortized
over its estimated useful life. In addition, acquired intangible assets
are required to be recognized currently in earnings unless specific hedge accounting criteria
are met. In June 1999,and amortized over their useful lives if
the benefit of the asset is based on contractual or legal rights. While
we will be subject to most provisions of SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133," was issued142 beginning January 1,
2002, goodwill and defers the adoption dateintangible assets acquired after June 30, 2001, became
subject to the beginning of
an entity's fiscal year-end beginning after June 15, 2000.statement immediately.
We do not believeare currently evaluating the impact that the adoption of this statementSFAS No. 142 will have a material impact
on our financial position or results of operations.
Note 1 - NatureHowever, with the
recent decline in our market capitalization and other factors affecting
our industry, the application of the Businessmethodology within SFAS No. 142 may
result in the write-down of a portion of our goodwill.
In October 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and Summaryreporting for the impairment or
disposal of Significant Accounting Policies
(cont'd)long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") and establishes a single
accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. We adopted SFAS 144
effective January 1, 2002.
Stock split. On June 19, 2000, we effected a three-for-two split
of our common stock in the form of a stock dividend to shareholders of
record as of May 29, 2000. To reflect the split, common stock was
increased and capital surplus was decreased by $1.6 million. All
references in the consolidated financial statements to shares and
related prices, weighted average number of shares, per share amounts
and stock plan data have been adjusted to reflect the stock split on
a retroactive basis.
Warranty costs. For certain contracts, we warrant labor for new
installations and construction and servicing of existing infrastructure. An
accrual for warranty costs is recorded based upon the historical level of
warranty claims and management's estimate of future costs.
Note 2 - Investing ActivitiesActivities. Since 1999,January 1, 2000, we have completed
1615 acquisitions alland increased our ownership in our datacom network
services group.Brazilian operations
during 2001. These acquisitions have been accounted for under the
purchase method of accounting. Accordingly, the results of operations
of acquired companies have been included in our consolidated results
of operations from their respective acquisition dates. If the
acquisitions had been made at the beginning of 19992000 or 2000,2001, pro forma
results of operations would not have differed materially from actual
results based on historical performance prior to their acquisition by
us. The most significant adjustments to the balance sheet resulting
from these acquisitions are disclosed in the supplemental disclosure
of non-cash investing and financing activities in the accompanying
statement of cash flows. Common stock issued in acquisitions is valued
based upon the market price of the common stock around the date of
purchase or the date the purchase price is determined. AcquisitionCertain
agreements may include provisions for contingent payments, depending on
future performance. AsIf future performance goalsthresholds are met, goodwill
is adjusted for the amount of such payments.
FromNote 2 - Liquidity
We derive a significant amount of our revenue from tele-
communications clients. During the latter part of 2000 and all of 2001,
certain segments of the telecommunications industry suffered a severe
downturn that resulted in a number of our clients filing for
bankruptcy protection or experiencing financial difficulties. As a
result, we incurred a net loss of $92.4 million for the year ended
December 31, 2001, primarily attributable to increases in bad debt
expense of $182.2 million during the year. The downturn adversely
affected capital expenditures for infrastructure projects even among
clients that did not experience financial difficulties. Capital
expenditures by telecommunications clients in 2002 are expected
to remain at low levels in comparison with prior years, and there can be
no assurance that additional clients will not file for bankruptcy
protection or otherwise experience financial difficulties in 2002.
Although we refocused our business on long-time, stable
telecommunications and other clients, there can be no assurance that
these clients will continue to fund capital expenditures for
infrastructure projects at current levels or that we will be able to
increase our market share with these stronger clients. Additional
bankruptcies or further decreases in our client's capital expenditures
could reduce our cash flows and adversely impact our liquidity.
Our primary liquidity needs are for working capital, capital
expenditures, acquisitions (including the payment of contingent
consideration related to prior acquisitions) and debt service.
Our primary sources of liquidity are cash flows from operations
and borrowings under our revolving credit facility.
As discussed in Note 6 to the Consolidated Financial Statements, we
completed a new five-year credit facility in February 2002 that provides
for borrowings up to an aggregate of $125.0 million, based on a percentage
of eligible accounts receivable and work in process as well as a fixed
amount of equipment. Although the credit facility provides for borrowings
of up to $125.0 million, the amount that can actually be borrowed at any
given time is based upon a formula that takes into account, among other
things, our eligible accounts receivable which can result in borrowing
availability of less than the full amount of the facility. Amounts
outstanding under the revolving credit facility mature on January 22,
2007. The credit facility is collaterized by a first priority security
interest on substantially all of our assets and a pledge of the stock of
our operating subsidiaries.
The credit facility contains financial covenants that require us
to maintain (a) tangible net worth on or after March 31, 2002 of $180.0
million plus an amount equal to 50% of net income from North American
operations generated after January 1, 2002 and (b) a fixed charge
coverage ratio of at least 2:1 (all as defined in the credit facility)
for the successive periods of three, four, five, six, seven, eight, nine,
ten and eleven consecutive calendar months beginning January 1, 2002 and
each period of 12 consecutive months ending on or after December 31, 2002.
Our North American operations typically are seasonally slower in the
first quarter of the year primarily as the result of client budgetary
constraints and preferences and the effect of winter weather on external
network activities. Because our new credit facility measures the fixed
charge coverage ratio described above for the first time during the
seasonally slower first quarter of 2002, a delay or reduction in our
client's capital expenditures in the first quarter of 2002 from those
projected could affect our ability to meet the required coverage ratio.
There can be no assurance that we will meet these covenant tests.
If we violate one or more of these covenants in the future, and we are
unable to cure or obtain waivers from our lenders or amend or otherwise
restructure or replace the credit facility, we could be in default under
the facility and could be required to seek alternative sources of
financing to conduct our business. There can be no assurances that such
financing would be available at all or on terms favorable to us.
Alternatively, we may invest inbe required to sell assets for less than their
carrying value to repay required obligations or meet our clients or receive securities to
purchase shares in our clients for nominal prices. Asliquidity
requirements.
Note 3 - Other assets and liabilities
Other current assets as of December 31, 2000 we
had recorded approximately $13.0and 2001 of $23.1
million related to such investments.for each year consists primarily of miscellaneous short-term
receivables, security deposits and prepaids.
Other non-current assets consists of the following as of
December 31, 2000 and 2001(in thousands):
2000 2001
------- -------
Long-term receivables, including retainage $45,822 $12,236
Non-core investments 19,589 10,132
Real estate held for sale 5,473 5,473
Deferred finance costs 3,131 2,616
Cash surrender value of insurance policies 1,594 1,774
Non-compete agreement 1,835 1,323
Other 3,066 7,346
------- -------
Total $80,510 $40,900
======= =======
Other current and non-current liabilities consists of the
following as of December 31, 2000 and 2001 (in thousands):
Current liabilities 2000 2001
- ----------------------------------- -------- -------
Obligations related to acquisitions $ 38,493 $21,246
Accrued compensation 33,461 20,727
Accrued insurance 9,434 10,448
Accrued severance - 7,250
Accrued interest 6,458 6,819
Other 34,361 1,920
-------- -------
Total $122,207 $68,410
======== =======
Non-current liabilities 2000 2001
- ----------------------------------- -------- -------
Accrued insurance $ 12,747 $15,626
Net deferred tax liability 9,039 10,011
Minority interest 16,150 2,170
Other 594 3,095
-------- -------
Total $ 38,530 $30,902
======== =======
Note 34 - Accounts Receivable
Accounts receivable areis presented net of an allowance for doubtful
accounts of $7.3 million, $9.7 million, $11.0 million, and $11.0$20.0 million at December
31, 1998, 1999, 2000 and 2000,2001, respectively. We recorded a provision for
doubtful accounts of $4.5
million, $4.7 million, and $6.6 million and $185.5 million during
1998, 1999, 2000 and 2000,2001, respectively. In addition, we recorded write-offs of
$0.3 million, $2.3 million, and $5.3 million and $176.8 million during 1998, 1999, 2000 and 2000,2001,
respectively.
Accounts receivable includes retainage, which has been billed but
is not due until completion of performance and acceptance by clients,
and claims for additional work performed outside original contract terms.
Retainage aggregated $16.5$24.6 million and $24.6$18.2 million at December 31,
19992000 and 2000,2001, respectively. Retainage is expected to be collected within
one year. Any retainage expected to be collected beyond a year is recorded
in long-term other assets.
Included in accounts receivable is unbilled revenue of $69.6$98.8 million
and $98.8$66.4 million at December 31, 19992000 and 2000,2001, respectively. Such
unbilled amounts represent work performed but not billable to clients as
per individual contract terms, of which $18.6$23.2 million and $23.2$7.9 million at
December 31, 19992000 and 2000,2001, respectively, are related to our Brazilian
operations. Unbilled revenue is typically billed within one to two months.
From time to time, in exchangeCertain of our clients, primarily competitive telecommunications
carriers, have filed for onebankruptcy or morehave been experiencing financial
difficulties. We review all our clients on a regular basis, and as a
result we recognized bad debt expense of long-term exclusive
infrastructure services agreements, interest, financing and other fees, and
warrants or other equity interests in$182.2 million for these clients
for the client, we may grant payment terms
typically for six to eighteen months to our clients.Atyear ended December 31, 2000,2001. Should additional clients file for
bankruptcy or experience difficulties, or should other workout situations
fail to materialize, we had
$31.5 million under these arrangements.
could experience reduced cash flows and losses in
excess of current reserves.
Note 45 - Property and Equipment
Property and equipment is comprised of the following as of December
31, 19992000 and 20002001 (in thousands):
Estimated
Useful Lives
1999 2000 2001 (In Years)
---------------- -----------------
-------- --------
Land $ 6,9056,892 $ 6,892
Buildings and improvements 11,852 12,624 12,953 5 -30
Machinery and equipment 223,378 268,969 290,606 3 -10
Office furniture and equipment 13,760 18,734 29,544 3 - 5
---------------- -----------------
255,895-------- --------
307,219 339,995
Less-accumulated depreciation (102,368) (147,546) ================ =================
$ 153,527 $ 159,673
================ =================(188,221)
-------- --------
$159,673 $151,774
======== ========
Note 56 - Debt
Debt is comprised of the following at December 31, 19992000 and 20002001
(in thousands):
1999
2000 --------------- ---------------
2001
-------- --------
Revolving credit facility at LIBOR plus 1.25% for 1999 and 1.0% for
2000 $ 64,000 $ 7,000
(6.98%and 2.25% for 2001 (7.64% at December 31,
19992000 and 7.64%4.18% at December 31, 2000)
Other bank facilities at LIBOR plus 1.50% (7.32% at December 31, 1999 and 7,707 517
8.06% at December 31, 2000)2001) $ 7,000 $ 70,000
Notes payable for equipment, at interest rates
from 7.5% to 8.5% due in 3,920 6,161
installments through
the year 2004 Notes payable for acquisitions, at interest rates from 7.0% to 8.0% due in 4,254 2,362
installments through February 20016,678 3,917
7.75% senior subordinated notes due February 2008 199,777 195,805 --------------- ---------------195,832
-------- --------
Total debt 279,658 211,845209,483 269,749
Less current maturities (12,200) (5,685)
=============== ===============(3,323) (1,892)
-------- --------
Long-term debt $ 267,458 $ 206,160
=============== ===============$206,160 $267,857
======== ========
Note 5 - Debt (cont'd)
We havecompleted a new credit facility in February 2002 that provides
for borrowings up to an aggregate of $100 million.$125.0 million, based on a
percentage of eligible accounts receivable and work in process as well
as a fixed amount of equipment. Although the credit facility provides
for borrowings of up to $125.0 million, the amount that can actually be
borrowed at any given time is based upon a formula that takes into
account, among other things, our eligible accounts receivable, and which
can result in borrowing availability of less than the full amount of the
facility. Amounts outstanding under the revolving credit facility mature
on June 9, 2002. We are required to pay an unused facility fee ranging from .25%
to .50% per annum on the facility, depending upon certain financial covenants.January 22, 2007. The credit facility is securedcollateralized by a first
priority security interest on substantially all of our assets and a
pledge of sharesthe stock of certain of our operating subsidiaries. Interest under the credit
facility accrues at rates based, at our option, on the agent bank's base
rate plus a margin of up to .50%between 0.50% and 1.50% depending on certain
financial covenants or 1% above the overnight federal funds effective
rate, whichever is higher, or its LIBOR Raterate (as defined in the credit facility)
plus a margin of 1.00% to 2.25%between 2.0% and 3.0%, depending on certain financial
covenants. The facility includes an unused facility fee of 0.50%, which
may be adjusted to as low as 0.375% or as high as 0.625% depending on
the achievement of certain financial thresholds. As of December 31,
2000,2001, we had outstanding $8.4$7.0 million in standby letters of credit.
The credit facility and the senior subordinated notes containcontains customary events of default (including
cross-default) provisions and covenants whichrelated to our North American
operations that prohibit, among other things, making investments and
acquisitions in excess of a specified amount, incurring additional
indebtedness in excess of a specified amount, paying cash dividends,
making other distributions in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including theour 7.75% senior subordinated
notes, and engaging in certain mergers or combinations without the
prior written consent of the lenders. The credit facility also providescontains
financial covenants that require us to maintain (a) tangible net worth on
or after March 31, 2002 of $180.0 million plus an amount equal to 50% of
net income from North American operations after January 1, 2002 and (b) a
fixed charge coverageratio of at least 2:1 (all as defined in the credit
facility) for the successive periods of three, four, five, six, seven,
eight, nine, ten and eleven consecutive calendar months beginning January
1, 2002 and each period of 12 consecutive calendar months ending on or
after December 31, 2002. Failure to achieve certain results could cause
us not to meet these covenants. There can be no assurance that we must maintain certain
financial ratio coverages, requiring, among other things minimum ratioswill
continue to meet these covenant tests in future periods. If we violate
one or more of these covenants in the future, and we are unable to cure
or obtain waivers from our lenders or amend or otherwise restructure the
credit facility, we could be in default under the facility and we may be
required to sell assets for less than their carrying value to repay this
indebtedness. As a result of these covenants, our ability to respond to
changing business and economic conditions and to secure additional
financing, if needed, may be restricted significantly, and we may be
prevented from engaging in transactions that might otherwise be considered
beneficial to us. Further, to the extent additional financing is needed,
there can be no assurance that such financing would be available at all or
on terms favorable to us. In addition, a deterioration in the endquality of
each fiscal quarterour receivables or work in process will reduce availability under our
credit facility.
We also have $200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually, of debt to earningswhich $195.8 million
is outstanding. The notes also contain default (including cross-default)
provisions and earnings to interest expense.
At December 31, 2000, debt maturescovenants restricting many of the same transactions as
follows:
2001 ................................. $ 5,684
2002 ................................. 10,068
2003 ................................. 188
2004.................................. 100
Thereafter (due 2008) ............... 195,805
=============
$ 211,845
=============
under our credit facility.
Note 67 - Lease Commitments
We have operating lease agreements for our premises and equipment
that expire on various dates. The operating lease agreements are subject
to escalation. Rent expense for the years ended December 31, 19992000 and
20002001 was approximately $14.8$14.4 million and $14.4$19.0 million, respectively.
Minimum future lease commitments under non-cancelable operating
leases in effect at December 31, 20002001 were as follows:
2001.................................... $ 15,928
2002.................................... 11,819
2003.................................... 9,586
2004.................................... 6,915
2005.................................... 2,700
Thereafter.............................. 1,234
--------------
Total minimum lease payments........ $ 48,182
==============
follows(in thousands):
2002 ......................... $ 12,874
2003 ......................... 10,629
2004 ......................... 7,242
2005 ......................... 3,164
2006 ......................... 1,894
Thereafter ................... 794
--------
Total minimum lease payments.. $ 36,597
========
Note 78 - Retirement and Stock Option Plans
We have a 401(k) plan covering all eligible employees. Subject to
certain dollar limits, eligible employees may contribute up to 15% of their
pre-tax annual compensation to the plan. We currently match in stock 50%
of the employee contributions up to 4%2% of their gross salary and may make
discretionary contributions in amounts determined by the Board of
Directors. Prior to January
1, 2000, our match was 25% of the employee contributions up to 4% of their gross
salary. Our matching contributions charged to earnings were
approximately $186,000, $547,000, $2,077,000 and $2,077,000$1,997,000 for the years ended
December 31, 1998, 1999, 2000 and 2000,2001, respectively.
We have three stock option plans currently in effect: the 1994
Stock Incentive Plan (the "1994 Plan"), the 1994 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan") and the 1999 Non-Qualified
Employee Stock Option Plan (the "Non-Qualified Plan"). Typically,
options under these plans are granted at fair market value at the date of
grant, vest between three to five years and terminate no later than 10
years from the date of grant.
Under these plans there were a total of 1,937,943, 1,030,055, 2,028,798 and
2,028,7981,118,253 options available for grant at December 31, 1998, 1999, 2000 and
2000,2001, respectively. In addition, there are 292,100 options outstanding
under individual option agreements with varying vesting schedules at
exercise prices ranging from $2.56 to $17.67 with terms up to 10 years.
We also have a non-qualified stock purchase plan under which eligible
employees may purchase common stock through payroll deductions or in a
lump sum at a 15% discount from fair market value.
In addition, there are 292,100 options
outstanding under individual option agreements with varying vesting schedules at
exercise prices ranging from $2.56 to $17.67 with terms up to 10 years.
The following is a summary of all stock option transactions:
Weighted Weighted Average
Stock Weighted Average Exercise Fair Value of
Options Exercise Price Options Granted
-------------------- ---------------------- --------------------
--------- -------------- ---------------
Outstanding December 31, 1997 2,411,138 $ 11.37
Granted 1,851,373 12.78 $ 8.86
Exercised (152,985) 7.59
Canceled (165,870) 12.98
-------------------- ----------------------
Outstanding December 31, 1998 3,943,656 12.21$12.21
Granted 2,774,933 21.77 $ 10.69$10.69
Exercised (610,604) 10.81
Canceled (252,045) 14.84
-------------------- ------------------------------- ------
Outstanding December 31, 1999 5,855,940 16.81
Granted 711,820 32.28 $ 20.39$20.39
Exercised (584,794) 10.98
Canceled (151,604) 20.44
==================== ======================--------- ------
Outstanding December 31, 2000 5,831,362 19.07
Granted 1,341,794 10.88 $ 19.07
==================== ======================7.79
Exercised (7,693) 11.26
Canceled (440,076) 23.15
--------- ------
Outstanding December 31, 2001 6,725,387 $17.18
========= ======
The following table summarizes information about stock options
outstanding at December 31, 2000:2001:
Stock Options Outstanding Options Exercisable
------------------------------------------------------------ ---------------------------------------------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Exercise Number of Stock Average WeightedRemaining Average Number of Average
Exercise Stock Weighted AverageStock Contractual Exercise Stock Exercise
Prices Options Remaining Exercise Options Exercise
Contractual Life Price Options Price
- -------------------- ------------------ -------------------- ------------------ ------------------ -------------------
-------------- --------- -------- -------- --------- --------
$ 2.56 - 2.56 45,000 2.19 $ 2.56 45,000 $ 2.56
3.53 53,550 3.19 $ 2.71 53,550 $ 2.71- 4.78 318,076 4.97 4.50 141,076 4.72
5.18 - 5.94 214,891 4.85 5.20 187,891 5.267.73 158,390 5.01 5.99 79,890 5.90
9.75 - 14.56 2,082,025 6.79 13.21 1,768,574 13.09
14.9814.06 2,812,137 6.08 12.68 1,767,576 13.05
14.17 - 19.84 1,898,779 8.58 19.24 798,519 19.36
20.7921.25 2,070,154 7.30 18.85 1,692,991 19.07
25.58 - 30.41 1,194,740 6.62 26.91 173,704 25.98
31.3537.96 1,273,130 5.29 28.49 533,676 28.03
39.91 - 45.08 387,377 5.71 35.45 - -
================== ==================== ================== ================== ===================48,500 5.39 43.24 16,168 43.24
--------- -------- -------- --------- --------
$ 2.56 - 45.08 5,831,362 7.166,725,387 6.20 $ 19.07 2,982,238 $ 14.86
================== ==================== ================== ================== ===================17.18 4,276,377 $16.90
========= ======== ======== ========= ========
We have elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for our employees' stock options.
Pursuant to APB No. 25, no compensation cost has been recognized.
We have reflected below the 1998, 1999, 2000 and 20002001 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 BlackScholesBlack-Scholes option-pricing model with the
following assumptions used for grants in 1998,
1999, 2000 and 2000,2001,
respectively: a six, five and five year expected life; volatility
factors of 72%41%, 41%60% and 60%79%; risk-free interest rates of 4.3%5.9%,
5.9%5.75% and 5.75%3.50%; and no dividend payments.
Note 7 - Retirement and Stock Option Plans (cont'd)
1998 1999 2000
----------------- ----------------- -----------------
Net (loss) income (in thousands):
1999 2000 2001
------- ------- ---------
Net income (loss) (in thousands):
As reported $ (13,915) $ 44,726 $ 65,147
================= ================= =================$44,726 $65,147 $( 92,354)
======= ======= =========
Pro forma $ (28,472) $ 32,980 $ 41,707
================= ================= =================$32,980 $41,707 $(106,944)
======= ======= =========
Basic earnings (loss) earnings per share:
As reported $ (0.34) $ 1.07 $ 1.40 $ (1.93)
Pro forma $ (0.69) $ 0.79 $ 0.90 $ (2.24)
Diluted earnings (loss) earnings per share:
As reported $ (0.34) $ 1.05 $ 1.35 $ (1.93)
Pro forma $ (0.69) $ 0.77 $ 0.86 $ (2.24)
Note 89 - Income Taxes
The provision (benefit) for income taxes consists of the following
(in thousands):
1998
1999 2000 -------------- -------------- -------------2001
-------- -------- ---------
Current:
Federal $ (3,876) $ 32,069 $ 36,669 $ (46,068)
Foreign 1,376 214 354 220
State and local 536 3,770 7,873 -------------- -------------- -------------
(1,964)(9,729)
-------- -------- ---------
36,053 44,896 -------------- -------------- -------------(55,577)
-------- -------- ---------
Deferred:
Federal 9,193 (5,889) 727 508
Foreign 5,430 1,740 - -
State and local (109) 1,362 254 -------------- -------------- -------------
14,514211
-------- -------- ---------
(2,787) 981 -------------- -------------- -------------719
-------- -------- ---------
Provision (benefit) for
income taxes $ 12,550 $ 33,266 $ 45,877 ============== ============== =============$ (54,858)
======== ======== =========
Note 8 - Income Taxes (cont'd)
The tax effects of significant items comprising our net deferred
tax liability as of December 31, 19992000 and 20002001 are as follows
(in thousands):
1999
2000 ------------- ------------
2001
------- -------
Deferred tax assets:
Non-compete $ 6,4626,661 $ 6,6616,211
Bad debts 4,279 4,400 6,710
Accrued self insurance 5,468 6,526 7,484
Operating loss and tax credit
carry forward 1,960 766 974
All other 1,562 4,087 ------------- ------------2,674
------- -------
Total deferred tax assets 19,731 22,440 ------------- ------------24,053
------- -------
Deferred tax liabilities:
Installment sale 3,902 -
Accounts receivable retainage 5,665 12,092 10,187
Property and equipment 15,709 12,755 Asset re-evaluations 4,63715,946
Basis differences in acquired
assets 1,968 2,027
All other 2,969 4,664 ------------- ------------5,904
------- -------
Total deferred tax liabilities 32,882 31,479 ------------- ------------34,064
------- -------
Net deferred tax liability $ (13,151) $ (9,039)
============= ============$(9,039) $(10,011)
======= ========
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. Certain of the acquired entities were
S corporations for income tax purposes and, accordingly, any income
tax liabilities for the periods prior to the acquisitions are the
responsibility of the respective shareholders.
A reconciliation of U.S. statutory federal income tax expense on
the earnings from continuing operations is as follows:
1998
1999 2000 ----------- ----------- ------------
2001
----- ----- ------
U.S. statutory federal rate
applied to pretax income 35% 35% 35%(35)%
State and local income taxes 10 4 5 Effect of non-U.S. tax rates (23) - -(4)
Amortization of intangibles 58 2 1 Gain on sale of Spanish operations 329 - -1
Non-deductible expenses 37 2 1 1
Other 33 (1) (1) =========== =========== ============-
----- ----- ------
Provision (benefit) for
income taxes 479% 42% 41% =========== =========== ============(37)%
===== ===== ======
During 1998, we sold 87% of our Spanish operations which resulted in a tax
liability of $7.8 million.
The Internal Revenue Service ("IRS") examined our federal income
tax returns for the years ended December 31, 1995 and 1996. The IRS has
agreed not to audit the years ended December 31, 1997 and 1998. The IRS
is currently auditing the year ended December 31, 1997.1999. Assessments made
for the years 1995 through 19971996 are presently being negotiated at the
appellate level. We believe we have legal defenses to reduce the
proposed deficiency, although there can be no assurance in this regard.
We believe that the ultimate disposition of this matter will not have a
material adverse effect on our consolidated financial statements.
Note 910 - Capital Stock
We have authorized 100,000,000 shares of common stock, $0.10 par
value. At December 31, 19992000 and 2000,2001, approximately 42,350,00047,702,000 shares
and 47,702,00047,905,000 shares, respectively, of common stock were issued and
outstanding. At December 31, 19992000 and 2000,2001, we had 5,000,000 shares of
authorized but unissued preferred stock.
Note 1011 - Operations by Geographic Areas and Segments
For the year ended December 31, 2000, approximately 7% of our revenue was
derived from services performed for BellSouth. For the year ended December 31,
1999, approximately 12.0% of our revenue was derived from services performed for
BellSouth.
Our operations consist of four segments: datacom network services, energy
network services, international and other.
Datacom Network Services. We design, build, install, maintain and monitor
the physical facilities used to provide end-to-end telecommunications service
from the provider's central office, switching center or cable television
head-end to the ultimate consumer's home or business.operate in one reportable segment as a specialty contractor.
We provide these services
both externally on public or private rights-of-ways or in our clients' premises.
Energy Network Services. We provide external network and infrastructure
services to public and private utilities. These services consist of overhead and
underground installationengineering, placement and maintenance of aerial, underground,
and buried fiber-optic, coaxial and copper cable systems owned by local
and long distance communications carriers, and cable television multiple
system operators. Additionally, we provide similar services related to
the installation of integrated voice, data and video local and wide area
networks within office buildings and similar structures and also
provide underground locating services to various utilities and
provide construction and maintenance services to electrical and other
utilities'
transmissionutilities. All of our operating units have been aggregated into one
reporting segment due to their similar customer bases, products and
production methods and distribution networks, substation construction and maintenance,
right-of-way maintenance and restoration of asphalt and concrete surfaces. These
services are substantially similar to the services we provide to our
telecommunications clients, but the work often involves the installation and
splicing of high-voltage transmission and distribution lines.
International.methods. We also operate in Brazil
through a 51%an 87.5% joint venture which we consolidate net of a 49%12.5%
minority interest after tax. Our Brazilian operations provide datacom infrastructureperform similar
services to a diverse group of telecommunication
companies primarily in the heavily populated states of southern Brazil.
The following table sets forth, for each of 1998, 1999 and 2000, certain
information about segment results of operations and segment assets (in
thousands).
Datacom Energy International Other (2) Consolidated
Network Network (1)
1998 Services Services
- ---------------------------------------------------------------------------------------------------------------
Revenue $ 545,485 $ 120,218 $ 379,294 $ 3,925 $ 1,048,922
Depreciation 22,822 8,460 - 1,006 32,288
Amortization 3,396 1,634 5,995 - 11,025
Income (loss) before provision
for income taxes, equity in 55,563 10,910 6,372 (70,227) 2,618
unconsolidated companies and
minority interest
Capital expenditures 44,307 25,872 5,003 1,263 76,445
Total assets 361,137 87,181 186,023 97,880 732,221
Datacom Energy International Other (2) Consolidated
Network Network (1)
1999 Services Services
- ---------------------------------------------------------------------------------------------------------------
Revenue $ 849,201 $ 153,179 $ 55,220 $ 1,422 $ 1,059,022
Depreciation 33,126 11,758 - 1,563 46,447
Amortization 4,883 802 4,016 - 9,701
Income (loss) before provision
for income taxes and 112,817 12,069 3,296 (48,372) 79,810
minority interest
Capital expenditures 59,601 8,845 86 975 69,507
Total assets 457,745 84,472 142,672 43,520 728,409
Datacom Energy International Other (2) Consolidated
Network Network (1)
2000 Services Services
- ---------------------------------------------------------------------------------------------------------------
Revenue $ 1,132,599 $ 142,386 $ 55,311 $ - $ 1,330,296
Depreciation 42,187 8,651 - 1,575 52,413
Amortization 6,699 808 3,535 - 11,042
Income (loss) before provision
for income taxes and 158,604 11,459 805 (59,492) 111,376
minority interest
Capital expenditures 48,631 3,138 869 - 52,638
Total assets 741,512 76,485 67,129 79,753 964,879
(1) Revenue, amortization and capital expenditures relate solely to our
Brazilian operations for 1999 and 2000, and include Spanish and Brazilian
operations for 1998. International income before provision for income taxes
and minority interest for the year ended December 31, 1999, 2000 primarily
relates to the saleand 2001 had
revenue of our PCS system net of a charge for the write-off of
two Latin American operations$55.2 million, $55.3 million and write-down of non-core assets. For the
other periods, income was related solely to our Brazilian operations in
1999 and included our Brazilian and Spanish operations in 1998.$57.9 million, respectively.
Total assets includes $118.2 million, $89.7 million and $50.8 millionfor Brazil totaled as of December 31, 1998, 1999, 2000, and
2000, respectively, related to our Brazilian
operations, and the remainder relates to our interest in international
non-core assets.
(2) Consists of non-core construction and corporate operations, which includes
interest expense net of interest income of $18.02001, $52.6 million, $20.1$48.8 million and $14.3$33.9 million, for the years ended December 31, 1998, 1999 and 2000,
respectively.
Additionally, charges of $34.0 million in 1998, $10.2 million
in 1999, and $26.3 million in 2000 are also reflected.
Note 10 - Operations by Geographic Areas and Segments (cont'd)
There are no significant transfers between geographic areas and segments.
Total assets are those assets used in our operations in each segment. Corporate
assets include cash and cash equivalents, non-core assets held for sale and
notes receivable.
Note 1112 - Commitments and Contingencies
We have filedtwo lawsuits pending in the U.S. District Court for
the Southern District of Florida state court against Sintel International Corp., a
subsidiary of Artcom Technologies, Inc., a holding company for a Spanish infrastructure
provider that we formerly owned, to recover more than $5.0
million due under a promissory note and for breach of contract. We are
also pursuing other claims in Spain against Artcom affiliates totallingtotaling
approximately $4.0 million. In February 2002, we tentatively settled the
breach of contract lawsuit against Sintel International for $180,000
payable to us. On January 29, 2001, subsequent to the filing of our
lawsuit against Sintel International under the promisory note, Artcom
has
responded by suingsued us in the U.S. District Court for the Southern District of
Florida, alleging fraud, negligent misrepresentation, breach of
fiduciary duty, unjust enrichment, conspiracy and violation of the
federal court inand Florida Racketeer Influenced and Corrupt Oragnizations Act.
The suit seeks to recover approximately $6.0 million (subject to
trebling) it allegesthat we allegedly received as a result of certain allegedly
unauthorized transactions by two former employees of ArtcomArtcom.
In a related matter, the labor union representing the workers of
Sistemas e Instalaciones de Telecomunicacion S.A. ("Sintel"), a sister
company of Sintel International, has instigated an investigative action
with a Spanish federal court commenced in July 2001 alleging that occurred after we soldfive
former members of the company.
In Januaryboard of directors of Sintel, including Jorge Mas,
the Chairman of the Board of MasTec, and his brother Juan Carlos Mas, a
MasTec executive, approved a series of allegedly unlawful transactions
that led to the bankruptcy of Sintel. We are also named as a potentially
liable party. The union alleges Sintel and its creditors were damaged in
the approximate amount of 13 billion pesetas ($69.5 million at December
31, 2001 we filed suitexchange rates). The Spanish court is seeking a bond from the
subjects of the inquiry in Florida state court against Broward
County, Florida, to recover approximately $5.0 million for work performed to
construct a detention facilitythis amount as well as security for the Broward Sheriff's Office ("BSO"). The BSO
has filed a separate lawsuitbond.
Neither we nor our executives have been served in response to our lawsuit claiming $13.0 million
in damages for alleged delays in constructing the facility.action.
In November 1997, we filed a suit against Miami-Dade County in
Florida state court in Miami alleging breach of contract and seeking
damages exceeding $3.0 million in connection with the county's refusal
to pay amounts due to us under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department, ("MWSD"), a
department of the county. The county has counterclaimed against us
seeking unspecified damages.
On January 9, 2002, Harry Schipper, a MasTec shareholder, filed a
shareholder derivative lawsuit in the U.S. District Court for the
Southern District of Florida against us as nominal defendant and against
certain current and former members of the Board of Directors and senior
management, including Jorge Mas, our Chairman of the Board, and Austin
Shanfelter, our President and Chief Executive Officer. The lawsuit
alleges mismanagement, misrepresentation and breach of fiduciary duty as
a result of a series of allegedly fraudulent and criminal transactions,
including the matters described above, the severance we paid our former
chief executive officer, and our investment in and financing of a client
that subsequently filed for bankruptcy protection, as well as certain
other matters. The lawsuit seeks damages and injunctive relief against
the individual defendants on MasTec's behalf. The Board of Directors
has formed a special committee, as contemplated by Florida law, to
investigate the allegations of the complaint and to determine whether
it is in the best interests of MasTec to pursue the lawsuit. An
unopposed motion to stay the action for six months to permit the
committee to complete its investigation is pending before the court.
We are vigorously pursuing and believe we have meritorious defenses
to the actions described above. We are also a party to other pending
legal proceedings arising in the normal course of business, none of
which we believe is material to our financial position or results of
operations.
In connection with certain contracts, we have signed certain agreements of
indemnity in the aggregate amount of approximately $500.0 million, of which
approximately $338.5 million relate to the uncompleted portion of contracts in
process as of December 31, 2000. These agreements are to secure the fulfillment
of obligations and performance of the related contracts.
Our operations in Brazil are subject to the risks of political, economic or
social instability, including the possibility of expropriation, confiscatory
taxation, hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment income, capital
and other assets. We cannot predict whether any of such factors will occur in
the future or the extent to which such factors would have a material adverse
effect on our Brazilian operations.
Note 1213 - Other Expense, net
For the year ended December 31, 1999, other expense, net consistsis comprised
primarily of a $33.8
million charge related to up-front payments pursuant to employment and
non-competition agreements entered into with managers at two of our datacom
units. The up-front payments were paid to resolve issues arising from the
original price paid for the acquisition of their businesses and were not
attributed to future services nor contemplated, included or required under the
original terms of the related acquisition agreements. In addition, other
expense, net also included a loss of $9.2 million on the sale of our Spanish
operations offset by other income of approximately $4.1 million primarily
related to our Spanish operations.
For the year ended December 31, 1999, other expense, net primarily includes a write-down, based on the results of an analysis performed
by management on the carrying value of certain of our international non-corenon-
core assets, of $10.2 million, a $3.6 million loss on the sale of a
non-core business and parcels of non-core real estate, $1$1.0 million
litigation reserve for a 1994 lawsuit from a predecessor company offset
by other income of $4.8 million from a customer related to extensions to
the maturity date of a vendor financing agreement.
For the year ended December 31, 2000 other expense, net is comprised
primarily of a $28.9$26.3 million write-down of certain non-core international
assets resulting from management's review of the carrying value of such
assets, $7.0assets.
For the year ended December 31, 2001 other expense, net is comprised
primarily of an impairment charge of $6.5 million for severancerelated to our equity
investment in a client and litigation accruals offset by a $9.6$10.0 million gain on
the salewrite-down of our PCS system in Latin America.non-core
international assets.
Note 1314 - Quarterly Information (Unaudited)
The following table presents unaudited quarterly operating results
for the two years ended December 31, 2000.2001. We believe 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, 19992000 and 2000.2001.
1999
2000 2001
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)
Revenue $206,796 $ 238,688 $ 301,092 $ 312,446 $272,694 $297,697 $ 382,279 $ 377,626$382,279 $377,626 $337,212 $330,220 $302,243 $252,905
Net income $ 4,352 $ 12,177 $ 17,146 $ 11,051(loss) $ 11,477 $ 21,342 $ 25,088 $ 7,239 $ 3,297 $ (2,162) $(75,241) $(18,247)
Basic earnings
(loss) per share $ 0.11 $ 0.29 $ 0.41 $ 0.26 $ 0.26 $ 0.46 $ 0.53 $ 0.15 $ 0.07 $ (0.05) $ (1.57) $ (0.38)
Diluted earnings
(loss) per share $ 0.10 $ 0.29 $ 0.40 $ 0.25 $ 0.250.44 $ 0.440.51 $ 0.510.15 $ 0.150.07 $ (0.05) $ (1.57) $ (0.38)
In the fourth quarter of 1999, we recorded a $6.0 million write-down of our
non-core assets net of tax or $0.14 per share.
In the second quarter of 2000, we recorded a net gain of $2.5 million
from the sale and write-down of a non-core asset offset by write-downs related to other
non-core assets net of tax or $0.05 per share.
In the third quarter of 2000, we recorded a severance charge of $1.0
million net of tax or $0.02 per share.
In the fourth quarter of 2000, we recorded a $17.3 million charge
primarily to write-down certain non-core international assets net of
tax or $0.35 per share.
In the first quarter of 2001, we recorded a reserve of $13.1 million,
net of tax or $0.27 per share primarily due to clients filing for
bankruptcy protection.
In the second quarter of 2001, we recorded a reserve of $9.6 million,
net of tax or $0.20 per share primarily due to clients filing for
bankruptcy protection.
In the third quarter of 2001, we recorded charges of $81.0 million,
net of tax or $1.70 per share due to reserves relating to receivables,
a write-down of non-core international assets and severance expense.
In the fourth quarter of 2001, we recorded charges of $23.8 million,
net of tax or $0.50 per share due to reserves relating to receivables.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our executive officers is included in this
Annual Report under the caption "Executive Officers." Information
regarding our directors and nominees for directors will be contained
in our proxy statement relating to the 20012002 Annual Meeting of
Shareholders to be filed with the Securities and Exchange
Commission on or before April 30, 20012002 (the "Proxy Statement"), and is
incorporated in this Annual Report by reference.
EXECUTIVE COMPENSATION
Information regarding compensation of our executive officers will
be contained in the Proxy Statement and is incorporated in this Annual
Report by reference, except the Compensation Committee Report contained
in the Proxy Statement, which is not incorporated in this Annual Report
by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the ownership of our 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 report
of our Certified Public Accountants are listed on page 21pages 20
through 39.35.
2. Financial Statements Schedules - The financial statement schedule
information required by Item 14(a)(2) is included as part of
"Note 34 - Accounts Receivable" of the Notes to Consolidated
Financial Statements.
3. Exhibits including those incorporated by reference:
Exhibit
No. * Description
- --------- --------------------------- ------------------------------------------------------------
3.1 Articles of Incorporation, filed as Appendix B to our definitive
Proxy Statement for our 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.
3.2 By-laws, filed as Exhibit 3.2 to our Form 8-K dated May 29, 1998
and filed with the Commission on June 26, 1998, and incorporated
by reference herein.
4.1 7.75%7.75 % Senior Subordinated Notes Due 2008 Indenture dated as of
February 4, 1998, filed as Exhibit 4.2 to our Registration
Statement on Form S-4 (file No.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 our Form 10-K for the
year ended December 31, 1995 and incorporated by reference herein.
10.3 Stock Option Agreement dated December 29, 1997 between MasTec10.2* Revolving Credit and Joel-Tomas Citron, filed as Exhibit 10.3 to our Form 10-K for the year
ended December 31, 1997 and incorporated by reference herein.
10.4 Revolving CreditSecurity Agreement dated as of June 9, 1997January 22,
2002 between MasTec, certain of its subsidiaries, and Bank Boston, N.A.Fleet
Financial Corporation as agent, filed as Exhibit 10.4
to our Form 10-K for the year ended December 31, 1998 (the "1998 10-K")agent.
10.3* Assumption and incorporated by reference herein.
10.6 First Amendment Agreement to Revolving Credit and
Security Agreement filed as Exhibit 10.1 to our
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
filed as Exhibit 10.7 to our 1998 10-K and incorporated by reference
herein.
10.8 Agreement between Joel-Tomas Citron and MasTec dated as of November 18,
1998 filed as Exhibit 10.8 to our 1998 10-K and incorporated by reference
herein.
Exhibit
No. * Description
- --------- ---------------------
10.10February 7, 2002.
10.4 1994 Stock Option Plan for Non-employee Directors filed as an
Appendix to our definitive Proxy Statement for our 1993 Annual
and Special Meeting of Stockholders, dated February 10, 1994 and
filed with the Commission on February 11, 1994 and incorporated
by reference herein.
10.11 Sixth Amendment10.5 Employment agreement with Austin Shanfelter dated as of January
1, 2001, filed as Exhibit 10.1 to our Form 10-Q for the quarter
ended March 31, 2001, and Extension Agreementfiled with the Commission on May 15,
2001 (the "March 31, 2001 10-Q") and incorporated by reference
herein.
10.6 Employment agreement with Jose Sariego dated as of January 1,
2001 filed as Exhibit 10.3 to Revolving Credit Agreement.
10.12 2000 CEO Incentive Compensation Plan.
21.1the March 31, 2001 10-Q and
incorporated by reference herein.
21.1* Subsidiaries of MasTec.
23.123.1* Consent of Independent Certified Public Accountants.
24.1 Powers of Attorney (included on signature page).
- --------------------------------
* Exhibits filed with the Securities and Exchange Commission.Commission with
this Annual Report on Form 10-K.
The registrant agrees to provide these exhibits supplementally
upon request.
(b) Reports on Form 8-K:
None.
Exhibit 10.11
SIXTH AMENDMENT TO REVOLVING
CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Sixth Amendment")
is made and entered into as of the 11th day of August, 1999, by and among
MASTEC, INC., a Florida corporation (the "Parent"), its Subsidiaries (other than
Excluded Subsidiaries and members of the MasTec International Group) listed on
Schedule 1 to the Credit Agreement defined below (together with the Parent,
collectively the "Borrowers"), BANKBOSTON, N.A. ("BKB"), BANK AUSTRIA
CREDITANSTALT CORPORATE FINANCE, INC., FIRST UNION NATIONAL BANK, SCOTIABANC
INC., COMERICA BANK, GENERAL ELECTRIC CAPITAL CORPORATION and LASALLE BANK
NATIONAL ASSOCIATION (f/k/a LaSalle National Bank) (collectively, the "Banks")
and BANKBOSTON, N.A. as agent (the "Agent") for the Banks.
WHEREAS, the Borrowers, the Banks and the Agent entered into a Revolving
Credit Agreement dated as of June 9, 1997, as amended by a First Amendment to
Revolving Credit Agreement dated as of January 28, 1998, as further amended by a
Second Amendment to Revolving Credit Agreement dated as of July 31, 1998, and as
further amended by a Third Amendment to Revolving Credit Agreement dated as of
September 11, 1998, as further amended by a Fourth Amendment to Revolving Credit
Agreement dated as of September 25, 1998, as further amended by a Fifth
Amendment to Revolving Credit Agreement dated as of December 29, 1998 (as the
same may be further amended and in effect from time to time the "Credit
Agreement"), pursuant to which the Banks extended credit to the Borrowers on the
terms set forth therein;
WHEREAS, the Parent has requested certain revisions to the Credit
Agreement, including an extension of the Maturity Date, and the parties desire
to amend the Credit Agreement on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings assigned to such terms in the Credit Agreement.
2. Amendment of ss.1 of the Loan Agreement. Section 1 of the Credit
Agreement is hereby amended by deleting the definition of "Maturity
Date" in its entirety and replacing it with the following new
definition, inserted in proper alphabetical order:
"Maturity Date. June 9, 2001; as the same may be extended pursuant to
ss.2.8, but which date shall in no event be later than June 9, 2002."
3. Amendment to ss.7.5 of the Credit Agreement. Section 7.5 of the Credit
Agreement is hereby amended by deleting the figure "$100,000" therein
and substituting in place thereof the figure "$10,000,000".
4. Amendment Fee. Each Bank which executed and delivered its signature
pages by 5:00 p.m. Boston time on August 11, 1999 by facsimile (to be
followed by originals) shall receive from the Parent an amendment fee
equal to 0.10% of such Bank's Commitment payable to such Bank for its
own account.
5. Effectiveness. This Sixth Amendment shall become effective as of the
date hereof, subject to the satisfaction of each of the following
conditions:
(a) receipt by the Agent of this Sixth Amendment duly and properly
authorized, executed and delivered by the respective parties hereto;
(b) receipt by the Agent of the Joinder Agreement and Affirmation No.
3 (the "Third Joinder") executed by M.E. Hunter & Associates, Inc.,
Martin Telephone Contractors, Inc., Barkers CATV Construction, Inc.,
Fiber and Cable Works, Inc., MasTec New York, Inc., Queens Network
Cable Corp., MasTec Real Estate Holdings, Inc., Stackhouse Real Estate
Holdings, Inc., MasTec of Texas, Inc. and Phasecom America, Inc., duly
and properly authorized, executed and delivered by the respective
parties thereto;
(c) the Borrowers shall have delivered to the Agent certified copies
of corporate resolutions of each of the Borrowers satisfactory to the
Agent authorizing this Sixth Amendment and the Third Joinder, and all
related documents;
(d) payment of all fees due to (i) each Bank hereunder, and (ii)
Bingham Dana LLP; and
(e) the Parent shall have delivered to the Agent copies of all
outstanding documentation from prior amendments and joinders.
6. Representations and Warranties. Each of the Borrowers represents and
warrants as follows:
(a) The execution, delivery and performance of each of this Sixth
Amendment and the transactions contemplated hereby are within the
corporate power and authority of such Borrower and have been or will
be authorized by proper corporate proceedings, and do not (a) require
any consent or approval of the stockholders of such Borrower, (b)
contravene any provision of the charter documents or by-laws of such
Borrower or any law, rule or regulation applicable to such Borrower,
or (c) contravene any provision of, or constitute an event of default
or event which, but for the requirement that time elapse or notice be
given, or both, would constitute an event of default under, any other
material agreement, instrument or undertaking binding on such
Borrower.
(b) This Sixth Amendment and the Credit Agreement, as amended as of
the date hereof, and all of the terms and provisions hereof and
thereof are the legal, valid and binding obligations of such Borrower
enforceable in accordance with their respective terms except as
limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the enforcement of creditors' rights generally, and
except as the remedy of specific performance or of injunctive relief
is subject to the discretion of the court before which any proceeding
therefor may be brought.
(c) The execution, delivery and performance of this Sixth Amendment
and the transactions contemplated hereby do not require any approval
or consent of, or filing or registration with, any governmental or
other agency or authority, or any other party.
(d) The representations and warranties contained in ss.5 of the Credit
Agreement are true and correct in all material respects as of the date
hereof as though made on and as of the date hereof.
(e) After giving effect to this Sixth Amendment, no Default or Event
of Default under the Credit Agreement has occurred and is continuing.
7. Ratification, etc. Except as expressly amended hereby, the Credit
Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all
respects and shall continue in full force and effect. This Sixth
Amendment and the Credit Agreement shall hereafter be read and
construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit
Agreement shall hereafter refer to the Credit Agreement as amended by
this Sixth Amendment.
8. GOVERNING LAW. THIS SIXTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
9. Counterparts. This Sixth Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but
all of which counterparts taken together shall be deemed to constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned have duly executed this Sixth
Amendment under seal as of the date first set forth above.
The Borrowers:
MASTEC, INC.
By:___________________________________
Name: Arlene Vargas
Title: Vice President & Controller
MASTEC NORTH CAROLINA, INC.
CHURCH & TOWER ENVIRONMENTAL, INC.
CHURCH & TOWER, INC.
CHURCH & TOWER OF FLORIDA, INC.
DESIGNED TRAFFIC INSTALLATION CO.
AIDCO, INC.
AIDCO SYSTEMS, INC.
NORTHLAND CONTRACTING, INC.
WILDE OPTICAL SERVICE, INC.
MASTEC VIRGINIA, INC.
WILDE ACQUISITION CO., INC.
WILDE HOLDING CO., INC.
C & S DIRECTIONAL BORING, INC.
S.S.S. CONSTRUCTION, INC.
MASTEC NORTH AMERICA, INC.
J.C. ENTERPRISES, INC. (d/b/a Cotton & Taylor)
M.E. HUNTER & ASSOCIATES, INC.
MARTIN TELEPHONE CONTRACTORS, INC.
BARKERS CATV CONSTRUCTION, INC.
FIBER & CABLE WORKS, INC.
MASTEC NEW YORK, INC.
QUEENS NETWORK CABLE CORP.
MASTEC REAL ESTATE HOLDINGS, INC.
STACKHOUSE REAL ESTATE HOLDINGS, INC.
MASTEC OF TEXAS, INC.
PHASECOM AMERICA, INC.
By:___________________________________
Name: Arlene Vargas
Title: Vice President & Controller
The Banks:
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:___________________________________
Name:
Title:
SCOTIABANC INC.
By:___________________________________
Name:
Title:
LASALLE BANK NATIONAL ASSOCIATION
By:___________________________________
Name:
Title:
COMERICA BANK
By:___________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:___________________________________
Name:
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:___________________________________
Name:
Title:
CONSENT TO EXTENSION
THIS CONSENT TO EXTENSION (this "Consent") is made and entered into as of
the 20th day of July, 2000, by and among MASTEC, INC., a Florida corporation
(the "Parent"), its Subsidiaries (other than Excluded Subsidiaries and members
of the MasTec International Group) listed on Schedule 1 to the Credit Agreement
defined below (together with the Parent, collectively the "Borrowers"), FLEET
NATIONAL BANK (f/k/a BankBoston, N.A., "Fleet"), BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC., FIRST UNION NATIONAL BANK, SCOTIABANC INC., COMERICA
BANK, GENERAL ELECTRIC CAPITAL CORPORATION and LASALLE BANK NATIONAL ASSOCIATION
(collectively, the "Banks") and Fleet as agent (the "Agent") for the Banks.
WHEREAS, the Borrowers, the Banks and the Agent entered into a Revolving
Credit Agreement dated as of June 9, 1997, as amended by a First Amendment to
Revolving Credit Agreement dated as of January 28, 1998, as further amended by a
Second Amendment to Revolving Credit Agreement dated as of July 31, 1998, and as
further amended by a Third Amendment to Revolving Credit Agreement dated as of
September 11, 1998, as further amended by a Fourth Amendment to Revolving Credit
Agreement dated as of September 25, 1998, as further amended by a Fifth
Amendment to Revolving Credit Agreement dated as of December 29, 1998, as
further amended by a Sixth Amendment to Revolving Credit Agreement dated as of
August 11, 1999 (as the same may be further amended and in effect from time to
time the "Credit Agreement"), pursuant to which the Banks extended credit to the
Borrowers on the terms set forth therein;
WHEREAS, the Borrowers have requested that the Banks agree to extend the
Maturity Date to June 9, 2002 (the "Final Maturity Date") pursuant to the
provisions of ss.2.8 of the Credit Agreement, and the Banks party hereto have
agreed to such extension on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings assigned to such terms in the Credit Agreement.
2. Consent to the Maturity Date Extension. Each of the Banks party hereto
hereby consents to extend the Maturity Date to the Final Maturity
Date, provided that (i) the Total Commitment is not less than
$100,000,000, and (ii) all other conditions of the Credit Agreement be
met upon the extension of the Maturity Date to the Final Maturity
Date. References to the Maturity Date in the Credit Agreement shall
hereinafter be deemed to be references to the Final Maturity Date.
3. Representations and Warranties. Each of the Borrowers represents and
warrants as follows:
(a) The execution, delivery and performance of each of this Consent
and the transactions contemplated hereby are within the corporate
power and authority of such Borrower and have been or will be
authorized by proper corporate proceedings, and do not (a) require any
consent or approval of the stockholders of such Borrower, (b)
contravene any provision of the charter documents or by-laws of such
Borrower or any law, rule or regulation applicable to such Borrower,
or (c) contravene any provision of, or constitute an event of default
or event which, but for the requirement that time elapse or notice be
given, or both, would constitute an event of default under, any other
material agreement, instrument or undertaking binding on such
Borrower.
(b) This Consent and the Credit Agreement, as amended as of the date
hereof, and all of the terms and provisions hereof and thereof are the
legal, valid and binding obligations of such Borrower enforceable in
accordance with their respective terms except as limited by
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally, and except
as the remedy of specific performance or of injunctive relief is
subject to the discretion of the court before which any proceeding
therefor may be brought.
(c) The execution, delivery and performance of this Consent and the
transactions contemplated hereby do not require any approval or
consent of, or filing or registration with, any governmental or other
agency or authority, or any other party.
(d) The representations and warranties contained in ss.5 of the Credit
Agreement are true and correct in all material respects as of the date
hereof as though made on and as of the date hereof.
(e) After giving effect to this Consent, no Default or Event of
Default under the Credit Agreement has occurred and is continuing.
4. Ratification, etc. The Credit Agreement, the other Loan Documents and
all documents, instruments and agreements related thereto are hereby
ratified and confirmed in all respects and shall continue in full
force and effect.
5. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
6. Counterparts. This Consent may be executed in any number of
counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but
all of which counterparts taken together shall be deemed to constitute
one and the same instrument.
7. Effectiveness. This Consent shall become effective upon the due and
proper authorization, execution and delivery of the Consent to the
Agent by the respective parties thereto.
IN WITNESS WHEREOF, each of the undersigned have duly executed this Consent
under seal as of the date first set forth above.
The Borrowers:
MASTEC, INC.
By:___________________________________
Name:
Title:
MASTEC NORTH CAROLINA, INC.
CHURCH & TOWER ENVIRONMENTAL, INC.
CHURCH & TOWER, INC.
CHURCH & TOWER OF FLORIDA, INC.
DESIGNED TRAFFIC INSTALLATION CO.
AIDCO, INC.
AIDCO SYSTEMS, INC.
NORTHLAND CONTRACTING, INC.
WILDE OPTICAL SERVICE, INC.
MASTEC VIRGINIA, INC.
WILDE ACQUISITION CO., INC.
WILDE HOLDING CO., INC.
C & S DIRECTIONAL BORING, INC.
S.S.S. CONSTRUCTION, INC.
MASTEC NORTH AMERICA, INC.
J.C. ENTERPRISES, INC. (d/b/a Cotton & Taylor)
M.E. HUNTER & ASSOCIATES, INC.
MARTIN TELEPHONE CONTRACTORS, INC.
BARKERS CATV CONSTRUCTION, INC.
FIBER & CABLE WORKS, INC.
MASTEC NEW YORK, INC.
QUEENS NETWORK CABLE CORP.
MASTEC REAL ESTATE HOLDINGS, INC.
STACKHOUSE REAL ESTATE HOLDINGS, INC.
MASTEC OF TEXAS, INC.
PHASECOM AMERICA, INC.
M.E.H. HOLDING COMPANY, INC.
By:___________________________________
Name:
Title:
The Banks:
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:___________________________________
Name:
Title:
SCOTIABANC INC.
By:___________________________________
Name:
Title:
LASALLE BANK NATIONAL ASSOCIATION
By:___________________________________
Name:
Title:
COMERICA BANK
By:___________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:___________________________________
Name:
Title:
FLEET NATIONAL BANK (f/k/a
BankBoston, N.A.), individually and as Agent
By:___________________________________
Name:
Title:
Exhibit 10.12
MASTEC, INC.
2000 Chief Executive Officer Incentive Compensation Plan
The 2000 Chief Executive Officer Incentive Compensation Plan provides an
Incentive Award for MasTec, Inc.'s Chief Executive Officer based upon
performance during the Performance Period (as defined below). Performance is
evaluated using the criteria of earnings before interest and taxes (EBIT), as
defined under generally accepted accounting principles consistently applied on a
consolidated basis by MasTec. To be eligible for an Incentive Award, MasTec must
meet at least a minimum EBIT and ROA, as described below.
Performance Period
The Performance Period under this Plan begins January 1, 2000 and ends
December 31, 2000.
Incentive Award
The Chief Executive Officer's 2000 Incentive Award will be calculated based
on budgeted EBIT for 2000 from North American operations only ("Budgeted EBIT").
The Chief Executive Officer will not be entitled to an Incentive Award unless
EBIT from North American operations is at least 97% of Budgeted EBIT ("Minimum
EBIT"). If the Minimum EBIT is achieved in 2000, the Chief Executive Officer
will be entitled to the following bonus:
o If EBIT is equal to or more than the Minimum EBIT but less than 103%
of Budgeted EBIT, the Chief Executive Officer will be entitled to an
Incentive Award equal to 0.75% of actual EBIT from North American
operations for 2000.
o If EBIT is equal to 103% of Budgeted EBIT or more but less than 112%
of Budgeted EBIT, the Chief Executive Officer will be entitled to an
Incentive Award equal to 1.00% of actual EBIT from North American
operations for 2000.
o If EBIT is equal to 112% of Budgeted EBIT or more, the Chief Executive
Officer will be entitled to an Incentive Award equal to 1.25% of
actual EBIT from North American operations for 2000.
After the close of the Performance Period, the Compensation Committee will
determine whether the performance goals have been met based on MasTec's results
for the year. If the performance goals have been met, the Chief Executive
Officer becomes eligible for Incentive Awards as specified in the Plan. The
final Incentive Award must be approved by the Compensation Committee of MasTec's
Board of Directors. The Compensation Committee reserves the right to make
adjustments in Incentive Awards based on extenuating circumstances.
Payment of Awards
Approved Incentive Awards will be paid no later than March 31, 2001.
Incentive Awards will be paid in cash, MasTec common stock, options to purchase
MasTec common stock, or any combination of cash, stock or options, as determined
by the Compensation Committee, except that not less than 50% of the Incentive
Award will be paid in cash. The common stock portion of an Incentive Award may
be restricted from sale or other transfer for such period of time as the
Compensation Committee may determine, not to exceed one (1) year from the date
of award.
All stock options awarded as part of an Incentive Award will be options to
purchase MasTec common stock at an exercise price equal to the fair market value
of the common stock on a date or dates to be determined by the Compensation
Committee, will have a term of not less than seven (7) years, and will vest in
accordance with a vesting schedule to be determined by the Compensation
Committee, not to exceed three (3) years from the date of grant. All common
stock and stock options awarded under the Plan will be issued pursuant to the
MasTec 1994 Stock Incentive Plan or the 1999 Non-Qualified Employee Stock Option
Plan, as in effect on the date of award. Nothing in this Plan will prevent
MasTec from amending the Stock Incentive Plan or the Non-Qualified Stock Option
Plan in its sole discretion.
Employment Termination
If the Chief Executive Officer's employment with the Company or any of its
affiliates terminates prior to December 31, 2000 for "Cause," the Chief
Executive Officer will lose all rights and benefits under the Plan and will not
be entitled to any Incentive Award, any restricted stock granted under the Plan
will be forfeited as of the effective date of termination of employment, and any
unvested stock options granted under the Plan will terminate as of the effective
date of the termination of employment. If the employment of the Chief Executive
Officer with the Company or any of its affiliates terminates prior to December
31, 2000 for any other reason (including termination without "Cause," death or
Disability, as defined in the Plan), then the Chief Executive Officer will not
be entitled to an Incentive Award under this Plan but will receive the bonus
described in the Chief Executive Officer's employment agreement with the
Company. In addition, if the Chief Executive Officer's employment is terminated
without Cause, any restricted common stock portion of an Incentive Award will be
free of any restriction and the vesting of any outstanding stock options granted
under this Plan will be accelerated to the effective date of termination and may
be exercised by the Chief Executive Officer for the full term of the options.
"Cause" for purposes of the Plan means (i) the Chief Executive Officer
being convicted of any felony (whether or not against the Company or its
affiliates), (ii) willful malfeasance in the performance of the Chief Executive
Officer's responsibilities after ten (10) days' written notice to the Chief
Executive Officer and an opportunity to cure; (iii) any material act of
dishonesty by the Chief Executive Officer against the Company or any of its
affiliates, (v) a material violation by the Chief Executive Officer of any of
the policies or rules of the Company or any of its affiliates or (vi) the
voluntary resignation of the Chief Executive Officer from employment with the
Company or any of its affiliates. The determination that Cause has occurred must
be made by unanimous vote of all the members of the Board of Directors of the
Company after forty five (45) days' prior written notice to the Chief Executive
Officer and an opportunity to appear before the Board and contest the
determination of Cause.
"Disability" means the inability to perform the material duties of the
Chief Executive Officer.
Change in Control
In the event of a Change in Control of the Company, the employment of the
Chief Executive Officer will be deemed terminated without "Cause" for purposes
of the Plan. A "Change in Control of the Company" means the occurrence of any of
the following events:
(a) any consolidation or merger of MasTec in which MasTec is not the
continuing or surviving corporation or pursuant to which shares of
Common Stock are to be converted into cash, securities or other
property, provided that the consolidation or merger is not with a
corporation which was a wholly-owned subsidiary of MasTec immediately
before the consolidation or merger; or
(b) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the
assets of MasTec; or
(c) the shareholders of MasTec approve any plan or proposal for the
liquidation or dissolution of MasTec; or
(d) any "person," including a "group" as determined in accordance with
Sections 13(d) and 14(d) of the Exchange Act, becomes the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, of 33% or more of the combined voting power of
MasTec's then outstanding Common Stock, provided that such person,
immediately before it becomes such 33% beneficial owner, is not (i) a
wholly-owned subsidiary of MasTec, (ii) an individual, or a spouse or
a child of such individual, that on January 1, 2000, owned greater
than 20% of the combined voting power of such Common Stock, or (iii) a
trust, foundation or other entity controlled by an individual or
individuals described in the preceding subsection; or
(e) individuals who constitute the Board on January 1, 2000 (the
"Incumbent Board"), cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to January 1, 2000, whose election, or nomination for
election by MasTec's shareholders, was approved by a vote of at least
three quarters of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of MasTec in
which such person is named as a nominee for director, without
objection to such nomination) will be, for purposes of this clause,
considered as though such Person were a member of the Incumbent Board.
Notwithstanding the foregoing, Incumbent Directors may, by a two-thirds
vote of such Directors, declare a given transaction will not constitute a Change
in Control for purposes of the Plan.
Award Non-Transferability
No Incentive Award under the Plan, and no rights or interests herein, are
assignable or transferable by a Chief Executive Officer except by will or the
laws of descent and distribution, subject to the other provisions of the Plan.
During the lifetime of a Chief Executive Officer, Incentive Awards will be paid
only to the Chief Executive Officer or his or her legal representative.
Administration
The Compensation Committee will administer the Plan. The Compensation
Committee is authorized to construe and interpret the Plan, to promulgate, amend
or rescind rules and regulations relating to the implementation of the Plan and
to make all other determinations necessary or advisable for the administration
of the Plan. The Compensation Committee may designate persons other than members
of the Compensation Committee to carry out its responsibilities under such
conditions and limitations as it may prescribe. Any determination, decision or
action of the Compensation Committee in connection with the construction,
interpretation, administration, or application of the Plan will be final,
conclusive and binding upon all Chief Executive Officers.
Amendment and Termination
The MasTec Board of Directors, in its sole discretion, may at any time
terminate the Plan, or from time to time may amend it in such respects as it
deems appropriate.
Tax Withholding
Subject to Section 83 of the Internal Revenue Code, the Company will deduct
from any Incentive Award any federal, state or local taxes of any kind required
by law to be withheld with respect to such payments or to take such other action
as may be necessary in the opinion of the Company to satisfy all obligations of
the payment of such taxes.
Plan Funding
The Plan will be unfunded and the Company will not be required to segregate
any assets that may at any time be represented by Incentive Awards under the
Plan. Any liability of the Company to any person with respect to any Incentive
Award under the Plan will be based solely upon any contractual obligations that
may be effected pursuant to the Plan. No such obligation of the Company will be
secured by any pledge of, or other encumbrance on, any property of the Company.
Other Company Benefit and Compensation Programs
Payments and other benefits received by the Chief Executive Officer
pursuant to the Plan will not be deemed part of the Chief Executive Officer's
regular and recurring compensation for purposes of the termination indemnity or
severance pay law of any jurisdiction and will not be included in nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangements provided by the Company.
Plan Costs
The costs and expenses of administering the Plan will be borne by the
Company.
Governing Law
The Plan and all actions taken thereunder will be interpreted under and
governed by the laws of the State of Florida, without regard to its conflict of
laws rules.
Effective Date
The Plan will be effective when approved by the Compensation Committee.
Definitions
As used in the Plan, the terms below have the following meanings:
"MasTec" or the "Company" means MasTec, Inc., a Florida corporation, or any
successor company or subsidiary company designated by the Board of Directors of
MasTec, Inc.
Exhibit 21.1
Set forth below is a list of the significant subsidiaries of MasTec.
MasTec North America, Inc.
MasTec Inepar S/A Sistemas de Telecomunicaciones
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-46067), on Form S-4 (Nos. 333-30645 and
333-79321) and on Form S-8 (Nos. 333-22465, 333-30647, 333-47003, 333-77823,
333-38932 and 333-38940) of MasTec, Inc. of our report dated January 30, 2001
relating to the financial statements, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Miami, Florida
March 21, 2001
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 22, 2001.27, 2002.
MASTEC, INC.
--------------------------------------------------
/s/ CARMEN M. SABATER
Carmen M. SabaterDONALD P. WEINSTEIN
------------------------------------
Donald P. Weinstein
Executive Vice President -
Chief Financial Officer
(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. SabaterDonald Weinstein 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 22, 2001.27, 2002.
/s/ JORGE MAS /s/ JOSEPH P. KENNEDY II
- -------------------------------- ------------------------------
Jorge Mas, Chairman of the Board Joseph P. Kennedy II, Director
/s/ JOEL-TOMAS CITRONAUSTIN J. SHANFELTER /s/ WILLIAM N. SHIEBLER
Joel-Tomas Citron,- -------------------------------- ------------------------------
Austin J. Shanfelter, President William N. Shiebler, Director
and Chief
Executive Officer (Principal Executive Officer)
/s/ OLAF OLAFSSONJOSE MAS /s/ JOSE S. SORZANO
Olaf Olafsson,- -------------------------------- ------------------------------
Jose Mas, Director Jose S. Sorzano, Director
/s/ ARTHUR B. LAFFER /s/ JULIA L. JOHNSON
- -------------------------------- ------------------------------
Arthur B. Laffer, Director Julia L. Johnson, Director
Exhibit 21.1
------------
Set forth below is a list of the significant subsidiaries of MasTec.
MasTec North America, Inc.
MasTec Brazil S/A
Exhibit 23.1
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-4 (No. 333-30645) and Form S-8
(Nos. 333-22465, 333-30647, 333-47003, 033-55327, 333-77823, 333-38932,
333-38940 and 333-64568) of MasTec, Inc. of our report dated February
18, 2002 relating to the financial statements, which appears in this
Form 10-K.
- ------------------------------
/s/ PricewaterhouseCoopers LLP
Miami, Florida
March 26, 2002