MASTEC, INC.
UNITED STATES 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, 2007
Commission File Number 001-08106
MasTec, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Florida
(State or Other jurisdiction of
Incorporation or Organization)
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65-0829355
(I.R.S. Employer
Identification No.) |
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800 S. Douglas Road, 12th Floor,
Coral Gables, FL
(Address of Principal Executive Offices)
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33134
(Zip Code) |
(305) 599-1800
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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Common Stock, $0.10 Par Value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer; as defined in rule
405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the
best of registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of
the Act.) Yes [ ] No [X]
The aggregate market value of the registrants outstanding common stock held by non-affiliates
of the registrant computed by reference to the price at which the common stock was last sold as of
the last business day of the registrants most recently completed second fiscal quarter was
$713,824,133 (based on a closing price of $15.82 per share for the registrants common stock on the
New York Stock Exchange on June 29, 2007).
There were 67,171,119 shares of common stock outstanding as of February 25, 2008.
The registrants definitive proxy statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A for the 2008 annual meeting of shareholders is incorporated by reference
in Part III of this Form 10-K to the extent stated herein.
Cautionary Statement Regarding Forward-Looking Statements
We are making this statement pursuant to the safe harbor provisions for forward-looking
statements described in the Private Securities Litigation Reform Act of 1995. We make statements in
this Annual Report on Form 10-K and in the documents that we incorporate by reference into this
Annual Report that are forward-looking. When used in this Annual Report or in any other
presentation, statements which are not historical in nature, including the words anticipate,
estimate, could, should, may, plan, seek, expect, believe, intend, target,
will, project and variations of these words and negatives thereof and similar expressions are
intended to identify forward-looking statements. They also include statements regarding:
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our future growth and profitability; |
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our competitive strengths; and |
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our business strategy and the trends we anticipate in the industries and economies in
which we operate. |
These forward-looking statements are based on our current expectations and are subject to a
number of risks, uncertainties and assumptions. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict, and could cause actual results to differ materially from those
expressed or forecasted in the forward-looking statements. Important factors that could cause
actual results to differ materially from those in forward-looking statements include:
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economic downturns, reduced capital expenditures, consolidation and technological and
regulatory changes in the industries we serve; |
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the ability of our customers to terminate or reduce the amount of work or in some cases
prices paid for services under many of our contracts; |
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market conditions, technical and regulatory changes in our customers industries; |
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the highly competitive nature of our industry; |
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our ability to attract and retain qualified managers and skilled employees; |
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the seasonality and quarterly variations we experience in our revenue and
profitability; |
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our dependence on a limited number of customers; |
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expectations concerning contingent events, including the expected outcome of claims,
lawsuits, proceedings, and indemnification obligations and our belief concerning regulatory
compliance; |
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the outcome of our plans for future operations, growth and services, including backlog
and acquisitions; |
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increases in fuel and labor costs; |
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any liquidity issues related to our securities held for sale; |
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the restrictions imposed by our credit facility and senior notes; and |
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the other factors referenced in this Annual Report, including, without limitation,
under Item 1. Business, Item 1A. Risk Factors and Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations. |
We believe these forward-looking statements are reasonable; however, you should not place
undue reliance on any forward-looking statements, which are based on current expectations.
Furthermore, forward-looking statements speak only as of the date they are made. If any of these
risks or uncertainties materialize, or if any of our underlying assumptions are incorrect, our
actual results may differ significantly from the results that we express in or imply by any of our
forward-looking statements. These and other risks are detailed in this Annual Report on Form 10-K,
in the documents that we incorporate by reference into this Annual Report on Form
10-K and in other documents that we file with the Securities and Exchange Commission. We do
not undertake any obligation to publicly update or revise these forward-looking statements after
the date of this Annual Report on Form 10-K to reflect future events or circumstances. We qualify
any and all of our forward-looking statements by these cautionary factors.
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PART I
Item 1. Business
Overview
We are a leading specialty contractor operating mainly throughout the United States and across
a range of industries. Our core activities are the building, installation, maintenance and upgrade
of communications and utility infrastructure. Our primary customers are in the following
industries: communications (including satellite television and cable television), utilities and
government. We provide similar infrastructure services across the industries we serve. Our
customers rely on us to build and maintain infrastructure and networks that are critical to their
transportation and delivery of voice, video and data communications, electricity and other energy
resources.
We, or our predecessor companies, have been in business for over 70 years. We offer our
services under the MasTec® service mark and operate through a network of
approximately 200 locations and 8,240 employees as of December 31, 2007. Providing services to
communication industries, utility industries and government markets, we have consistently ranked
among the top specialty contractors by Engineering News-Record.
Our customers include some of the largest communication and utility companies in the United
States, including DIRECTV®, Verizon, AT&T, EMBARQ, Progress Energy, Florida Power &
Light, TXU, Qwest, XTO Energy, and Dominion Virginia Power. For the years ended December 31, 2007,
2006 and 2005, 76.7%, 76.4% and 74.4%, respectively, of our revenues were from our ten largest
customers. We have longstanding relationships with many customers and often provide services under
multi-year master service agreements and other service agreements. For the years ended December 31,
2007, 2006 and 2005, 72.3%, 74.3% and 68.7%, respectively, of our revenues were derived under
multi-year master service agreements and other service agreements.
Industry Trends
Our industry is comprised of national, regional and local companies that provide outsourced
infrastructure services to customers in the communications and utilities industries as well as
government customers.
We believe the following industry trends impact demand for our services:
Demand for Voice, Video and Data Services. Demand for faster and more robust voice, video and
data services has increased significantly with the proliferation of the internet, broadband, video
and music download services, high definition television and other advanced video services. To
serve this developing market and the ever-increasing need for more bandwidth, voice, video and data
service providers are upgrading the performance of their networks or deploying new networks.
Investment is facilitated by declining equipment costs and expanded capabilities of wireline and
wireless network equipment. In addition, the service offerings of our customers are converging as
telephone and cable providers increasingly seek to deploy networks that allow them to provide
bundled voice, and advanced video and data services to their customers. Verizon, AT&T, Qwest and
numerous regional and rural telecommunication companies are upgrading their networks from copper
line to fiber optic line in order to enhance their ability to provide full bundled service
offerings. Cable companies continue to upgrade their systems to provide for enhanced broadband
services, including voice over internet protocol, commonly called VOIP, as well as improved video
offerings, including digital television, high definition television, video on demand and digital
video recording. Satellite television subscriptions and installations have grown substantially over
the last five years as the industry has gained acceptance in part through offering attractive
programming such as NFL Sunday Ticket, NASCAR HotPass, and other exclusive sports offerings as well
as high definition television and digital video recorder capabilities.
Increased Outsourcing of Network Infrastructure Installation and Maintenance. We provide
specialized services that are labor and equipment intensive. We believe that communications
companies view outsourcing as an opportunity to reduce expenses, manage capital costs and stay
competitive.
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Inadequacy of Existing Electric Power Transmission and Distribution Networks. The United
States electric transmission and distribution infrastructure requires significant ongoing
maintenance, upgrades and extensions to manage powerline congestion, avoid delivery failures and
connect distribution lines to new end users. Despite significant spending since 1980, the pace of
transmission investment has lagged behind total electricity generation investment. Such
underinvestment, combined with ever-increasing load demand, contributed to the blackouts, brownouts
and rolling blackouts nationwide since 2001, which have periodically left millions in the United
States without electricity. As a result, we believe that transmission and distribution spending
will continue and likely rise in the near future in order to meet the increasing needs of
customers. According to a 2005 Edison Electric Institute report, transmission and distribution
spending in the U.S. is expected to average approximately $19 billion annually through 2015.
Alternative Energy Projects. As utilities search for more environmentally sensitive ways to
generate electrical power, the number of alternative energy generation projects, such as wind and
solar collection farms, has been expanding rapidly. According to the American Wind Energy
Association, in the 4th quarter of 2007, the U.S. had 16,819 megawatts of installed wind
farm generating capacity with another 3,506 megawatts currently under construction. These projects
are often located in areas where there is no other generation capacity. We believe that extensive
collection and transmission projects are necessary to connect these projects to the electrical
grid.
Increased Funding for Energy Projects. The Energy Policy Act of 2005 and the Energy
Independence and Security Act of 2007 were passed to develop more reliable supply chains and
distribution channels for U.S. energy resources. Among other things, the Energy Policy Act
facilitates the siting, environmental compliance, construction and financing of more reliable
electrical grid components. The Energy Independence and Security Act promotes a number of research
and development initiatives that could lead to increased spending on the nations energy
infrastructure and the facilitation of the development of alternative energy projects. As a
result, we believe that transmission and distribution spending will likely rise in the near future
in order to meet the increasing needs of consumers and businesses.
Competitive Strengths
Our competitive strengths include:
National Capability and Brand. We, or our predecessor companies, have been in business for
over 70 years and we are one of the largest companies in our industry. Through our network of
approximately 200 locations and 8,240 employees across the United States, we offer comprehensive
infrastructure services to our customers. We believe our experience, technical expertise and size
are important to our customers, which include some of the largest communications and utility
companies in the United States. Our size and national capability allow us to allocate people,
equipment and resources when and where needed. We offer all of our services under the MasTec®
service mark and maintain uniform performance standards across projects, geographic areas and
industries.
Ability to Respond Quickly and Effectively. The services we provide to the various industries
we serve are similar which allows us to utilize qualified personnel across multiple industries. We
are able to respond quickly and effectively to industry changes and major weather events by
allocating our employees, fleet and other assets when and where they are needed.
Customer Base. Our customers include some of the largest communication and utility companies
in the United States, including DIRECTV®, Verizon, AT&T, EMBARQ, Progress Energy,
Florida Power & Light, Qwest, XTO Energy, TXU and Dominion Virginia Power. These customers have
significant infrastructure needs and the financial resources necessary to fund those needs. We
provide services to many of our significant customers under multi-year master service agreements
and other service agreements.
Reputation for Reliable Customer Service and Technical Expertise. We believe that over the
years we have established a reputation for quality customer service and technical expertise. We
believe that we are one of the largest private label in-home installation and maintenance service
providers for DIRECTV®. A 2007 study by J.D. Power and Associates recognized
DIRECTV® for achieving one of the highest levels of customer satisfaction in many of its
markets. We believe that the training and performance of our technicians contributed to
DIRECTV®s high level of customer satisfaction. We also believe our
reputation for technical expertise gives us an advantage in competing for new work from the home
installation customers.
Experienced Management Team. Our management team, which includes our chief executive officer,
chief operating officer, service group presidents and financial officers, plays a significant role
in establishing and maintaining long-term relationships with our customers, supporting the growth
of our business and managing the financial aspects of our operations. Our chief executive officer,
chief operating officer and service group presidents have a deep understanding of our customers and
their requirements.
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Strategy
The key elements of our business strategy are as follows:
Capitalize on Favorable Industry Trends. Many of our customers have increased spending on
their network infrastructure in order to enhance their ability to offer voice, video and data
services, deliver electric power or other energy resources. In addition, many companies are
increasing outsourcing network installation and maintenance work. We intend to increase the
percentage of business derived from large, financially stable customers in the communications and
utility industries. We also intend to use our national presence and full range of services to
capitalize on these trends to generate additional revenue from existing and new customers.
Operate More Efficiently. We have taken action and instituted programs to improve our
operating efficiencies and working capital management, such as hiring additional experienced
operating and financial professionals at the service group and corporate levels, requiring
increased accountability throughout our organization, expanding the use of our Oracle management
information systems throughout our business, better managing customer contract bidding procedures
and increasing individual project profitability. We intend to improve our operating effectiveness
by allocating our resources across multiple customers and projects which will continue to increase
our utilization rates. We intend to continue to capture operating efficiencies and improve working
capital management in order to increase our operating margins and cash flows.
Improve Our Financial Strength. We have increased our financial resources in recent years
with receipt of the net proceeds from the public offering of our common stock in 2006 and the
offering of our senior notes in 2007. These actions have significantly improved our financial
condition. We believe these improvements to our financial condition have enhanced our credit
worthiness and support our ability to reduce our collateral requirements for our surety bonds and
insurance policies.
Acquisitions, Strategic Alliances and Divestitures. We intend to pursue selected acquisitions
and strategic alliances. We will focus on acquisitions and alliances that allow us to expand our
operations into targeted geographic areas or allow us to expand our service offerings. Our strategy
will include timely and efficient integration to best fit into our internal control environment. We
may also consider sales or divestitures of portions of our assets, operations, projects, real
estate or other properties.
Services
Our core services are building, installing, maintaining and upgrading infrastructure for our
communications, utility and government customers. We provide each of these customers with similar
services that include:
Build. We build underground and overhead distribution systems, such as trenches, conduits,
power lines and pipelines, that are used by our customers in networks that provide communications
and power delivery.
Install. We install buried and aerial fiber optic cables, coaxial cables, copper lines,
electrical and other energy distribution systems, transmission systems and satellite dishes in a
variety of environments for our customers. In connection with our installation work, we deploy and
manage network connections that involve our customers hardware, software and network equipment.
Maintain and Upgrade. We offer 24-hours-a-day, 7-days-a-week and 365-days-a-year maintenance
and upgrade support to our customers. Our comprehensive service offerings include the regular
maintenance of our customers distribution facilities and networks as well as emergency services
for accidents or storm damage. Our upgrade work ranges from routine replacements and upgrades to
major network overhauls.
Customers
Our primary customers are in the communications, utilities industries and the government
markets. We provide similar infrastructure services across the industries we serve. For the year
ended December 31, 2007, 74.2%, 20.9% and 4.9% of our revenues were from customers in the
communications, utilities and government industries, respectively. In the year ended December 31,
2007, we derived approximately 44.1%, 9.1% and 6.8% of our revenue from DIRECTV®,
Verizon and AT&T, respectively.
We have longstanding relationships with many customers and often provide services under
multi-year master service agreements and other service agreements. For the years ended December 31,
2007, 2006 and 2005, 72.3%, 74.3% and 68.7%, respectively, of our revenues were derived under
master service agreements and other service agreements. While our multi-year master service
agreements and other service agreements generally do not guarantee a specific level of work
and are generally cancelable upon short notice, the agreements have historically been an important
contributor to our revenue and backlog.
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We believe that our industry experience, technical expertise and customer service are
important to our being retained by large communications and utility companies and governments. The
relationships developed between these customers and our senior management and project management
teams are also important to our being retained.
Backlog
At December 31, 2007 and December 31, 2006, our 18-month backlog was approximately $1.3
billion and $1.1 billion, respectively. We expect to realize approximately 70.3% of our 2007
backlog in 2008. Approximately 85.3% of our backlog at December 31, 2007 was comprised of services
to be performed under existing master service agreements and long term contracts. The balance is
our estimate of work to be completed on other service agreements.
Sales and Marketing
We market our services individually and in combination with other companies to provide what we
believe is the most efficient and effective solution to meet our customers demands, which
increasingly require resources from multiple disciplines. Through our unified MasTec®
brand and an integrated organizational structure designed to permit rapid deployment of labor,
equipment and materials, we are able to quickly and efficiently allocate resources to meet customer
needs.
We have developed a marketing plan emphasizing the MasTec® registered service mark
and an integrated service offering to position ourselves as a provider of a full range of service
solutions, providing services ranging from basic installation to sophisticated engineering, design
and integration. We believe our long-standing relationships with our customers and reputation for
reliability and efficiency facilitate our recurring business. Our marketing efforts are principally
carried out by the management of our service groups in coordination with our corporate marketing
organization. Our management team has many years of industry experience, both at the service
provider level and in some cases with the customers we serve. Our service group managers market
directly to existing and potential customers for new contracts and also market our company to be
placed on lists of vendors invited to submit proposals for service agreements and individual
projects. Our executive management supplements these efforts at the national level.
Safety and Insurance/Risk Management
We strive to instill safe work habits in our employees. We require our employees to
participate in internal training and service programs relevant to their employment and to complete
any training programs required by law. We evaluate employees in part based upon their safety
records and the safety records of the employees they supervise. We have established a company-wide
safety program to share best practices and to monitor and improve compliance with safety procedures
and regulations.
Our business involves heavy equipment and exposure to conditions that can be dangerous. While
we are committed to operating safely and prudently, we are subject to claims by employees,
customers and third parties for property damage and personal injuries that occur in connection with
our work. See Item 1A. Risk Factors Our business is subject to hazards that could result in
substantial liabilities and weaken our financial condition.
We presently maintain insurance policies subject to per claim deductibles of $1 million for
our workers compensation policy, $2 million for our general liability policy and $3 million for
our automobile liability policy. We have excess umbrella coverage of up to $100 million per claim
and in the aggregate. We also maintain an insurance policy with respect to employee group health
claims subject to per claim deductibles of $300,000 after satisfying an annual deductible of
$100,000. See Item 1A. Risk Factors We are self-insured against many potential liabilities. We
are required to periodically post letters of credit and provide cash collateral to our insurance
carriers related to our insurance programs. Total outstanding letters of credit amounted to $64.8
million and cash collateral posted amounted to $3.3 million at December 31, 2007. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Critical
Accounting Policies and EstimatesInsurance Reserves.
Suppliers, Materials and Working Capital
Under most of our contracts, our customers supply the necessary materials and supplies and we
are responsible for installation, but not for material costs or material warranties. Under certain
of our contracts we acquire materials and supplies for our own account
from third-party providers. We are not dependent on any one supplier for materials or supplies
and have not experienced any significant difficulty in obtaining an adequate supply of materials
and supplies.
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We utilize independent contractors to assist on projects and to help us manage work flow. Our
independent contractors are typically sole proprietorships or small business entities that provide
their own vehicles, tools and insurance coverage. We are not dependent on any single independent
contractor. See Item 1A. Risk Factors We may choose, or be required, to pay our subcontractors
even if our customers do not pay, or delay paying, us for the related services.
We need working capital to support seasonal variations in our business, primarily due to the
impact of weather conditions on external construction and maintenance work, including storm
restoration work, and the corresponding spending by our customers on their annual capital
expenditure budgets. Our business is typically slower in the first and fourth quarters of each
calendar year and stronger in the second and third quarters. We generally experience seasonal
working capital needs from approximately April through September to support growth in unbilled
revenue and accounts receivable, and to a lesser extent, inventory. Our billing terms are generally
net 30 to 60 days, although some contracts allow our customers to retain a portion (from 2% to 15%)
of the contract amount until the contract is completed to their satisfaction. We maintain inventory
to meet the material requirements of some of our contracts. Some of our customers pay us in advance
for a portion of the materials we purchase for their projects, or allow us to pre-bill them for
materials purchases up to a specified amount.
Competition
Our industry is highly competitive and highly fragmented. We often compete with a number of
companies in markets where we operate, ranging from small local independent companies to large
national firms. The national or large regional firms that compete with us include Dycom Industries,
Inc., Pike Electric, Inc. and Quanta Services, Inc.
Relatively few significant barriers to entry exist in the markets in which we operate and, as
a result, any organization that has adequate financial resources and access to technical expertise
may become a competitor. Some of our customers employ personnel to perform infrastructure services
of the type we provide. We compete based upon our industry experience, technical expertise,
financial and operational resources, nationwide presence, industry reputation and customer service.
While we believe our customers consider a number of factors when selecting a service provider, most
of their work is awarded through a bid process. Consequently, price is often a principal factor in
determining which service provider is selected. See Item 1A. Risk Factors Our industry is highly
competitive which may reduce our market share and harm our financial performance.
Regulation
We are subject to state and federal laws that apply to businesses generally, including laws
and regulations related to labor relations, worker safety and environmental protection. While many
of our customers operate in regulated industries (for example, utilities regulated by the public
service commission or broadband companies regulated by franchise agreements with various
municipalities), we are not generally subject to such regulation and oversight.
As a contractor, our operations are subject to various laws, including:
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regulations related to vehicle registrations, including those of state and the United
States Departments of Transportation; |
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regulations related to worker safety and health, including those established by the
Occupational Safety and Health Administration; |
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contractor licensing requirements; |
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building and electrical codes; and |
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permitting and inspection requirements. |
We are also subject to various environmental laws. Our failure to comply with environmental
laws could result in significant liabilities. For example,
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Some of the work we perform is in underground environments. If the field location maps
supplied to us are not accurate, or if objects are present in the soil that are not
indicated on the field location maps, our underground work could strike objects in
the soil containing pollutants and result in a rupture and discharge of pollutants. In such a
case, we may be liable for fines and damages. |
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We own and lease several facilities at which we store our equipment. Some of these
facilities contain fuel storage tanks which may be above or below ground. If these tanks
were to leak, we could be responsible for the cost of remediation as well as potential
fines. |
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We sometimes perform directional drilling operations below certain environmentally
sensitive terrains and water bodies. Due to the inconsistent nature of the terrain and
water bodies, it is possible that such directional drilling may cause a surface fracture
releasing subsurface materials. These releases may contain contaminants in excess of
amounts permitted by law, potentially exposing us to remediation costs and fines. |
See Item 1A. Risk Factors Our failure to comply with environmental laws could result in
significant liabilities.
We believe we have all licenses and permits needed to conduct operations and that we are in
compliance with all material applicable regulatory requirements. However, if we fail to comply with
any material applicable regulatory requirements, we could incur significant liabilities. See Item
1A. Risk Factors Our failure to comply with regulations of the U.S. Occupational Safety and
Health Administration, the U.S. Department of Transportation and other state and local agencies
that oversee transportation and safety compliance could reduce our revenue, profitability and
liquidity.
We offer services and are branded under the MasTec® service mark. We do not have
any patents that are material to our business.
Financial Information About Geographic Areas
During the years ended December 31, 2007, 2006 and 2005, we operated in the United States and
Canada. In March 2007, we declared our Canadian operations as discontinued. On April 10, 2007, we
sold substantially all of our Canadian operations. Accordingly, our results of operations for all
periods presented reflect our Canadian business as discontinued. As of December 31, 2007, we
operate almost exclusively in the United States.
Employees
As of December 31, 2007, we had approximately 8,240 employees. We hire employees from a number
of sources, including our industry, trade schools and colleges. Our primary sources for employees
include promotion from within, team member referrals, print and Internet advertising and direct
recruiting. We attract and retain employees by offering technical training opportunities, bonus
opportunities, stock ownership, competitive salaries and a comprehensive benefits package.
We believe that our focus on training and career development helps us to attract and retain
employees. Our employees participate in ongoing educational programs, many of which are internally
developed, to enhance their technical and management skills through classroom and field training.
We provide opportunities for promotion and mobility within our organization that we also believe
helps us to retain our employees. We believe our relations with our employees are good.
Recent Developments
Settlement Agreement with Buyer of Our State Department of Transportation Related Projects and Assets
Effective February 1, 2007, we sold our state Department of Transportation related projects
and assets. On January 24, 2008, we entered into a settlement agreement with the buyer of our state
Department of Transportation projects and assets to settle previously disclosed warranty,
indemnification and other claims primarily relating to work we had performed on the state
Department of Transportation projects we sold. In connection with the settlement agreement, the
parties also agreed to further amend and restate the Amended Asset Purchase Agreement effective as
of January 24, 2008, which we refer to as the Revised Amended Agreement.
Under the terms of the settlement agreement, we paid $6 million in cash and obtained from the
buyer a covenant not to sue and general release from nearly all obligations owed by us to the buyer
under the purchase agreement, including warranty and other indemnification obligations. The Revised
Amended Agreement, among other things, deleted substantially all of our representations and
warranties and indemnification obligations set forth in the Amended Asset Purchase Agreement,
reduced the term of our covenants against competition and solicitation of customers, suppliers and
other third parties (other than the buyers employees) from
the five year period ending February 13, 2012 to the four year period ending February 13, 2011
and released us from our covenant not to compete in the following states: Arizona, Nevada,
Colorado, Oklahoma, New Mexico, Missouri and Minnesota. See Item 1A. Risk Factors Risks Related
to Our Business We have agreed to keep certain liabilities related to the state Department of
Transportation related projects and assets that were sold in February 2007.
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Available Information
A copy of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, are available free of charge on the
Internet at our website, www.mastec.com, as soon as reasonably practicable after we electronically
file these reports with, or furnish these reports to, the SEC. Copies of our Board of Directors
Governance Principles, Personal Responsibility Code, which applies to all staff and expressly
applies to our senior officers (including our principal executive officer, principal financial
officer and our controller), and the charters for each of our Audit, Compensation and Nominating
and Corporate Governance Committees are also available on the Internet in the Investor Relations
section of our website, www.mastec.com, or may be obtained by contacting our Vice President of
Investor Relations, by phone at (305) 406-1815 or by email at investor.relations@mastec.com. We
intend to provide any amendments or waivers to our Personal Responsibility Code for any of our
directors and senior officers on our website within four business days of any such amendment or
waiver. The reference to our website address does not constitute incorporation by reference of the
information contained on the website and should not be considered part of this report. Our reports
filed with the SEC may be read or copied at the SECs Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the SECs Public Reference Room may be
obtained by calling the SEC at
1-800-SEC-0330. Alternatively, you may access these reports at the
SECs website at www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the risks described below, together with all of the other
information in this Annual Report on Form 10-K. The risks described below are not the only risks
facing us. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial may also materially and adversely affect our business operations. If any of these
risks actually occurs, our business, financial condition and results of operations could suffer and
the trading price of our common stock could decline.
Risks Related to Our Industry and Our Customers Industries
An economic downturn or reduced capital expenditures in the industries we serve may result in a
decrease in demand for our services.
Beginning in the fourth quarter of 2007 and continuing into 2008, a number of key economic
indicators including the Consumer Confidence Index, US Leading Index, Consumer Price Index (CPI),
and total new housing starts have been trending downward and pointing in the direction of a
potential economic downturn during 2008. Because we have been negatively impacted by previous
economic downturns, we constantly monitor our customers industries and their relative health
compared to the economy as a whole. The aforementioned reduction in new housing starts, should it
continue during 2008, could negatively impact our customers who utilize our services to construct
their last mile of infrastructure. Continued reductions in new housing starts, which generally
follow overall economic trends, could result in the cancellation of certain projects or a reduction
in the utilization of our services until these sectors of the economy improve. Additionally, our
customers who provide satellite communications to consumers across the country could be adversely
impacted by an economic downturn if new subscriptions and upgrades for new and existing consumers
are not ordered at the rate that we and our customers anticipate. Moreover, during an economic
downturn, our customers may not have the ability or desire to continue to fund capital
expenditures for infrastructure at their current levels. A decrease in either last mile projects,
new subscriptions and upgrades or any other services we provide could adversely affect our results
of operations, cash flows and liquidity.
Many of the industries we serve are subject to consolidation and rapid technological and regulatory
change, and our inability or failure to adjust to our customers changing needs could reduce demand
for our services.
We derive, and anticipate that we will continue to derive, a substantial portion of our
revenue from customers in the communications industry. The communications industry is subject to
rapid changes in technology and governmental regulation. Changes in technology may reduce the
demand for the services we provide. New or developing technologies could displace the wire line
systems used for the transmission of voice, video and data, and improvements in existing technology
may allow communications
10
providers to significantly improve their networks without physically upgrading them.
Additionally, the communications industry has been characterized by a high level of consolidation
that may result in the loss of one or more of our customers. Utilities have also entered into a
phase of consolidation similar to the communications industry which could lead to the same
uncertainties.
Our industry is highly competitive which may reduce our market share and harm our financial
performance.
Our 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 and national markets. We also face competition from existing or prospective
customers that employ in-house personnel to perform some of the same types of services we provide.
There are relatively few barriers to entry into the markets in which we operate and, as a result,
any organization that has adequate financial resources and access to technical expertise and
skilled personnel may become one of our competitors.
Most of our customers work is awarded through a bid process. Consequently, price is often the
principal factor in determining which service provider is selected, especially on smaller, less
complex projects. Smaller competitors are sometimes able to win bids for these projects based on
price alone due to their lower costs and financial return requirements.
Risks Related to Our Business
We derive a significant portion of our revenue from a few customers, and the loss of one of these
customers or a reduction in their demand for our services could impair our financial performance.
For
the year ended December 31, 2007, we derived approximately 44.1%, 9.1% and 6.8% of our
revenue from DIRECTV®, Verizon, and AT&T, respectively. In the year ended December 31,
2006, we derived approximately 37.5%, 10.2% and 8.3% of our revenue from DIRECTV®, AT&T,
and Verizon, respectively. In addition, our ten largest customers accounted for approximately
76.7%, 76.4% and 74.4% of our revenue in the years ended December 31, 2007, 2006 and 2005,
respectively.
Because our business is concentrated among relatively few major customers, our revenue could
significantly decline if we lose one or more of these customers or if the amount of business we
obtain from them is reduced, which could result in reduced profitability and liquidity.
Our profitability and liquidity could decline if certain customers reduce the amounts they pay for
our services or if our customers are unable to pay for our services.
In the past, we incurred significant losses after a number of customers filed for bankruptcy
or experienced financial difficulties following a general economic downturn and certain industry
specific factors that worsened the impact of the overall economic downturn on those customers. See
Risks Related to Our Industry and Our Customers Industries, specifically the risk factor
entitled An economic downturn or reduced capital expenditures in the industries we serve may
result in a decrease in demand for our services. In 2007, 2006 and 2005 total provisions for bad
debts aggregated to $17.6 million, $10.0 million and $4.9 million, respectively, of which $14.1
million, $7.9 million and $3.7 million, respectively, resulted from anticipated legal settlements
and discontinued operations. As of December 31, 2007, we had remaining receivables from customers
undergoing bankruptcy reorganization totaling $1.6 million, of which $0.3 million is included in
specific reserves for bad debts, with the remaining amounts expected to be recovered through
secured and unsecured claims and enforcement of liens or bonds.
Most of our contracts do not obligate our customers to undertake any infrastructure projects or
other work with us.
A significant portion of our revenue is derived from multi-year master service agreements and
other service agreements. Under our multi-year master service agreements and other service
agreements, we contract to provide customers with individual project services, through work orders,
within defined geographic areas on a fixed fee basis. Under these agreements, our customers have no
obligation to undertake any infrastructure projects or other work with us. A significant decline in
the projects customers assign us under these service agreements could result in a decline in our
revenue, profitability and liquidity.
11
We recorded an unrealized loss in 2007 to reduce the carrying value of certain auction rate
securities we hold, and we may incur additional impairment charges with respect to auction rate
securities in future periods.
The current overall credit concerns in capital markets may affect our ability to liquidate certain
securities that we classify as securities available for sale on our balance sheet. As of December
31, 2007, we have identified approximately $16.2 million of investments subject to this auction
process for which there have been insufficient bidders at the scheduled rollover dates and held
another approximately $33.0 million of these securities. As a result, we recorded an unrealized
loss of $4.8 million in 2007. Subsequent to year end, of the approximately $33.0 million of these
securities, approximately $8.5 million were sold at par, approximately $7.9 million had
insufficient bidders and failed the reset process, and we believe the remaining approximately $16.6
million may be at risk of having this occur. While the
investments are of a high credit quality and the rating of these securities has not been lowered,
at this time we are uncertain when the liquidity issues associated with these investments will
improve, when we will be able to exit these investments at their par
value or whether we will incur
any additional losses as a result of these investments. See Note 5 in Notes to Consolidated
Financial Statements.
Most of our contracts may be canceled on short notice, so our revenue is not guaranteed.
Most of our contracts are cancelable on short notice, ranging from immediate cancellation to
cancellation upon 180 days notice, even if we are not in default under the contract. Many of our
contracts, including our service agreements, are periodically open to public bid. We may not be the
successful bidder on our existing contracts that are re-bid. We also provide a significant portion
of our services on a non-recurring, project-by-project basis. We could experience a reduction in
our revenue, profitability and liquidity if:
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our customers cancel a significant number of contracts; |
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we fail to win a significant number of our existing contracts upon re-bid; or |
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we complete the required work under a significant number of our non-recurring projects
and cannot replace them with similar projects. |
We may not accurately estimate the costs associated with our services provided under fixed-price
contracts which could impair our financial performance.
A substantial portion of our revenue is derived from master service agreements and other
service agreements that are fixed price contracts. Under these contracts, we set the price of our
services on a per unit or aggregate basis and assume the risk that the costs associated with our
performance may be greater than we anticipated. In addition to master or other service agreements
we enter into contracts that require installation or construction of specified units within an
infrastructure system. Under those agreements, we have also contractually agreed to a price per
unit. Profitability will be reduced if the actual costs to complete each unit exceed original
estimates. We are also required to immediately recognize the full amount of any estimated costs on
these projects if estimated costs to complete the remaining units for the projects exceed the
revenue to be earned on such units.
Our profitability is therefore dependent upon our ability to accurately estimate the costs
associated with our services. These costs may be affected by a variety of factors, such as lower
than anticipated productivity, conditions at the work sites differing materially from what was
anticipated at the time we bid on the contract and higher costs of materials and labor. Certain
agreements or projects could have lower margins than anticipated or losses if actual costs for our
contracts exceed our estimates, which could reduce our profitability and liquidity.
We recognize revenue for our installation/construction fixed price contracts using the
percentage-of-completion method, therefore, variations of actual results from our assumptions may
reduce our profitability.
We recognize revenue on long-term installation/construction fixed price contracts using the
percentage-of-completion method. Under the percentage-of-completion method, we record revenue as
work on the contract progresses. The cumulative amount of revenue recorded on a contract at a
specified point in time is that percentage of total estimated revenue that incurred costs to date
bear to estimated total contract costs. The percentage-of-completion method therefore relies on
estimates of total expected contract costs. Contract revenue and total cost estimates are reviewed
and revised periodically as the work progresses. Adjustments are reflected in contract revenue in
the fiscal period when such estimates are revised. Estimates are based on managements reasonable
assumptions and experience, but are only estimates. Variation of actual results from estimates on a
large project or on a number of smaller projects could be material. We immediately recognize the
full amount of the estimated loss on a contract when our estimates indicate such a loss. Such
adjustments and accrued losses could result in reduced profitability which could negatively impact
our liquidity. For example, for the years ended December 31, 2007, 2006 and 2005, we incurred
approximately $0.3 million, $6.8 million and $3.3 million, respectively, of losses on
percentage-of-completion contracts. For the years ended December 31, 2006 and 2005, $6.5 million
and $2.3 million, respectively, were included in loss from discontinued operations.
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Amounts included in our backlog may not result in actual revenue or translate into profits.
Approximately 85.3% of our 18-month backlog at December 31, 2007 was comprised of master
service agreements and other service agreements which do not require our customers to purchase a
minimum amount of services and are cancelable on short notice. These backlog amounts are based on
our estimates and therefore may not result in actual receipt of revenue in the originally
anticipated period, or at all. In addition, contracts included in our backlog may not be
profitable. We may experience variances in the realization of our backlog because of project delays
or cancellations resulting from weather conditions, external market factors and economic factors
beyond our control. If our backlog fails to materialize, we could experience a reduction in our
revenue, profitability and liquidity.
Our business is seasonal and is affected by adverse weather conditions and the spending patterns of
our customers, exposing us to variable quarterly results.
The budgetary years of many of our specialty infrastructure services customers end December
31. As a result, some of our customers reduce their expenditures and work order requests towards
the end of the year. Adverse weather conditions, particularly during the winter season, also affect
our ability to perform outdoor services in certain regions of the United States. As a result, we
experience reduced revenue in the first and fourth quarters of each calendar year.
Natural catastrophes such as hurricanes in the United States could also have a negative impact
on the economy overall and on our ability to perform outdoor services in affected regions or
utilize equipment and crews stationed in those regions, which could result in a decline in
profitability and liquidity.
We are self-insured against many potential liabilities.
Although we maintain insurance policies with respect to automobile liability, general
liability, workers compensation and employee group health claims, those policies are subject to
high deductibles, and we are self-insured up to the amount of the deductible. Since most claims
against us do not exceed the deductibles under our insurance policies, we are effectively
self-insured for substantially all claims. We actuarially determine any liabilities for unpaid
claims and associated expenses, including incurred but not reported losses, and reflect those
liabilities in our balance sheet as other current and non-current liabilities. The determination of
such claims and expenses and the appropriateness of the liability is reviewed and updated
quarterly. However, insurance liabilities are difficult to assess and estimate due to the many
relevant factors, the effects of which are often unknown, including the severity of an injury, the
determination of our liability in proportion to other parties, the number of incidents not reported
and the effectiveness of our safety program. If our insurance claims increase or costs exceed our
estimates of insurance liabilities, we could experience a decline in profitability and liquidity.
Increases in our insurance premiums or collateral requirements could significantly reduce our
profitability, liquidity and availability under our credit facility.
Because of factors such as increases in claims, projected significant increases in medical
costs and wages, lost compensation and reductions in coverage, insurance carriers may be unwilling
to continue to provide us with our current levels of coverage without a significant increase in
insurance premiums or collateral requirements to cover our deductible obligations. An increase in
premiums or collateral requirements could significantly reduce our profitability and liquidity as
well as reduce availability under our revolving credit facility.
We may be unable to obtain sufficient bonding capacity to support certain service offerings and the
need for performance and surety bonds may reduce our availability under our credit facility.
Some of our contracts require performance and surety bonds. Bonding capacity in the
infrastructure industry has become increasingly difficult to obtain, and bonding companies are
denying or restricting coverage to an increasing number of contractors. Companies that have been
successful in renewing or obtaining coverage have sometimes been required to post additional
collateral to secure the same amount of bonds which reduces availability under our credit facility.
We may not be able to maintain a sufficient level of bonding capacity in the future, which could
preclude us from being able to bid for certain contracts and successfully contract with certain
customers. In addition, even if we are able to successfully renew or obtain performance or payment
bonds in the future, we may be required to post letters of credit in connection with the bonds
which would reduce availability under our credit facility. We reported net losses for the past six
years. If we continue to incur net losses, our overall level of bonding capacity could be reduced.
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We have agreed to keep certain liabilities related to the state Department of Transportation
related projects and assets that were sold in February 2007.
In connection with the sale of our state Department of Transportation related projects and
assets and the related settlement explained in Item 1 Business Recent Developments, we agreed
to keep certain liabilities, mainly related to the cost to maintain and continue certain
performance and payment bonds, certain obligations under leases between the parties and certain
other litigation matters. We may also be unable to recover any losses we incur as a result of any
third party claims to the extent any third parties seek payment from us directly and we are unable
to recover such losses from the buyer pursuant to the indemnification obligations contained in the
Revised Amended Agreement; including, in the event the buyer were financially unable to meet
certain obligations, any losses resulting from creditor claims.
Under the terms of the Revised Amended Agreement, the buyer is no longer required to issue a
standby letter of credit in our favor in February 2008 to cover any remaining exposure related to
our bonded obligations. Instead, pursuant to the terms of the settlement agreement, the buyer
entered into indemnity agreements directly with certain surety bonding companies in connection with
our bonded obligations. Therefore, if the buyer is unable to meet its contractual obligations, the
surety bonding company can seek its remedies under the indemnity agreement. If the surety bonding
company, however, pays the amounts due under the bonds, the surety bonding company will seek
reimbursement of such payment from us. Accordingly, we may incur losses in the future related to
these contingent liabilities if the buyer does not complete the bonded contracts and we are unable
to recover such losses from the buyer pursuant to the indemnification provisions contained in the
Revised Amended Agreement. At December 31, 2007, we estimate that the cost to complete on the
$161.8 million in performance and payment bonds related to these projects and assets was $8.4
million.
We may incur goodwill impairment charges in our reporting entities which could harm our
profitability.
In accordance with Statement of Financial Accounting Standards, No. 142, Goodwill and Other
Intangible Assets, or SFAS No. 142, we periodically review the carrying values of our goodwill
to determine whether such carrying values exceed the fair market value. In the year ended December
31, 2005, we charged $11.5 million, against goodwill related to the decision to sell substantially
all of our state Department of Transportation related projects and assets. In connection with our
decision to sell substantially all our Canadian net assets, we wrote off goodwill associated with
this entity in the amount of $0.4 million for the year ended December 31, 2007. We may incur
additional impairment charges related to goodwill in any of our reporting entities in the future if
the markets they serve or their business deteriorates.
We may incur restructuring charges which could reduce our profitability.
From time to time we review our operations in an effort to improve profitability. We could
incur charges in the future as a result of:
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eliminating service offerings that no longer fit into our business strategy; |
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reducing or eliminating services that do not produce adequate revenue or margin; |
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reducing costs of businesses that provide adequate profit contributions but need margin improvements; and |
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reviewing new business opportunities capable of utilizing our existing human and physical resources. |
All charges related to restructuring would be reflected as operating expenses and could reduce
our profitability.
14
Our revolving credit facility and senior notes impose restrictions on us which may prevent us from
engaging in transactions that might benefit us, including responding to changing business and
economic conditions or securing additional financing, if needed.
At December 31, 2006, we had $121.0 million in senior subordinated notes outstanding due
February 2008 under an indenture. Since then we have issued $150.0 million aggregate principal amount of 7.625% senior notes
due 2017, under a new indenture, the proceeds of which we used to redeem the senior subordinated
notes due February 2008. We also have a $150.0 million revolving credit facility of which we had no
outstanding cash draws at December 31, 2007. At December 31, 2007, the net availability under the
credit facility was approximately $44.0 million which includes outstanding standby letters of
credit aggregating $86.4 million. The terms of our indebtedness contain customary events of
default and covenants that prohibit us from taking certain actions without satisfying certain
financial tests or obtaining the consent of the lenders. The prohibited actions include, among
other things:
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making investments and acquisitions in excess of specified amounts; |
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incurring additional indebtedness in excess of specified amounts; |
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paying cash dividends; |
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creating certain liens against our assets; |
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prepaying our other indebtedness, excluding the senior notes; |
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engaging in certain mergers or combinations; and |
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engaging in transactions that would result in a change of control (as defined in the credit facility and indenture). |
Our credit facility provides that if our net borrowing base availability falls below $15.0
million we must comply with a minimum fixed charge coverage ratio. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition,
Liquidity and Capital Resources. In the past, we have not been in compliance with certain
financial covenants of our credit facility and have had to seek amendments or waivers from our
lenders. Should we be unable to comply with the terms and covenants of our credit facility, we
would be required to obtain further modifications of the facility or secure another source of
financing to continue to operate our business. A default could result in the acceleration of either
our obligations under the credit facility or under the indenture relating to the senior notes, or
both. In addition, these covenants may prevent us from engaging in transactions that benefit us,
including responding to changing business and economic conditions or securing additional financing,
if needed. Our business is capital intensive and, to the extent we need additional financing, we
may not be able to obtain such financing at all or on favorable terms, which may decrease our
profitability and liquidity.
If we are unable to attract and retain qualified managers and skilled employees, we will be unable
to operate efficiently which could reduce our revenue, profitability and liquidity.
Our business is labor intensive, and some of our operations experience a high rate of employee
turnover. At times of low unemployment rates in the areas we serve, it can be difficult for us to
find qualified and affordable personnel. We may be unable to hire and retain a sufficient skilled
labor force necessary to support our operating requirements and growth strategy. Our labor expenses
may increase as a result of a shortage in the supply of skilled personnel. If we are unable to hire
employees with the requisite skills, we may also be forced to incur significant training expenses.
Additionally, our business is managed by a number of key executive and operational officers and is
dependent upon retaining and recruiting qualified management. Labor shortages, increased labor or
training costs or the loss of key personnel could result in reduced revenue, profitability and
liquidity.
Increases in the costs of fuel could reduce our operating margins.
The price of fuel needed to run our vehicles and equipment is unpredictable and fluctuates
based on events outside our control, including geopolitical developments, supply and demand for oil
and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing
countries, regional production patterns and environmental concerns. Most of our contracts do not
allow us to adjust our pricing. Accordingly, any increase in fuel costs could reduce our
profitability and liquidity.
We may choose, or be required, to pay our subcontractors even if our customers do not pay, or delay
paying, us for the related services.
We use subcontractors to perform portions of our services and to manage work flow. In some
cases, we pay our subcontractors before our customers pay us for the related services. If we
choose, or are required, to pay our subcontractors for work performed for customers who fail to
pay, or delay paying us for the related work, we could experience a decrease in profitability and
liquidity.
15
Our failure to comply with environmental laws could result in significant liabilities.
Some of the work we perform is in underground environments. If the field location maps
supplied to us are not accurate, or if objects are present in the soil that are not indicated on
the field location maps, our underground work could strike objects in the soil containing
pollutants and result in a rupture and discharge of pollutants. In such a case, we may be liable
for fines and damages.
We own and lease several facilities at which we store our equipment. Some of these facilities
contain fuel storage tanks which may be above or below ground. If these tanks were to leak, we
could be responsible for the cost of remediation as well as potential fines.
We sometimes perform directional drilling operations below certain environmentally sensitive
terrains and water bodies. Due to the inconsistent nature of the terrain and water bodies, it is
possible that such directional drilling may cause a surface fracture releasing subsurface
materials. These releases may contain contaminants in excess of amounts permitted by law,
potentially exposing us to remediation costs and fines.
We are currently engaged in litigation related to environmental liabilities in Coos Bay,
Oregon. See Item 3. Legal Proceedings.
In addition, new environmental laws and regulations, stricter enforcement of existing laws and
regulations, the discovery of previously unknown contamination or leaks, or the imposition of new
clean-up requirements could require us to incur significant costs or become the basis for new or
increased liabilities that could negatively impact our profitability and liquidity.
Our failure to comply with the regulations of the U.S. Occupational Safety and Health
Administration the U.S. Department of Transportation and other state and local agencies that
oversee transportation and safety compliance could reduce our revenue, profitability and liquidity.
The Occupational Safety and Health Act of 1970, as amended, or OSHA, establishes certain
employer responsibilities, including maintenance of a workplace free of recognized hazards likely
to cause death or serious injury, compliance with standards promulgated by the Occupational Safety
and Health Administration and various record keeping, disclosure and procedural requirements.
Various standards, including standards for notices of hazards, safety in excavation and demolition
work, may apply to our operations. We have incurred, and will continue to incur, capital and
operating expenditures and other costs in the ordinary course of our business in complying with
OSHA and other state and local laws and regulations.
We have, from time to time, received notice from the U.S. Department of Transportation that
our motor carrier operations will be monitored and that the failure to improve our safety
performance could result in suspension or revocation of vehicle registration privileges. If we
cannot successfully resolve these issues, our ability to service our customers could be damaged
which could lead to a reduction of our revenue, profitability and liquidity.
Our financial results are based, in part, upon estimates and assumptions that may differ from
actual results.
In preparing our consolidated financial statements in conformity with accounting principles
generally accepted in the United States, a number of estimates and assumptions are made by
management that affect the amounts reported in the financial statements. These estimates and
assumptions must be made because certain information that is used in the preparation of our
financial statements is either dependent on future events or cannot be calculated with a high
degree of precision from data available. In some cases, these estimates are particularly uncertain
and we must exercise significant judgment. Estimates are primarily used in our assessment of the
revenue recognition for costs and estimated earnings in excess of billings, allowance for doubtful
accounts, accrued self-insured claims, valuation of goodwill and intangible assets, asset lives
used in computing depreciation and amortization, including amortization of intangibles, and
accounting for performance-based stock awards, income taxes (including net deferred tax assets),
contingencies and litigation. Actual results could differ materially from the estimates and
assumptions that we use, which could have a material adverse effect on our financial condition,
results of operations and cash flows.
Our business is subject to hazards that could result in substantial liabilities and weaken our
financial condition.
Construction projects undertaken by our employees involve exposure to electrical lines,
pipelines carrying potentially explosive materials, heavy equipment, mechanical failures and
adverse weather conditions. If serious accidents or fatalities occur, we may be restricted from
bidding on certain work and certain existing contracts could be terminated. In addition, if our
safety record were to deteriorate, our ability to bid on certain work could suffer. The occurrence
of accidents in our business could result in significant
liabilities or harm our ability to perform under our contracts or enter into new contracts
with customers, which could reduce our revenue, profitability and liquidity.
16
Many of our communications customers are highly regulated and the addition of new regulations or
changes to existing regulations may adversely impact their demand for our specialty contracting
services and the profitability of those services.
Many of our communications customers are regulated by the Federal Communications Commission,
or the FCC. The FCC may interpret the application of its regulations to communication companies
in a manner that is different than the way such regulations are currently interpreted and may
impose additional regulations. If existing or new regulations have an adverse affect on our
communications customers and adversely impact the profitability of the services they provide, then
demand for our specialty contracting services may be reduced.
Claims, lawsuits and proceedings could reduce our profitability and liquidity and weaken our
financial condition.
We are subject to various claims, lawsuits and proceedings which arise in the ordinary course
of business, including those described in Item 3. Legal Proceeding. Claimants may seek large
damage awards and defending claims can involve significant costs. When appropriate, we establish
reserves against these items that we believe to be adequate in the light of current information,
legal advice and professional indemnity insurance coverage, and we adjust such reserves from time
to time according to case developments. If our reserves are inadequate, or if in the future our
insurance coverage proves to be inadequate or unavailable or there is an increase in liabilities
for which we self-insure, we could experience a reduction in our profitability and liquidity. An
adverse determination on any such claim, lawsuit or proceeding could have a material adverse effect
on our business, financial condition or results of operations. In addition, claims, lawsuits and
proceedings may harm our reputation or divert management resources away from operating our
business. See Item 3. Legal Proceedings.
Acquisitions involve risks that could result in a reduction of our profitability and liquidity.
We have made, and in the future plan to make, strategic acquisitions. However, we may not be
able to identify suitable acquisition opportunities or may be unable to obtain the consent of our
lenders and therefore not be able to complete such acquisitions. We may pay for acquisitions with
our common stock which may dilute your investment in our common stock or decide to pursue
acquisitions that investors may not agree with. In addition, acquisitions may expose us to
operational challenges and risks, including:
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the ability to profitably manage additional businesses or successfully integrate the
acquired business operations and financial reporting and accounting control systems into
our business; |
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increased indebtedness and contingent purchase price obligations associated with an
acquisition; |
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the ability to fund cash flow shortages that may occur if anticipated revenue is not
realized or is delayed, whether by general economic or market conditions or unforeseen
internal difficulties; |
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the availability of funding sufficient to meet increased capital needs; |
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diversion of managements attention; and |
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the ability to hire qualified personnel required for expanded operations. |
A failure to successfully manage the operational challenges and risks associated with or
resulting from acquisitions could result in a reduction of our profitability and liquidity.
Borrowings associated with these acquisitions may also result in higher levels of indebtedness
which could impact our ability to service our debt within the scheduled repayment terms.
We may incur significant costs as a result of our lawsuit with our excess insurance carrier.
In the second quarter of 2004, several complaints for a purported securities class action were
filed against us and certain of our officers. We have settled these actions without payments to the
plaintiffs by us. As part of the settlement, our excess insurance carrier has retained its rights
to seek up to $2.0 million in reimbursement from us based on its claim that notice was not properly
given under the policy. We may be unable to successfully resolve this dispute without incurring
significant expense. See Item 3. Legal Proceedings.
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Risks Related to Our Company and Our Common Stock
The market price of our common stock has been, and may continue to be, highly volatile.
From 2001 to 2003, for example, our common stock fluctuated from a high of $24.75 per share in
the first quarter of 2001 to a low of $1.31 per share in the first quarter of 2003. During 2006 and
2007, our common stock fluctuated from a high of $16.25 per share to a low of $8.68 per share. We
may continue to experience significant volatility in the market price of our common stock. See
Item 5. Market Information for the Registrants Common Equity, Related Shareholder Matters and
Issuer Purchases of Equity Securities.
Numerous factors could have a significant effect on the price of our common stock, including:
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announcements of fluctuations in our operating results or the operating results of one of our competitors; |
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future sales of our common stock or other securities; |
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announcements of new contracts or customers by us or one of our competitors; |
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|
market conditions for providers of services to communications companies, utilities and government; |
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changes in recommendations or earnings estimates by securities analysts; and |
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announcements of acquisitions by us or one of our competitors. |
In addition, the stock market has experienced significant price and volume fluctuations in
recent years that have sometimes been unrelated or disproportionate to the operating performance of
companies. The market price for our common stock has been volatile and such volatility could cause
the market price of our common stock to decrease and cause you to lose some or all of your
investment in our common stock.
A small number of our existing shareholders have the ability to influence major corporate
decisions.
Jorge Mas, our Chairman, Jose Mas, our CEO, and other members of the Mas family who are
employed by MasTec, beneficially own approximately 32.7% of the outstanding shares of our common
stock as of February 25, 2008. Accordingly, they are in a position to influence:
|
|
|
the vote of most matters submitted to our shareholders, including any merger,
consolidation or sale of all or substantially all of our assets; |
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|
the nomination of individuals to our Board of Directors; and |
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|
a change in our control. |
These factors may discourage, delay or prevent a takeover attempt that you might consider in
your best interest or that might result in you receiving a premium for your common stock.
Our articles of incorporation and certain provisions of Florida law contain anti-takeover
provisions that may make it more difficult to effect a change in our control.
Certain provisions of our articles of incorporation and bylaws and the Florida Business
Corporation Act could delay or prevent an acquisition or change in control and the replacement of
our incumbent directors and management, even if doing so might be beneficial to our shareholders by
providing them with the opportunity to sell their shares possibly at a premium over the then market
price of our common stock. For example, our Board of Directors is divided into three classes. At
any annual meeting of our shareholders, our shareholders only have the right to appoint
approximately one-third of the directors on our Board of Directors. Consequently, it will take at
least two annual shareholder meetings to effect a change in control of our Board of Directors,
which may discourage hostile takeover bids. In addition, our articles of incorporation authorize
our Board of Directors, without further shareholder approval, to issue preferred stock. The
issuance of preferred stock could also dilute the voting power of the holders of our common stock,
including by the grant of voting control to others, which could delay or prevent an acquisition or
change in control.
18
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is a 24,000 square foot leased facility located in Coral Gables,
Florida.
As of December 31, 2007, our operations were conducted from approximately 200 locations. None
of our facilities in these locations is material to our operations because most of our services are
performed on customers premises or on public rights of way and because suitable alternative
locations are available in substantially all areas where we currently conduct business.
We also own property and equipment that, at December 31, 2007, had a net book value of $81.9
million. This property and equipment includes land, buildings, vans, trucks, tractors, trailers,
bucket trucks, backhoes, bulldozers, directional boring machines, digger derricks, cranes,
networks, computers, computer software, office and other equipment. Our equipment is acquired
from various third-party vendors, none of which we depend upon, and we did not experience any
difficulties in obtaining desired equipment in 2007.
Item 3. Legal Proceedings
Change in Strategy Regarding Litigation and Other Disputes
In the third quarter of 2007, our senior management performed a reassessment of our major
legal cases, claims and other disputes, including disputes involving amounts due us, and decided to
accelerate the closure of a number of these matters, particularly older legal cases, claims and
disputes from the years 2001 through 2005, which generally do not involve current customers. In
part, this decision was driven by a desire to reduce the high levels of legal expense and related
costs that we have incurred in recent years, and to reduce the amount of managements time devoted
to litigation matters and other claims and disputes. While we will attempt to accelerate the
closure of these matters, we will only do so if we believe such resolution is in the best interests
of MasTec and its shareholders.
Legacy Litigation
MasTec is subject to significant outstanding litigation, primarily dating from the period 2001
through 2005.
In 2005, former employees filed a Fair Labor Standards Act (FLSA) collective action against
MasTec in the Federal District Court in Tampa, Florida, alleging failure to pay overtime wages as
required under the FLSA. While MasTec denies the allegations underlying the lawsuit, in October
2007 we agreed to a settlement to avoid significant legal fees, the uncertainty of a jury trial,
other expenses and management time that would have to be devoted to protracted litigation. The
settlement covers MasTecs current and former install-to-the home employees who were employed by
MasTec from October 2001 through September 2007 in California, Florida, Georgia, Maryland, New
Jersey, New Mexico, North Carolina, South Carolina, Texas and Virginia. The gross amount of the
settlement is up to $12.6 million, and is subject to court approval. This amount represents the
maximum payout, assuming 100% opt-in by all potential members of the purported class.
We contracted to construct a natural gas pipeline for Coos County, Oregon in 2003.
Construction work on the pipeline ceased in December 2003 after Coos County refused payment due us
on regular contract invoices of $6.3 million and refused to process change orders submitted after
November 2003 for additional work. In February 2004, we declared a breach of contract and brought
an action for breach of contract against Coos County in Federal District Court in Oregon, seeking
payment for work done and interest. In April 2004, Coos County announced it was terminating the
contract and seeking another company to complete the project. Coos County subsequently
counterclaimed against us in the Federal District Court action seeking damages in excess of $15
million for breach of contract for alleged failures to properly construct the pipeline and for
alleged environmental and labor law violations, and other causes. The amount of revenue recognized
on the Coos County project that remained uncollected in accounts
receivable on the December 31,
2007 balance sheet amounted to $6.3 million representing amounts due to us on normal progress
payment invoices submitted under the contract. In February 2008, we entered into a tentative
agreement to settle our dispute with Coos County, which provides for a $4.35 million payment to
Coos County in June 1, 2008 and a $4.35 million payment to Coos County on June 1, 2009 with 3%
interest accruing beginning June 1, 2008. The tentative agreement is subject to the negotiation
and approval of a definitive
settlement agreement and MasTec not being penalized greater than $1.5 million in the Corps of
Engineers case described below. We cannot assure you that these conditions will be met.
19
In connection with the Coos County pipeline project, the United States Army Corps of
Engineers, or Corps of Engineers, and the Oregon Department of Environmental Quality issued cease
and desist orders and notices of non-compliance to Coos County and to us with respect to the
project. While we do not agree that the notices were appropriate or justified, we have cooperated
with the Corps of Engineers and the Oregon Division of State Land, Department of Environmental
Quality to mitigate any adverse impact as a result of construction. On March 30, 2006, the Corps of
Engineers brought a complaint in a federal district court against us and Coos County and are
seeking damages in excess of $16 million. The matter went to trial in February 2008 and we are
awaiting a verdict.
In June 2005, we posted a $2.3 million bond in order to pursue the appeal of a $2.0 million
final judgment entered against us for damages plus attorneys fees resulting from a break in a
Citgo pipeline that occurred in 1999. We are seeking a new trial and a reduction in the amount of
damages awarded. We will continue to contest this matter in the appellate court, and on subsequent
retrial, if any.
During 2003 and 2004, we provided services to MSE Power Systems on five separate projects in
Pennsylvania, New York and Georgia, with invoices in excess of $8 million in dispute. In 2004, we
filed suit against MSE seeking payment. To date, we have recovered $1.3 million from MSE in
settlement on three of these projects and are seeking additional amounts owed us. An arbitration
was held in August 2007 and in January 2008 we were awarded a $2.65 million judgment in connection
therewith.
In November 2004, MasTec entered into, and bonded, a conditional $2.6 million settlement of
litigation brought for subcontract work done in 2001 by Hugh OKane Electric for MasTec on a
telecommunication project for Telergy in New York. Telergy is in bankruptcy and did not pay MasTec
for this work. The settlement was conditioned upon the resolution of all of the Court proceedings
including appeals. MasTec filed an appeal seeking to enforce contractual terms which relieved
MasTec of its obligation to pay Hugh OKane when MasTec was not paid by Telergy. New Yorks
appellate level court upheld the enforceability of the terms of MasTecs contract, but remanded the
case to the trial court to determine whether there were factual issues that prevented MasTec from
using the contractual provision as a defense. The trial court found that factual issues prevented
MasTec from using the contractual provision as a defense and MasTec appealed. The appellate court
upheld the trial courts ruling and MasTec requested a rehearing, which was denied.
Similar litigation was filed against MasTec by other subcontractors performing work in 2001 on
the Telergy project. In a related matter, MasTec filed suit against Con Edison in May 2002,
alleging that Con Edison directly interfered with MasTecs work for Telergy, and that this
interference resulted in the bankruptcy of Telergy and resulted in Con Edison obtaining MasTecs
work on the Telergy project without paying for it. MasTec seeks in excess of $40 million from Con
Edison.
In April 2006, we settled, without payment to the plaintiffs by us, several complaints for
purported securities class actions that were filed against us and certain officers in the second
quarter of 2004. As part of the settlement, our excess insurance carrier has retained the rights to
seek reimbursement of up to $2.0 million from us based on its claim that notice was not properly
given under the policy. We are also seeking reimbursement of expenses incurred by us which we
believe are reimbursable by our excess insurance carrier. We believe the claims of the excess
insurance carrier are without merit and plan to continue vigorously pursuing this action. Although
a district court ruled in March 2007 that there is no coverage provided under the excess policy, we
disagree and have appealed. We are also pursuing claims against the insurance broker for any losses
arising from the same issue involving notice.
In February 2008, we were notified in writing by the SEC staff that its formal investigation
related to the restatement of our financial statements in 2001 through 2003 has been completed and
that it does not intend to recommend an enforcement action.
We provided telecommunication infrastructure services to Adesta Communications, Inc. in 2000
and 2001. Adesta filed for bankruptcy in 2001. At December 31, 2007 we were seeking to recover
amounts in excess of $4 million from the Adesta bankruptcy trustee from the proceeds of the sale of
Adestas assets. Based on our understanding of the current status of the bankruptcy trustees sales
negotiations with respect to these assets, we have reflected $1.3 million in other current assets
on our consolidated balance sheet at December 31, 2007 related to Adesta.
The labor union representing the workers of Sistemas e Instalaciones de Telecomunicación S.A.
(Sintel), a former MasTec subsidiary, initiated an investigative action with a Spanish federal
court that commenced in July 2001 alleging that six former members of the Board of Directors of
Sintel, including Jorge Mas, our chairman, and his brother Juan Carlos Mas, approved a series of
allegedly unlawful transactions that led to the bankruptcy of Sintel. We were also named as a
potentially liable party. The Court conducted extensive discovery, including the declarations of
certain present and former executives of MasTec, Inc. In December
20
2007, the Court decided to close the investigation and issued an order allowing the trial
phase against the former officers of MasTec, Inc. to proceed. The order does not name MasTec, Inc.
as a potentially liable party. The union has alleged Sintel and its creditors were damaged in the
approximate amount of 269 million euros ($396 million at December 31, 2007). The order is subject
to appeal by several of the parties. To date, no actions have been taken by the Court against us or
any of the named individuals. Our directors and officers insurance carrier has reimbursed us all
of our legal fees to date and agreed to fund legal expenses for the remainder of the litigation
under a reservation of rights. The amount of loss, if any, relating to this matter cannot presently
be determined.
In October 2003, a MasTec subsidiary filed a lawsuit in a New York state court against Inepar
Industria e Construcoes or Inepar, its Brazilian joint venture partner. MasTec sued Inepar for
breach of contract arising out of Inepars failure to indemnify MasTec for claims resulting from
numerous misrepresentations made by Inepar. Inepar subsequently failed to answer MasTecs complaint
and MasTec sought a default judgment. In September 2006, the state court entered a judgment in
favor of MasTec and against Inepar in the amount of $58.4 million. MasTec has commenced collections
efforts. Due to the uncertainty of the ongoing collection process, we have accounted for the
amounts related to this judgment in our favor as a gain contingency and have not reflected these
amounts in our financial statements.
In December 2004, we brought an action against NextiraOne Federal in the Federal Court in
Eastern District of Virginia, to recover payment for services rendered in connection with a Federal
Department of Defense project on a network wiring contract. Our network services are now a
discontinued operation. NextiraOne counterclaimed for offsets and remediation. On May 5, 2006, the
court ruled that we failed to establish an entitlement to recover damages for contract work done,
and that NextiraOne Federal failed to establish an entitlement to recover costs of alleged offsets
and costs of remediation. We appealed, but the appellate court affirmed the lower courts ruling.
Other Litigation, Claims and Disputes.
In addition to the matters discussed above, we are also subject to a variety of legal cases,
claims and other disputes that arise from time to time in the ordinary course of our business.
Financial Statement Impact.
Primarily as a result of the change in strategy noted above, we entered into settlement
negotiations on several of these legal cases, claims and other disputes, including disputes
involving amounts due us, reached settlement on the FLSA matter discussed above and on other
disputes, and authorized settlement on a number of other matters, including certain accounts
receivable for which we had been pursuing collection via negotiation or via the legal process. As a
result of these negotiations and actual or anticipated settlements
(including FLSA and Coos County), and other developments, we
recorded charges totaling $39.1 million for the actual or anticipated settlement of litigation,
claims and other disputes in the nine months ended September 30, 2007 and $0.2 million in the
three months ended December 31, 2007. Accrued aggregate liabilities related to the matters
discussed above amounted to approximately $24.9 million at December 31, 2007 which is included in
other current liabilities. Our allowance for doubtful accounts and other asset valuation accounts
related to the matters discussed above amounted to $9.7 million and $4.4 million, respectively, at
December 31, 2007.
Although we believe that we have gone through a thorough review of these legacy and other
matters and have developed what we believe are reasonable estimates for settling the legacy legal
cases, claims and other disputes, these matters are subject to inherent uncertainties and
managements view of these matters may change in the future as facts and circumstances change. We
have incurred substantial costs in connection with these claims and will continue to do so until
there is a resolution of these matters. We cannot assure you that a favorable outcome will be
reached in any of these cases. If we are not able to settle these cases at the amounts estimated,
or if we are subject to an unfavorable trial outcome or other final resolution on these matters,
there exists the possibility of a material adverse impact on the Companys financial position and
on the results of operations for the period in which the effect becomes reasonably estimable. See
Item 1A Risk Factors Risks Related to Our Business Claims, lawsuits and proceedings could
reduce profitability and liquidity and weaken our financial conditions.
Item 4. Submission of Matters to a Vote of Security Holders
None.
21
PART II
Item 5. Market for the Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information.
Our common stock 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 our common
stock, as reported by the New York Stock Exchange.
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Year Ended December 31, |
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2007 |
|
|
2006 |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
First Quarter |
|
$ |
12.40 |
|
|
$ |
10.60 |
|
|
$ |
14.32 |
|
|
$ |
10.20 |
|
Second Quarter |
|
$ |
16.25 |
|
|
$ |
10.84 |
|
|
$ |
14.75 |
|
|
$ |
11.54 |
|
Third Quarter |
|
$ |
16.10 |
|
|
$ |
12.02 |
|
|
$ |
13.75 |
|
|
$ |
9.88 |
|
Fourth Quarter |
|
$ |
16.00 |
|
|
$ |
8.68 |
|
|
$ |
12.52 |
|
|
$ |
9.88 |
|
Holders. As of February 25, 2008, there were 2,042 shareholders of record of our common
stock.
Performance Graph
The performance graph below compares the cumulative total returns for our common stock with
the cumulative total return (including reinvestment of dividends) of the Standard and Poors 500
Composite Stock Index (S&P 500) and two Peer Groups. The old Peer Group is comprised of the
following companies: Dycom Industries, Inc, Quanta Services, Inc., Black Box, Inc., LCC
International, Inc. and Wireless Facilities, Inc. The new Peer Group is comprised of Dycom
Industries, Inc., Quanta Services, Inc. and Pike Electric, Inc. The new Peer Group was selected
since we believe it more closely reflects our core business and position in the industry.
The graph assumes an investment of $100 in our common stock and each of the respective
indices, for the period from December 31, 2002 to December 31, 2007. The comparisons in the graph
are required by the SEC and are not intended to forecast or be indicative of possible future
performance of our common stock.
The performance graph shall not be deemed incorporated by reference by any general statement
incorporating by reference this annual report into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934 except to the extent we specifically incorporate this
information by reference, and shall not otherwise be deemed filed under such acts.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among MasTec, Inc., The S&P 500 Index
A New Peer Group And An Old Peer Group
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* |
|
$100 invested on 12/31/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31, 2007. |
22
Dividends. We have never paid any cash dividends and do not anticipate paying any cash
dividends in the foreseeable future. Instead we intend to retain any future earnings for
reinvestment. Our Board of Directors will make any future determination as to the payment of
dividends at its discretion, and its determination will depend upon our operating results,
financial condition and capital requirements, general business conditions and such other factors
that the board of directors considers relevant. In addition, our credit agreements prohibit us from
paying cash dividends or making other distributions on our common stock without the prior consent
of the lender and the indenture governing our senior notes contains covenants that restrict our
ability to make certain payments including the payment of dividends. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations Financial Condition,
Liquidity and Capital Resources.
Unregistered Sales of Equity Securities and Proceeds. On December 20, 2007, we acquired
certain assets of Power Partners 1979, LLC, for a purchase price of $5.5 million in cash and
assumed liabilities of $1.1 million and agreed to pay the seller and earnout based on performance
through the fifth anniversary of the closing date. We may, at our option, issue up to 660,000
shares of our common stock to the seller of this business in connection with the earnout for this
acquisition. We have offered to potentially issue these shares to the sellers in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
Purchases of MasTec Stock. We did not repurchase any shares of our common stock during the
year ended December 31, 2007.
Item 6. Selected Financial Data
The following table states our selected consolidated financial data, which has been derived
from our audited consolidated financial statements. The table reflects our consolidated results of
operations for the periods indicated. All periods presented reflect our Canadian operations as
Discontinued Operations. The following selected financial data should be read together with our
consolidated financial statements and notes thereto as well as Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations.
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Year Ended December 31, |
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|
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2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands, except per share amounts) |
|
Statement of Operations Data |
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|
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|
|
|
|
Revenue |
|
$ |
1,037,779 |
|
|
$ |
940,421 |
|
|
$ |
838,663 |
|
|
$ |
795,510 |
|
|
$ |
688,223 |
|
Costs of revenue, excluding depreciation |
|
$ |
891,606 |
|
|
$ |
808,142 |
|
|
$ |
722,427 |
|
|
$ |
703,817 |
|
|
$ |
606,089 |
|
Income (loss) from continuing operations |
|
$ |
6,283 |
|
|
$ |
40,050 |
|
|
$ |
21,331 |
|
|
$ |
(11,504 |
) |
|
$ |
(20,418 |
) |
Loss from discontinued operations, net of tax |
|
$ |
(13,611 |
) |
|
$ |
(90,398 |
) |
|
$ |
(35,947 |
) |
|
$ |
(37,933 |
) |
|
$ |
(31,881 |
) |
Net loss |
|
$ |
(7,328 |
)(1) |
|
$ |
(50,348 |
)(1) |
|
$ |
(14,616 |
)(1) |
|
$ |
(49,437 |
) |
|
$ |
(52,299 |
) |
Basic net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
$ |
0.10 |
|
|
$ |
0.63 |
|
|
$ |
0.44 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.43 |
) |
Discontinued Operations |
|
$ |
(0.21 |
) |
|
$ |
(1.42 |
) |
|
$ |
(0.73 |
) |
|
$ |
(0.78 |
) |
|
$ |
(0.66 |
) |
Total basic net (loss) income per share |
|
$ |
(0.11 |
) |
|
$ |
(0.79 |
) |
|
$ |
(0.30 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.09 |
) |
Diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
$ |
0.09 |
|
|
$ |
0.62 |
|
|
$ |
0.43 |
|
|
$ |
(0.24 |
) |
|
$ |
(0.42 |
) |
Discontinued Operations |
|
$ |
(0.20 |
) |
|
$ |
(1.39 |
) |
|
$ |
(0.72 |
) |
|
$ |
(0.78 |
) |
|
$ |
(0.66 |
) |
Total diluted net loss per share |
|
$ |
(0.11 |
) |
|
$ |
(0.77 |
) |
|
$ |
(0.29 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.08 |
) |
Basic net loss per share before cumulative
effect of change in accounting principle |
|
$ |
(0.11 |
) |
|
$ |
(0.79 |
) |
|
$ |
(0.30 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.09 |
) |
Diluted net loss per share before cumulative
effect of change in accounting principle |
|
$ |
(0.11 |
) |
|
$ |
(0.77 |
) |
|
$ |
(0.29 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In thousands) |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
159,462 |
|
|
$ |
164,042 |
|
|
$ |
135,742 |
|
|
$ |
134,810 |
|
|
$ |
104,359 |
|
Property and equipment, net(2) |
|
$ |
81,939 |
|
|
$ |
61,212 |
|
|
$ |
47,513 |
|
|
$ |
62,966 |
|
|
$ |
83,148 |
|
Total assets(2) |
|
$ |
710,749 |
|
|
$ |
646,113 |
|
|
$ |
584,837 |
|
|
$ |
600,870 |
|
|
$ |
612,470 |
|
Total debt(2) |
|
$ |
162,973 |
|
|
$ |
130,176 |
|
|
$ |
200,370 |
|
|
$ |
196,110 |
|
|
$ |
198,265 |
|
Total shareholders equity |
|
$ |
314,565 |
|
|
$ |
304,711 |
|
|
$ |
179,603 |
|
|
$ |
191,153 |
|
|
$ |
210,991 |
|
|
|
|
(1) |
|
See Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Comparison of Years Revenue, Costs of Revenue and General and Administrative
Expenses for discussion of factors impacting our net loss. |
|
(2) |
|
As of December 31, 2003, these amounts include the assets and liabilities of discontinued
operations of the state Department of Transportation projects, as we were unable to segregate
such assets during those years. As of December 31, 2006, 2005 and 2004 the assets and
liabilities of the state Department of Transportation projects have been reclassified to
long-term assets held for sale and long-term liabilities related to assets held for sale and
are not included. |
23
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our historical consolidated financial statements and related
notes thereto in Item 8. Financial Statements and Supplementary Data. The discussion below
contains forward-looking statements that are based upon our current expectations and are subject to
uncertainty and changes in circumstances. Actual results may differ materially from these
expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including
those identified in Cautionary Statement Regarding Forward-Looking Statements and Item 1A. Risk
Factors.
Overview
We are a leading specialty contractor operating mainly throughout the United States and across
a range of industries. Our core activities are the building, installation, maintenance and upgrade
of communications and utility infrastructure. Our primary customers are in the following
industries: communications (including satellite television and cable television), utilities and
governments. We provide similar infrastructure services across the industries we serve. Our
customers rely on us to build and maintain infrastructure and networks that are critical to their
transport and delivery of voice, video and data communications, electricity and other energy
resources.
We, or our predecessor companies, have been in business for over 70 years. We offer all of our
services under the MasTec® service mark and operate through a network of approximately 200
locations and 8,240 employees as of December 31, 2007. Providing services to the communication
industries, utility industries and government sectors, we have consistently ranked among the top
specialty contractors by Engineering News-Record.
On January 31, 2007, we issued $150.0 million of 7.625% senior notes due February 2017. On
March 2, 2007, we used $121.8 million of the proceeds from the senior note offering to redeem all
of our remaining 7.75% senior subordinated notes plus interest.
We also amended our credit facility effective June 30, 2007, which extended the expiration
date of the credit facility from May 10, 2010 to May 10, 2012. The amendment also added an
accordion feature which allows us to request an increase in the maximum amount borrowed under the
credit facility from $150 million to $200 million, if certain criteria under the credit facility is
met, reduced the interest rate margin applied to borrowings and increased the maximum available
amount we can borrow at any given time, among other things.
In February 2007, we acquired the remaining 51% equity interest in an investment in which we
previously owned a 49% interest. During 2007 we also acquired an entity specializing in the
construction and maintenance of transmission and distribution utility systems, substation and storm
restoration in several northern states and acquired certain assets and assumed certain liabilities
of an electrical utility contractor specializing in wind farm construction. Finally, in 2007 and
2008 we acquired the remaining minority ownership interest in GlobeTec Construction, LLC
(GlobeTec).
Effective February 1, 2007, we sold our state Department of Transportation related projects
and assets. We agreed to keep certain assets and liabilities. On January 24, 2008, we entered into
a settlement agreement with the buyer of our state Department of Transportation projects and assets
to settle previously disclosed warranty, indemnification and other claims primarily relating to
work we had performed on projects we sold.
In the third quarter of 2007, we performed a reassessment of our major legal cases, claims and
other disputes, including disputes involving amounts due us, and decided to accelerate the closure
of a number of these matters, particularly older legal cases, claims and disputes from the years
2001to 2005, which generally do not involve current customers. In part, this decision was driven by
a desire to reduce the high levels of legal expense and related costs that we have incurred in
recent years, and to reduce the amount of managements time devoted to litigation matters and other
claims and disputes. While we will attempt to accelerate the closure of
these matters, we will only do so if we believe such resolution is in the best interests of
MasTec and its shareholders. As a result of the change in strategy and actual or anticipated
settlements, and other developments, we recorded charges totaling $39.1 million for the actual or
anticipated settlement of litigation, claims and other disputes in the three months ended September
30, 2007 and $0.2 million in the three months ended December 31, 2007.
24
Revenue
We provide services to our customers which are companies in the communications and utilities
industries as well as government customers.
Revenue for customers in these industries is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Communications |
|
$ |
769,611 |
|
|
$ |
684,217 |
|
|
$ |
610,787 |
|
Utilities |
|
|
217,385 |
|
|
|
217,947 |
|
|
|
183,889 |
|
Government |
|
|
50,783 |
|
|
|
38,257 |
|
|
|
43,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,037,779 |
|
|
$ |
940,421 |
|
|
$ |
838,663 |
|
|
|
|
|
|
|
|
|
|
|
A significant portion of our revenue is derived from projects performed under service
agreements. We also provide services under master service agreements which are generally multi-year
agreements. Certain of our master service agreements are exclusive up to a specified dollar amount
per work order for each defined geographic area. Work performed under master service and other
agreements is typically generated by work orders, each of which is performed for a fixed fee. The
majority of these services typically are of a maintenance nature and to a lesser extent upgrade
services. These master service agreements and other service agreements are frequently awarded on a
competitive bid basis, although customers are sometimes willing to negotiate contract extensions
beyond their original terms without re-bidding. Our master service agreements and other service
agreements have various terms, depending upon the nature of the services provided and are typically
subject to termination on short notice.
The remainder of our work is generated pursuant to contracts for specific
installation/construction projects or jobs that may require the construction and installation of
specified units within an infrastructure system or an entire infrastructure system. Customers are
billed with varying frequency: weekly, monthly or upon attaining specific milestones. Such
contracts generally include retainage provisions under which 2% to 15% of the contract price is
withheld from us until the work has been completed and accepted by the customer.
Revenue by type of contract is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Master service and other service agreements |
|
$ |
750,462 |
|
|
$ |
698,867 |
|
|
$ |
576,311 |
|
Installation/construction projects agreements |
|
|
287,317 |
|
|
|
241,554 |
|
|
|
262,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,037,779 |
|
|
$ |
940,421 |
|
|
$ |
838,663 |
|
|
|
|
|
|
|
|
|
|
|
Costs of Revenue
Our costs of revenue include the costs of providing services or completing the projects under
our contracts including operations payroll and benefits, fuel, subcontractor costs, equipment
rental, materials not provided by our customers, and insurance. Profitability will be reduced if
the actual costs to complete each unit exceed original estimates on fixed price service agreements.
We also immediately recognize the full amount of any estimated loss on fixed fee projects if
estimated costs to complete the remaining units for the project exceed the revenue to be received
from such units.
Our customers generally supply materials such as cable, conduit and telephone equipment.
Customer furnished materials are not included in revenue and cost of sales due to all materials
being purchased by the customer. The customer determines the specifications of the materials that
are to be utilized to perform installation/construction services. We are only responsible for the
performance of the
installation/construction services and not the materials for any contract that includes
customer furnished materials nor do we have any risk associated with customer furnished materials.
Our customers retain the financial and performance risk of all customer furnished materials.
25
General and Administrative Expenses
General and administrative expenses include all costs of our management and administrative
personnel, provisions for bad debts, rent, utilities, travel, business development efforts and back
office administration such as financial services, insurance, administration, professional costs and
clerical and administrative overhead.
Discontinued Operations
Effective February 2007, we sold the state Department of Transportation related projects and
net assets. As a result of this sale, we recorded impairment charges totaling $2.9 million and
$44.5 million during the years ended December 31, 2007 and 2006, respectively. On January 24,
2008, we entered into a settlement with the buyer of our state Department of Transportation related
projects and assets, to settle previously disclosed warranty, indemnification and other claims
primarily relating to work we had performed on the projects which were sold. As a result of the
settlement, we have recorded a charge of $6.0 million which is reflected in our loss from
discontinued operations for the year ended December 31, 2007.
In April 2007, we sold substantially all of our Canadian operations for approximately $1.0
million. In addition, we reviewed the carrying value of the net assets related to our Canadian
operations. During the year ended December 31, 2007, we wrote-off $0.4 million in goodwill in
connection with our decision to sell substantially all of our Canadian net assets. In addition, we
recorded a non-cash impairment charge of approximately $0.6 million. See Note 11 Discontinued
Operations in Notes to Consolidated Financial Statements. The financial information for all
periods presented in this annual report on Form 10-K reflects the
above operations as discontinued
operations.
Financial Metrics
Members of our senior management team regularly review key performance metrics and the status
of operating initiatives within our business. These key performance indicators include:
|
|
|
revenue and profitability on an individual project basis; |
|
|
|
|
monthly, quarterly and annual changes in revenue on an individual project basis; |
|
|
|
|
costs of revenue, and general and administrative expenses as percentages of revenue; |
|
|
|
|
number of vehicles and equipment per employee; |
|
|
|
|
days sales outstanding; |
|
|
|
|
interest and debt service coverage ratios; |
|
|
|
|
safety results and productivity; and |
|
|
|
|
customer service metrics on an individual project basis. |
We analyze this information periodically through operating reviews which include detailed
discussions, proposed investments in new business opportunities or property and equipment and
integration and cost reduction efforts. Measuring these key performance indicators is an important
tool that our management uses to make operational decisions. These tools enable our management to
make more informed, better and quicker decisions about the allocation of costs and resources which,
we believe, can help us improve our performance.
Critical Accounting Policies and Estimates
This 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, reserves and accruals, impairment of assets,
income taxes, insurance reserves and litigation and contingencies. We base our estimates on
historical
26
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 if conditions change or if certain key assumptions used in making these
estimates ultimately prove to be materially incorrect.
We believe the following critical accounting policies involve our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Revenue and related costs for master and other service agreements billed on a time and
materials basis are recognized as the services are rendered. There are also master service
agreements that are billed on a fixed fee basis. Under our fixed fee master service and similar
type service agreements, we furnish various specified units of service for a separate fixed price
per unit of service. For service agreements on a fixed fee basis, profitability will be reduced if
the actual costs to complete each unit exceed original estimates.
In addition to master and other service agreements we enter into contracts that require the
installation or construction of specified units within an infrastructure system. Under these
contracts, revenue is recognized at the contractually agreed upon price as the units are completed
and delivered. Our profitability will be reduced if the actual costs to complete each unit exceed
our original estimates. We are also required to immediately recognize the full amount of any
estimated loss on these projects if estimated costs to complete the remaining units for the project
exceed the revenue to be earned on such units.
We also enter into fixed price, long-term installation/construction contracts that primarily
require the construction and installation of an entire infrastructure system. We recognize revenue
and related costs as work progresses on fixed price long-term contracts using the
percentage-of-completion method, which relies on contract revenue and estimates of total expected
costs. We estimate total project costs and profit to be earned on each fixed-price, long-term
contract. We follow this method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Under the percentage-of-completion method,
we record revenue and recognize profit or loss as work on the contract progresses. The cumulative
amount of revenue recorded on a contract at a specified point in time is that percentage of total
estimated revenue that incurred costs to date bear to estimated total contract costs. We recognize
the full amount of any estimated loss on a contract at the time our estimates indicate such a loss.
Our customers generally supply materials such as cable, conduit and telephone equipment.
Customer furnished materials are not included in revenue and cost of sales as all materials are
purchased by the customer. The customer determines the specification of the materials that are to
be utilized to perform installation/construction services. We are only responsible for the
performance of the installation/construction services and not the materials for any contract that
includes customer furnished materials and we do not have any risk associated with customer
furnished materials. Our customers retain the financial and performance risk of all customer
furnished materials.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. Management analyzes past due balances based on invoice
date, historical bad debt experience, customer concentrations, customer credit-worthiness, customer
financial condition and credit reports, the availability of mechanics and other liens, the
existence of payment bonds and other sources of payment, and current economic trends when
evaluating the adequacy of the allowance for doubtful accounts. We review the adequacy of reserves
for doubtful accounts on a quarterly basis. If our estimates of the collectability of accounts
receivable change, adjustments to the allowance for doubtful accounts may be required, which could
reduce our profitability.
Our estimates for our allowance for doubtful accounts are subject to significant change during
times of economic weakness or uncertainty in either the overall U.S. economy or the industries we
serve, and our loss experience has increased during such times.
We recorded total provisions against earnings for doubtful accounts of $17.6 million, $10.0
million and $4.9 million, for the years ended December 31, 2007, 2006 and 2005, respectively, of
which $14.1 million, $7.9 million and $3.7 million, respectively, resulted from anticipated legal
settlement and discontinued operations in our consolidated statements of operations for those
periods.
27
Inventories
Inventories
consist of materials and supplies for construction and install to the
home projects, and are typically
purchased on a project-by-project basis. Inventories are valued at the lower of cost (using the
specific identification method) or market. Construction projects are completed pursuant to customer
specifications. The loss of the customer or the cancellation of the project could result in an
impairment of the value of materials purchased for that customer or project. Technological or
market changes can also render certain materials obsolete. Allowances for inventory obsolescence
are determined based upon the specific facts and circumstances for each project and market
conditions. During the year ended December 31, 2007, we recorded no inventory obsolescence
provisions. During the years ended 2006 and 2005, we recorded inventory obsolescence provisions of
$0.6 million and $1.0 million, respectively, of which $0.6 million and $0.3 million, respectively,
are included in loss from discontinued operations in the consolidated statements of operations.
Depreciation and Amortization
We depreciate our property and equipment over estimated useful lives using the straight-line
method. We periodically review changes in technology and industry conditions, asset retirement
activity and salvage values to determine adjustments to estimated remaining useful lives and
depreciation rates.
Securities Available-for-Sale
We account for securities available-for-sale in accordance with the provisions of SFAS No.
115, Accounting For Certain Debt and Equity Securities. Securities available-for-sale are
recorded at fair value, and temporary unrealized holding gains and
losses are recorded, as a separate component of accumulated other comprehensive income (loss). Unrealized losses are
charged against net earnings when a decline in fair value is determined to be other-than-temporary.
In accordance with FSP FAS 115-1 and 124-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, we review several factors to determine
whether a loss is other-than-temporary. These factors include but are not limited to: i) the length
of time a security is in an unrealized loss position, ii) the extent to which fair value is less
than cost, iii) the financial condition and near term prospects of the issuer and, iv) our intent
and ability to hold the security for a period of time sufficient to allow for any anticipated
recovery in fair value.
Auction-rate securities represent interests in collateralized debt obligations, student
loans, taxable municipal bonds and similar securities. Liquidity for these auction-rate securities
is typically provided by an auction process that resets the applicable interest rate at
pre-determined intervals, usually every 7, 28, or 35 days. Due to the short interest rate reset
period and expected liquidity, we have recorded auction-rate
securities as current securities available for sale. As of December 31, 2007, we held approximately $16.2 million of high credit quality
auction-rate securities which had experienced a failed reset process and were deemed to have
experienced a temporary decline in fair value, and held another approximately $33.0 million of
these securities. We have recorded approximately $4.8 million of unrealized losses related to the
auction securities as of December 31, 2007. Subsequent to year end, of the approximately $33.0
million of these securities, $8.5 million were sold at par, approximately $7.9 million had
insufficient bidders and failed the reset process, and we believe the remaining approximately $16.6
million may also be temporarily at risk of having this occur.
Valuation of Long-Lived Assets
We review long-lived assets, consisting primarily of property and equipment and intangible
assets with finite lives, for impairment in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). In analyzing potential impairment, we use projections of future discounted cash flows from
the assets. These projections are based on our view of growth rates for the related business,
anticipated future economic conditions and the appropriate discount rates relative to risk and
estimates of residual values. We believe that our estimates are consistent with assumptions that
marketplace participants would use in their estimates of fair value. In addition, due to the
decision to dispose of our state Department of Transportation projects and assets, we evaluated
long-lived assets for these operations under SFAS No. 144 based on projections of future discounted
cash flows from these assets in 2006 and an estimated selling price for the assets held for sale.
Valuation of Goodwill and Intangible Assets
In accordance with SFAS No. 142, we conduct, on at least an annual basis, a review of our
reporting units to determine whether the carrying values of goodwill exceed the fair market value
using a discounted cash flow methodology for each unit. Should this be the case, the value of our
goodwill may be impaired and written down.
28
In connection with the commitment to sell sale of substantially all of our state Department of
Transportation related projects and assets, we wrote off goodwill associated with this entity in
the amount of $11.5 million during the year ended December 31, 2005. In connection with our
decision to sell substantially all of our Canadian operations, we wrote off goodwill associated
with this entity in amount of $0.4 million for the year ended December 31, 2007.
We could record additional impairment losses if, in the future, profitability and cash flows
of our reporting entities decline to the point where the carrying value of those units exceed their
market value. See Item 1A. Risk Factors We may incur goodwill impairment charges in our
reporting entities which could harm our profitability.
Insurance Reserves
We presently maintain insurance policies subject to per claim deductibles of $1 million for
our workers compensation policy, $2 million for our general liability policy and $3 million for
our automobile liability policy. We have excess umbrella coverages up to $100 million per claim and
in the aggregate. We also maintain an insurance policy with respect to employee group health claims
subject to per claim deductibles of $300,000 after satisfying an annual deductible of $100,000. We
actuarially determine any liabilities for unpaid claims and associated expenses, including incurred
but not reported losses, and reflect those liabilities in our balance sheet as other current and
non-current liabilities. The determination of such claims and expenses and the appropriateness of
the related liability is reviewed and updated quarterly. However, insurance liabilities are
difficult to assess and estimate due to the many relevant factors, the effects of which are often
unknown, including the severity of an injury, the determination of our liability in proportion to
other parties, the number of incidents not reported and the effectiveness of our safety program. We
are working with our insurance carriers to resolve claims more quickly in an effort to reduce our
exposure. We are also attempting to accelerate the claims process where possible so that amounts
incurred can be reported rather than estimated. In addition, known amounts for claims that are in
the process of being settled, but have been paid in periods subsequent to those being reported, are
booked in the reporting period. Our accruals are based upon known facts, historical trends and our
reasonable estimate of future expenses and we believe such accruals to be adequate.
We are periodically required to post letters of credit and provide cash collateral to our
insurance carriers. As of December 31, 2007 and 2006, such letters of credit amounted to $64.8
million and $66.2 million, respectively, and cash collateral posted amounted to $3.3 million and
$6.6 million, respectively, which is included in other assets.
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. We estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our 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. The recording of a net deferred tax asset assumes
the realization of such asset in the future. Otherwise a valuation allowance must be recorded to
reduce this asset to its net realizable value. We consider future pretax income and ongoing prudent
and feasible tax planning strategies in assessing the need for such a valuation allowance. In the
event that we determine that we may not be able to realize all or part of the net deferred tax
asset in the future, a valuation allowance for the deferred tax asset is charged against income in
the period such determination is made.
As a result of our operating losses, we have recorded valuation allowances aggregating $47.9
million and $49.2 million as of December 31, 2007 and 2006, respectively, to reduce certain of our
net deferred federal, foreign and state tax assets to their estimated net realizable value. We
anticipate that we will generate sufficient pretax income in the future to realize our remaining
deferred tax assets. In the event that our future pretax operating income is insufficient for us to
use our deferred tax assets, we have based our determination that the deferred tax assets are still
realizable based on feasible tax planning strategies that are available to us. At December 31,
2007, we have approximately $176 million of net operating loss carryforwards for U.S. federal
income tax purposes that expire beginning in 2022. We also have net operating loss carryforwards
for U.S. state and local purposes that expire from 2007 to 2026. We have unrealized excess tax
benefit of approximately $1.7 million, that when realized, will increase capital surplus.
Litigation and Contingencies
Litigation and contingencies are reflected in our consolidated financial statements based on
our assessments, along with legal counsel, of the expected outcome of such litigation or expected
resolution of such contingency. An accrual is made when the loss of
such contingency is probable and estimable. If the final outcome of such litigation and
contingencies differs significantly from our current expectations, such outcome could result in a
charge to earnings. See Part I. Item 3. Legal Proceedings for discussions of current litigation.
29
2008 Outlook
We believe we have significant market opportunities in 2008 in five areas:
Fiber Deployment we believe this market will continue to grow in 2008 and that the Regional
Bell Operating Companies, or RBOCs and other communications companies, will continue to enhance
their infrastructures by deploying more fiber optic cable which could increase the demand for our
services.
Satellite Install to the Home we believe the increased number of DIRECTV®
subscribers and expansion of high definition video programming provides us with the opportunity to
provide maintenance services for the existing customers and opportunities to provide similar, or
unrelated, installation services for new customers.
Federal Market for Telecommunications Upgrades the Federal government is currently
upgrading, or has planned to upgrade, many of its telecommunications networks and systems for
military bases, ports, borders and security systems. We are making a concerted effort to market to
major government contracting firms.
Local Maintenance Work for Electrical Grid Upgrades we believe market and other conditions
are making it increasingly attractive for utilities to outsource their maintenance activities and
we are marketing our services for additional transmission, distribution and substation work.
Alternative Energy Projects we believe this market will continue to grow in 2008 and we
recently made an acquisition to expand our capabilities in this area. Our primary focus in this
area is the construction of wind farm infrastructure.
Our 2008 results could be adversely affected by the matters discussed in the Cautionary
Statement Regarding Forward-looking Statements, Item 1A. Risk Factors and Item 3. Legal
Proceedings of this Annual Report on Form 10-K.
Comparisons of Fiscal Year Results
The components of our consolidated statements of operations, expressed as a percentage of
revenue, are set forth in the following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
1,037,779 |
|
|
|
100.0 |
% |
|
$ |
940,421 |
|
|
|
100.0 |
% |
|
$ |
838,663 |
|
|
|
100.0 |
% |
Costs of revenue, excluding depreciation |
|
|
891,606 |
|
|
|
85.9 |
|
|
|
808,142 |
|
|
|
85.9 |
|
|
|
722,427 |
|
|
|
86.1 |
|
Depreciation |
|
|
16,988 |
|
|
|
1.6 |
|
|
|
14,490 |
|
|
|
1.5 |
|
|
|
16,069 |
|
|
|
1.9 |
|
General and administrative expenses |
|
|
114,723 |
|
|
|
11.1 |
|
|
|
73,353 |
|
|
|
7.8 |
|
|
|
61,969 |
|
|
|
7.4 |
|
Interest expense, net of interest income |
|
|
9,236 |
|
|
|
0.9 |
|
|
|
10,083 |
|
|
|
1.1 |
|
|
|
19,253 |
|
|
|
2.3 |
|
Other income, net |
|
|
3,516 |
|
|
|
0.3 |
|
|
|
7,991 |
|
|
|
0.8 |
|
|
|
4,100 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes and minority interest |
|
|
8,742 |
|
|
|
0.8 |
|
|
|
42,344 |
|
|
|
4.5 |
|
|
|
23,045 |
|
|
|
2.7 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
(2,459 |
) |
|
|
(0.2 |
) |
|
|
(2,294 |
) |
|
|
(0.2 |
) |
|
|
(1,714 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
6,283 |
|
|
|
0.6 |
|
|
|
40,050 |
|
|
|
4.3 |
|
|
|
21,331 |
|
|
|
2.5 |
|
Loss from discontinued operations |
|
|
(13,611 |
) |
|
|
(1.3 |
) |
|
|
(90,398 |
) |
|
|
(9.6 |
) |
|
|
(35,947 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,328 |
) |
|
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(0.7 |
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(50,348 |
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(5.3 |
%) |
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$ |
(14,616 |
) |
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(1.7 |
%) |
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The following discussion and analysis of our results of operations should be read in
conjunction with our consolidated financial statements and notes thereto in Item 8 of this Form
10-K.
30
Comparison of Years Ended December 31, 2007 and 2006
Revenue. Our revenue was $1,037.8 million for the year ended December 31, 2007, compared to
$940.4 million for the same period in 2006, representing an increase of $97.4 million or 10.4%.
The increase from 2006
to 2007 was due primarily to higher revenue of approximately $104.5 million
from DIRECTV®. The DIRECTV® increase was primarily due to subscriber
activations from our February 2007 acquisition and an increase in the number of work orders.
Revenue from Verizon increased by $16.8 million, mainly due to higher volume of work orders. We
also experienced increases in revenues from American Electric Power, the City of Ft. Lauderdale and
XTO Energy in amounts of $8.4 million, $7.2 million, and $6.3 million, respectively, when compared
to the prior year. These increases were partially offset by a
decrease in revenue of $25.6 million
from AT&T, a decrease in revenue of $11.3 million from Florida Power and Light due to termination
of unprofitable contracts, and a decrease in revenue for Comcast Cable Communications, Inc. of $8.3
million.
Costs of Revenue. Our costs of revenue were $891.6 million or 85.9% of revenue for the year
ended December 31, 2007, compared to $808.1 million or 85.9% of revenue for the same period in
2006. The increase of $83.5 million was generally attributable to the higher revenues achieved
during the year ended December 31, 2007. Our gross margin of 14.1%, excluding depreciation,
remained consistent in 2007 when compared to 2006 reflecting our continued ability to sustain
margins.
Depreciation. Depreciation was $17.0 million or 1.6% of revenue for the year ended December
31, 2007, compared to $14.5 million or 1.5% of revenue for the same period in 2006, representing an
increase of $2.5 million. The increase was primarily due to capital expenditures and capital lease
agreements that we executed during 2006 and 2007 to finance machinery and equipment.
General and administrative expenses. General and administrative expenses were $114.7 million
or 11.1% of revenue for the year ended December 31, 2007, compared to $73.4 million or 7.8% of
revenue for the same period in 2006, representing an increase of $41.3 million. The increase in
general and administrative expenses was mainly attributable to $38.6 million of the $39.3 million of expenses recorded
during 2007 related to actual or expected settlement of legal cases, disputes and other
contingencies, including litigation and other disputes related to accounts receivables. Excluding
the impact of the $38.6 million of expenses recorded during 2007, general and administrative
expense for the year ended December 31, 2007 would have been $76.1 million or 7.3% of revenue as
compared to the $73.4 million, or 7.8% of revenue in 2006.
Interest expense, net. Interest expense, net of interest income was $9.2 million or 0.9% of
revenue for the year ended December 31, 2007 compared to $10.1 million or 1.1% of revenue for the
same period in 2006 representing a decrease of $0.9 million. The decrease was due to higher
interest income, which increased $2.5 million, from $4.4 million for the year ended December 31,
2006 to $6.9 million for the year ended December 31, 2007, mostly due to higher outstanding cash
and investment balances. Offsetting the increase in interest income was an increase of $1.7
million in interest expense, from $14.4 million for the year ended December 31, 2006 to $16.1
million for the year ended December 31, 2007, mostly due to an increase in average long term debt
outstanding, as a result of the issuance of our $150 million 7.625% senior notes in 2007.
Other income net. Other income was $3.5 million or 0.3% of revenue for the year ended December
31, 2007, compared to $8.0 million or 0.8% of revenue for year ended December 31, 2006,
representing a decrease of $4.5 million. The decrease is mainly due to a $5.7 million reduction in
income earned during 2007 from our ownership in an equity investment. As discussed in Note 3 in our
Notes to Consolidated Financial Statements, effective February 1, 2007, we acquired the remaining
51% interest and consolidated the results of this entity. As such, beginning February 1, 2007, no
equity income was recorded for this entity as their results of operations are consolidated, whereas
for the year ended December 31, 2006, we recorded $5.8 million in equity income related to this
entity. This decrease in other income is partially offset by an increase of $1.0 million in gains
on sale of property and equipment, from $2.1 million for the year ended December 31, 2006 to $3.1
million for the year ended December 31, 2007.
Benefit for income taxes. For 2007 and 2006, our effective tax rate was 0%. Our balance sheet
as of December 31, 2007 and 2006 includes a net deferred tax asset of $56.9 million and $57.0
million, respectively, net of valuation allowance. The realization of this net deferred tax asset
is dependent on our ability to generate future pretax income. We anticipate that we will generate
sufficient pretax income in the future to realize a portion of our net deferred tax asset relating
to federal income taxes. In making this assessment, we have considered our projected future pretax
income to realize our remaining deferred tax assets. In the event that our future pretax income is
insufficient for us to use our deferred tax assets, we believe that the deferred tax assets are
still realizable based on prudent and feasible tax planning strategies available to us. However,
these tax planning strategies may not be viable for the purpose of realizing all of the various
income tax components of our net deferred tax asset. Accordingly, we recorded a net change to our
valuation allowance of $1.3 million in 2007 to reduce certain of our net deferred federal, foreign
and state tax assets at December 31, 2007, to their estimated net realizable value of $56.9
million.
31
Minority interest. Minority interest for GlobeTec Construction resulted in a charge of $2.5
million for the year ended December 31, 2007, compared to a charge of $2.3 million for the same
period in 2006, representing an increase of $0.2 million. GlobeTec experienced an increase in
business profits during 2007 compared to 2006, however, we also increased our ownership interest in
GlobeTec acquiring an additional 45% equity interest during the year ended December 31, 2007. The net effect of the increase in profits and increase in ownership resulted in a slight increase
in the minority interest charge for 2007. See Note 3 Acquisitions in Notes to Consolidated
Financial Statements.
Discontinued operations. The loss from discontinued operations which mainly includes the
operations of the state Department of Transportation related projects and assets, and our Canadian
operations was $13.6 million for the year ended December 31, 2007 compared to $90.4 million for the
year ended December 31, 2006, representing a decrease of $76.8 million. The decrease was mostly
due to the sale of our state Department of Transportation related projects and assets effective
February 1, 2007. On January 24, 2008, we negotiated a settlement with the buyers of our state
Department of Transportation projects and assets, who had raised certain warranty, indemnification
and other claims primarily related to work we had performed on the projects which the buyers
purchased. Under the terms of the Settlement Agreement, MasTec paid $6.0 million in cash. As a
result, we recorded a charge of $6.0 million which is reflected in our loss from discontinued
operations for the year ended December 31, 2007. As such, the results of operations for our state
Department of Transportation related projects and assets for the year ended December 31, 2007 was a
loss of $12.3 million, which included the settlement charges, other changes in estimates and one
month of operation in 2007, compared to a loss of $88.8 million for the year ended December 31,
2006 a decrease of $76.5 million compared to the prior year. The net loss attributable to our
discontinued Canadian operations was $1.3 million for the year ended December 31, 2007 compared to
$1.1 million for the year ended December 31, 2006, a decrease of $0.2 million.
Comparison of Years Ended December 31, 2006 and 2005
Revenue. Our revenue was $940.4 million for the year ended December 31, 2006, compared to
$838.7 million for the same period in 2005, representing an increase of $101.7 million or 12.1%.
This increase was due primarily to the increased revenue of approximately $83.5 million from
DIRECTV®, driven by a greater number of installations and larger market share resulting
from the DSSI acquisition, higher revenue of $3.3 million from AT&T mostly attributable to work we
were awarded for central office installations and an increase in general business activities from
other customers during 2006 compared to 2005. These increases in revenue were partially offset by a
decrease in revenue of $9.6 million from Verizon mostly attributed to the timing of generating work
orders. During the year ended December 31, 2005, fiber-to-home installations for Verizon had
commenced and work orders were high whereas the installations normalized during 2006. In addition,
during 2005, we experienced an increase in revenue related to storm restoration in the Gulf Coast
and Southern Florida, while we did not have any significant revenue from storm restoration during
2006.
Costs of Revenue. Our costs of revenue were $808.1 million or 85.9% of revenue for the year
ended December 31, 2006, compared to $722.4 million or 86.1% of revenue for the same period in 2005
reflecting a slight improvement in margins. The improvement in margins was a result of decreasing
subcontractor costs as a percentage of revenue with operational payroll only slightly increasing as
a percentage of revenue. In 2006, we reduced the use of subcontractors and did not hire additional
employees at the same rate as in 2005. The decrease in costs of revenue as a percentage of revenue
was partially offset by rising fuel costs. Fuel costs, as a percentage of revenue, increased from
3.1% in the year ended December 31, 2005 to 3.6% in the year ended December 31, 2006.
Depreciation. Depreciation was $14.5 million for the year ended December 31, 2006, compared to
$16.1 million for the same period in 2005, representing a decrease of $1.6 million. The decrease in
depreciation expense in 2006 compared to 2005 was primarily due to our continued increase in use of
operating leases for fleet requirements. We also continued to dispose of excess equipment. However,
depreciation expense is expected to increase in the future as a result of several capital lease
agreements we entered into during 2006 to finance various machinery and equipment totaling $8.6
million.
General and administrative expenses. General and administrative expenses were $73.4 million or
7.8% of revenue for the year ended December 31, 2006, compared to $62.0 million or 7.4% of revenue
for the same period in 2005, representing an increase of $11.4 million or 18.4%. The increase in
general and administrative expenses was mostly attributable to an increase in non-cash stock
compensation expense and increases in legal fees. Non-cash stock compensation expense was $7.4
million or 0.8% of revenue during the year ended December 31, 2006, compared to $0.6 million during
2005 representing an increase of $6.8 million. Effective January 1, 2006, we account for
stock-based award plans in accordance with SFAS 123R (revised 2004), Shared Based Payment, which
requires us to expense over the vesting period the fair-value of stock options and other
equity-based compensation issued to employees. In accordance with SFAS 123R, we expensed $6.0
million during the year ended December 31, 2006 related to unvested
32
stock options and restricted stock awards. In addition, we recorded approximately $1.4 million
related to restricted stock options and restricted stock awards during the year ended December 31,
2006. For the year ended December 31, 2005, we expensed $0.6 million related to restricted stock
awards. Had we adopted SFAS 123R in 2005, we would have been required to expense $6.9 million
during the year ended December 31, 2005. See the pro forma compensation expense disclosure in Note
1 to our audited consolidated financial statements. These increases in general and administrative
expenses were partially offset by a decrease in insurance expense. The reduction in insurance
expense was a result of improved claims and loss history during 2006, as well as a reduction in our
insurance reserve based on a change to the discount factor used for estimating actuarial insurance
reserves. The discount factor was changed from 3.5% to 5.2% to reflect current market conditions
and to use a discount factor more in line with the market interest rate we receive on our
investments.
Interest expense, net. Interest expense, net of interest income was $10.1 million or 1.1% of
revenue for the year ended December 31, 2006 compared to $19.3 million or 2.3% of revenue for the
same period in 2005 representing a decrease of $9.2 million or 47.7%. The decrease was due to lower
interest rates charged during 2006 under our Credit Facility and the 2006 Amendment, as well as a
reduction in interest expense due to our redemption of $75.0 million principal of our 7.75% senior
subordinated notes on March 2, 2006. In addition, the decrease in interest expense, net, was due to
the higher interest income we earned during 2006 as a result of investing the remaining net
proceeds from our January 2006 equity offering and higher interest rates earned on our invested
funds.
Other income net. Other income was $8.0 million or 0.8% of revenue for the year ended December
31, 2006, compared to $4.1 million or 0.5% of revenue for year ended December 31, 2005,
representing an increase of $3.9 million. The increase mainly relates to income earned in 2006 of
approximately $5.8 million associated with our equity investment in a limited liability company
compared to $0.3 million recognized during 2005. On February 6, 2007, we acquired the remaining 51%
equity interest of this entity. As a result, commencing in February 2007, we consolidated the
results of operations of the acquired entity with our operations. This increase in other income was
partially offset by a decrease in the net gains we recorded related to sales of fixed assets in the
year ended December 31, 2006. Net gain on the sale of fixed assets was approximately $2.0 million
during the year ended December 31, 2006 compared to approximately $2.8 million of net gains in the
year ended December 31, 2005.
Benefit for income taxes. For 2006 and 2005, our effective tax rates were 0%. Our balance
sheet as of December 31, 2006 and 2005 includes a net deferred tax asset of $57.0 million and $56.8
million, respectively, net of valuation allowance. The realization of this net deferred tax asset
is dependent on our ability to generate future pretax income. We anticipate that we will generate
sufficient pretax income in the future to realize a portion of our net deferred tax asset relating
to federal income taxes. In making this assessment, we have considered our projected future pretax
income to realize our remaining deferred tax assets. In the event that our future pretax income is
insufficient for us to use our deferred tax assets, we believe that the deferred tax assets are
still realizable based on prudent and feasible tax planning strategies available to us. However,
these tax planning strategies may not be viable for the purpose of realizing all of the various
income tax components of our net deferred tax asset. Accordingly, we recorded an addition to our
valuation allowance of $15.3 million in 2006 to reduce certain of our net deferred federal, foreign
and state tax assets at December 31, 2006, to their estimated net realizable value of $57.0
million.
Minority interest. Minority interest for GlobeTec Construction, LLC, in which we own a 51%
stake, resulted in a charge of $2.3 million for the year ended December 31, 2006, compared to a
charge of $1.7 million of minority interest for the same period in 2005, representing an increase
of $0.6 million. GlobeTec experienced an increase in business profits during 2006 compared to
2005, resulting in an increase in minority interest charge for 2006.
Discontinued operations. The loss from discontinued operations which includes our Brazilian
and network services operations, as well as our operations of the state Department of
Transportation related projects and assets, was $90.4 million or 9.6% of revenue for the year ended
December 31, 2006 compared to $35.9 million or 4.3% of revenue in year ended December 31, 2005. The
net loss on our state Department of Transportation related projects and assets amounted to $88.8
million for the year ended December 31, 2006 compared to a net loss of $31.5 million in the year
ended December 31, 2005. The net loss for these state Department of Transportation projects
increased due to impairment charges, lower revenue, and operational cost overruns and
inefficiencies on certain existing projects. During the second quarter of 2006, we determined there
were sufficient indicators of impairment to the carrying value of the underlying net assets of the
state Department of Transportation projects and assets. As a result, a $20.8 million non-cash
impairment charge was recorded in the second quarter of 2006 for the estimated selling price and
disposition of the state Department of Transportation projects and these assets. All impairment
charges are included in discontinued operations. On November 9, 2006, we entered into an agreement
to sell the state Department of Transportation related projects and assets to a third party. The
contractual selling price in that agreement was less than we estimated in the impairment charge
recorded in the quarter ended June 30, 2006. As a result, a non-cash impairment charge was recorded
during the quarter ended September 30, 2006 of approximately $13.7 million based on the contractual
selling price and our estimated closing costs. Effective February 1, 2007, we
sold the state Department of Transportation related projects and net assets for $1.0 million
in cash paid at closing, in addition to an earnout contingent on future operations of the projects
sold, up to a maximum of $12.0 million. As a result, an additional impairment charge of $10.0
million was recorded during the quarter ended December 31, 2006.
33
In addition to the impairment charges related to the sale of the Department of Transportation
related projects, the loss during the year ended December 31, 2006 as compared to the year ended
December 31, 2005 included increased legal expenses of approximately $1.9 million and bad debt
expense of approximately $4.8 million. In addition, we had increased operating expenses related to
stock compensation expense of $0.2 million related to a terminated executive, duplication of
back-office functions in order to ensure an easier transition and moving costs related to the
consolidation of office space. The net loss for our Brazilian operations for the year ended
December 31, 2006 was approximately $0.1 million and was attributable to legal fees related to the
Brazilian operations bankruptcy proceedings. The net loss for our network services operations
decreased to approximately $0.3 million for the year ended December 31, 2006 from a net loss of
$1.7 million in the year ended December 31, 2005 as a result of the winding down of the network
services operations. The loss for network services operations in the year ended December 31, 2006
is mostly attributable to personnel and legal costs in winding down the operations.
Financial Condition, Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from continuing operations, availability under
our credit facility, capital lease arrangements, and proceeds from sales of assets, securities, and
investments. On January 31, 2007, we issued $150.0 million of 7.625% senior notes due February
2017. On March 2, 2007, we used $121.8 million of the proceeds from the senior note offering to
redeem all of our remaining 7.75% senior subordinated notes plus interest. The remaining net
proceeds from the senior note offering will generally be used for working capital, acquisitions of
assets and businesses and other general corporate purposes. On January 24, 2006, we completed a
public offering of 14,375,000 shares of our common stock at $11.50 per share. The net proceeds from
the sale were approximately $156.5 million after deducting underwriting discounts and offering
expenses. On March 2, 2006, we used $75.5 million of the net proceeds of the public offering to
redeem a portion of our 7.75% senior subordinated notes due February 2008, including the payment of
related interest.
Our primary liquidity needs are for working capital, capital expenditures, insurance
collateral in the form of cash and letters of credit, earnout obligations and debt service. In
addition to ordinary course working capital requirements, we estimate that we will spend between
$30.0 million to $45.0 million per year on capital expenditures. We will, however, because of our
improved financial condition, continue to evaluate lease versus buy decisions to meet our equipment
needs and based on this evaluation, our capital expenditures may increase from this estimate in the
future. We expect to continue to sell older vehicles and equipment as we upgrade with new equipment
and we expect to obtain proceeds from these sales. Following the January 2007 issuance of the
$150.0 million senior notes due 2017, our semi-annual interest payments have increased to
approximately $5.7 million for the senior notes from approximately $4.7 million.
In February 2007, we used $15.0 million in cash in connection with the acquisition of the
remaining 51% equity interest in an investment in which we previously owned a 49% interest. We have
also agreed to pay the seller an earnout based on future performance through the eighth anniversary
of the closing date.
In October 2007, we acquired all the outstanding shares of capital stock of Three Phase Line
Construction, Inc., an entity specializing in the construction and maintenance of transmission and
distribution utility systems, substation and storm restoration in several northern states, for a
purchase price of $8.0 million in cash. We have also agreed to pay the seller an earnout based on
future performance of the acquired entity through the fifth anniversary of the closing date.
During 2007, we acquired an additional 45% ownership interest in GlobeTec Construction, LLC
(GlobeTec) for $6.5 million in cash. In addition to the cash payments, we have agreed to pay
certain of the sellers an earnout based on future performance of GlobeTec through the fourth
anniversary of the closing date. As a result of these investments, our ownership interest in
GlobeTec increased from 51% to 96% during the year ended December 31, 2007.
In December 2007, we acquired certain assets and assumed certain liabilities of Power
Partners, L.L.C., an electrical utility contractor, specializing in wind farm construction. The
purchase price was for $5.5 million in cash and the assumption of up to $1.1 million in
liabilities. We have also agreed to pay the sellers an earnout based on the future performance of
the entity through the fifth anniversary of the closing date.
34
For the year ended December 31, 2007, we paid approximately $3.0 million for earnout
obligations in connection with acquisitions we have made.
We hold a variety of highly rated interest bearing auction rate securities that most often
represent interests in pools of either collateralized debt obligations, student loans, or taxable
municipal bonds. These auction rate securities provide liquidity via an auction process that
resets the applicable interest rate at predetermined calendar intervals, usually every 7, 28, or 35
days. This mechanism allows existing investors either to rollover their holdings, whereby they
would continue to own their respective interest in the auction rate security, or to gain immediate
liquidity by selling such interests at par. Certain of these auctions have not had sufficient
bidders to allow investors to complete a sale, indicating that immediate liquidity at par is
unavailable.
As of December 31, 2007, we have identified approximately $16.2 million of investments subject
to this auction process for which there have been insufficient bidders on the scheduled auction
dates and we held another approximately $33.0 million of these securities. Subsequent to year end,
of the approximately $33.0 million of these securities, $8.5 million were sold at par,
approximately $7.9 million had insufficient bidders and failed the reset process, and we believe
the remaining approximately $16.6 million may be temporarily at risk of having this occur.
While the investments are of a high credit quality and the rating has not been lowered, at this
time we are uncertain when the liquidity issues associated with these investments will improve and
when we will be able to exit these investments at their par value. We currently anticipate holding
these securities until we can realize their par value and feel that our existing cash resources
will be sufficient to meet our anticipated needs for working capital and capital expenditures to
execute our current business plan. We are continuing to monitor this situation. See Note 5
Securities available for Sale in Notes to Consolidated Financial Statements.
We need working capital to support seasonal variations in our business, primarily due to the
impact of weather conditions on external construction and maintenance work, including storm
restoration work, and the corresponding spending by our customers on their annual capital
expenditure budgets. Our business is typically slower in the first and fourth quarters of each
calendar year and stronger in the second and third quarters. Accordingly, we generally experience
seasonal working capital needs from approximately April through September to support growth in
unbilled revenue and accounts receivable, and to a lesser extent, inventory. Our billing terms are
generally net 30 to 60 days, although some contracts allow our customers to retain a portion (from
2% to 15%) of the contract amount until the contract is completed to their satisfaction. We
maintain inventory to meet the material requirements of some of our contracts. Some of our
customers pay us in advance for a portion of the materials we purchase for their projects, or allow
us to pre-bill them for materials purchases up to a specified amount.
Our vendors generally offer us terms ranging from 30 to 90 days. Our agreements with
subcontractors usually contain a pay-when-paid provision, whereby our payments to subcontractors
are made only after we are paid by our customers.
We anticipate that funds generated from continuing operations, our cash and cash equivalents,
borrowings under our credit facility, and proceeds from sales of assets and investments will be
sufficient to meet our working capital requirements, anticipated capital expenditures, insurance
collateral requirements, and earnout obligations, letters of credit and debt service obligations
for at least the next twelve months.
As of December 31, 2007, we had $159.5 million in working capital compared to $164.0 million
as of December 31, 2006. Cash and cash equivalents increased to
$74.3 million at December 31, 2007, including
$18 million in restricted cash, from $35.3 million at December 31, 2006.
Net cash provided by operating activities was $68.7 million for the year ended December 31,
2007, primarily related to a decrease in net loss, reductions in discontinued operations assets and
increases in non-cash items, primarily the provision for doubtful accounts and accruals for legal
settlements. Non-cash items during 2007 primarily included depreciation and amortization, the gain
on disposal of assets and investments, stock and restricted stock compensation and accrued losses
on construction projects, provision for doubtful accounts, minority interest and the net effect
related to legacy litigation. Changes in working capital and changes in other assets provided $34.2
million in operating cash flow in 2007, including a reduction in cash collateral requirement to our
insurance carrier of $3.3 million and timing of cash payments to vendors and cash collections from
customers. Net cash provided by operating activities was $46.4 million for the year ended December
31, 2006, primarily as a result of our operating loss adjusted for changes in working capital and
changes in other assets, including a reduction in cash collateral requirements provided to our
insurance carrier and non-cash items. Non-cash items during 2006 primarily included charges for
impairment of assets of $44.5 million, depreciation and amortization, the gain on disposal of
assets and investments, accrued losses on construction projects and provision for doubtful accounts
minority interest.
Net cash used in investing activities was $62.5 million and $94.7 million for the years ended
December 31, 2007 and 2006, respectively. Net cash used in investing activities for the year ended
December 31, 2007 primarily related to capital expenditures in the amount of $32.1 million and
payments made in connection with acquisitions in amount of $35.4 million, partially offset by $3.2
million in net proceeds from sales of assets and investments. Net cash used in investing
activities for the year ended December 31,
2006 primarily related to capital expenditures in the amount of $22.3 million, payments made
in connection with the DSSI acquisition of $19.3 million and payments related to our equity
investment in amount of $4.7 million partially offset by $6.2 million in net proceeds from the sale
of assets.
35
Net cash provided by financing activities was $32.8 million for the year ended December 31,
2007 compared to net cash provided by financing activities of $81.8 million for the year ended
December 31, 2006. Net cash provided by financing activities for the year ended December 31, 2007
was primarily related to net proceeds from the issuance of $150.0 million of 7.625% senior notes
due February 2017, and issuance of common stock pursuant to stock options exercises in amount of
$13.9 million. These proceeds were partially offset by the redemption of $121.0 million 7.75%
senior subordinated notes in February 2007 and repayments of borrowings of $3.9 million. Net cash
provided by financing activities for the year ended December 31, 2006 was primarily related to the
net proceeds from the issuance of common stock of $156.5 million and proceeds from the issuance of
common stock pursuant to stock option exercises in the amount of $4.6 million offset by the
redemption of $75.5 million principal on our senior subordinated notes and payments of borrowings
of $3.8 million.
We have a secured revolving credit facility under which we may borrow up to $150 million,
subject to certain adjustments and restrictions (the Credit Facility). Pursuant to an amendment
of the Credit Facility that became effective June 30, 2007, the expiration date of the Credit
Facility was extended from May 10, 2010 to May 10, 2012. The amendment added an accordion feature
which allows us to request an increase in the maximum amount borrowed under the Credit Facility
from $150 million to $200 million, if certain criteria under the credit facility is met. This
amendment also reduced the interest rate margin applied to borrowings and increased the maximum
available amount we can borrow at any given time, among other things. Deferred financing costs
related to the Credit Facility are included in prepaid expenses and other current assets, and in
other assets in our consolidated balance sheets.
The amount that we can borrow at any given time is based upon a formula that takes into
account, among other things, eligible billed and unbilled accounts receivable, equipment, real
estate and eligible cash collateral, which can result in borrowing availability of less than the
full amount of the Credit Facility. At December 31, 2007 and December 31, 2006, net availability
under the Credit Facility totaled $44.0 million and $35.1 million, respectively, which includes
outstanding standby letters of credit aggregating $86.4 million and $83.3 million in each period,
respectively. At December 31, 2007, $64.8 million of the outstanding letters of credit were issued
to support MasTecs casualty and medical insurance requirements. These letters of credit mature at
various dates and most have automatic renewal provisions subject to prior notice of cancellation.
The Credit Facility is collateralized by a first priority security interest in substantially all of
our assets and a pledge of the stock of certain of our operating subsidiaries. Substantially all of
our wholly-owned subsidiaries collateralize the Credit Facility. At December 31, 2007 and December
31, 2006, we had no outstanding cash draws under the Credit Facility. Interest under the Credit
Facility accrues at variable rates based, at our option, on the agent banks base rate plus a
margin of between 0.0% and 0.50%, or at the LIBOR rate (as defined in the Credit Facility) plus a
margin of between 1.00% and 2.00%, depending on certain financial thresholds. Through December 31,
2007, the Credit Facility provided that the margin over LIBOR will be no higher than 1.125%, and
currently the margin we pay over LIBOR is 1.125%. The Credit Facility includes an unused facility
fee of 0.25%.
The Credit Facility contains customary events of default (including cross-default) provisions
and covenants related to our operations that prohibit, among other things, making investments and
acquisitions in excess of specified amounts, incurring additional indebtedness in excess of
specified amounts, paying cash dividends, making other distributions, creating liens against our
assets, prepaying other indebtedness excluding our 7.625% senior notes, and engaging in certain
mergers or combinations without the prior written consent of the lenders. In addition, any
deterioration in the quality of billed and unbilled receivables, reduction in the value of our
equipment or an increase in our lease expense related to real estate, would reduce availability
under the Credit Facility.
If the net availability under the Credit Facility does not exceed $15.0 million, MasTec is
required to be in compliance with a minimum fixed charge coverage ratio of 1.1 to 1.0 measured on a
monthly basis, and certain other events are triggered. The $15.0 million availability trigger is
subject to adjustment if the maximum amount we may borrow under the Credit Facility is adjusted.
The fixed charge coverage ratio is generally defined to mean the ratio of our net income before
interest expense, income tax expense, depreciation expense, and amortization expense minus net
capital expenditures and cash taxes to the sum of all interest expense plus current maturities of
debt for the period. The financial covenant was not applicable as of December 31, 2007 because at
that time the net availability under the Credit Facility did not decline below the required
threshold specified above.
Based upon our current liquidity and projections for 2008, we believe we will be in compliance
with the credit facilitys terms and conditions and the minimum availability requirements in 2008.
We are dependent upon borrowings and letters of credit under this credit facility to fund
operations. Should we be unable to comply with the terms and conditions of the credit facility, we
would be required to obtain further modifications to the credit facility or another source of
financing to continue to operate. We may not be able
to achieve our 2008 projections and thus may not be in compliance with the credit facilitys
minimum net availability requirements and minimum fixed charge ratio in the future.
36
Our variable rate credit facility exposes us to interest rate risk. We had no cash borrowings
outstanding under the credit facility at December 31, 2007.
As of December 31, 2007, we had outstanding $150.0 million, 7.625% senior notes due in 2017,
with interest due semi-annually which we issued on January 31, 2007. We used approximately $121.8
million of the net proceeds from this offering to redeem all of our 7.75% senior subordinated notes
plus interest. The 7.625% senior notes contain default (including cross default) provisions and
covenants restricting, among others, many of the same transactions as under our credit facility.
The indenture that governs our senior notes allows us to incur the additional indebtedness or issue
preferred stock under our credit facility (up to $200.0 million), and for renewals of existing debt
permitted under the indenture plus an additional $50.0 million. The indenture prohibits incurring
further indebtedness unless our fixed charge coverage ratio is greater than 2:1 for the four most
recently ended fiscal quarters determined on a pro forma basis as if that additional debt has been
incurred at the beginning of the period. In addition, the indenture prohibits incurring additional
capital lease obligations in excess of 5% of our consolidated net assets at any time the senior
notes remain outstanding.
Our credit standing and senior notes are rated by various agencies.
The following table sets forth our contractual commitments as of December 31, 2007 during the
periods indicated below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
5 Years and |
|
Contractual Obligations (1) |
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Thereafter |
|
Senior notes |
|
$ |
150,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
150,000 |
|
Line of credit outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable for equipment |
|
|
684 |
|
|
|
427 |
|
|
|
257 |
|
|
|
|
|
|
|
|
|
Earnout obligations (2) |
|
|
5,767 |
|
|
|
5,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases |
|
|
12,289 |
|
|
|
2,267 |
|
|
|
4,950 |
|
|
|
4,656 |
|
|
|
416 |
|
Operating leases |
|
|
45,861 |
|
|
|
21,914 |
|
|
|
18,557 |
|
|
|
4,385 |
|
|
|
1,005 |
|
Executive life insurance |
|
|
15,508 |
|
|
|
1,134 |
|
|
|
2,270 |
|
|
|
2,269 |
|
|
|
9,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
230,109 |
|
|
$ |
31,509 |
|
|
$ |
26,034 |
|
|
$ |
11,310 |
|
|
$ |
161,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts do not include interest payments. |
|
(2) |
|
On February 6, 2007, we acquired the remaining 51% equity interest in an investment
where we previously owned 49% for $15.0 million in cash, and issued 300,000 shares of our
common stock. In addition to the 51% acquisition completed in 2007, we have made other
acquisitions and have agreed to pay the sellers earnouts based on the performance of the
businesses acquired. Due to the contingent nature of these earnout payments, we have only
included earnout obligations which are presently quantifiable. |
Off-balance sheet arrangement. We provide letters of credit to secure our obligations
primarily related to our insurance arrangements and surety bonds. We also provide letters of credit
related to legal matters. Total letters of credit reduce our available borrowings under our credit
facility and amounted to $86.4 million at December 31, 2007 of which $64.8 million were related to
our insurance programs.
Some of our contracts require us to provide performance and payment bonds, which we obtain
from a surety company. If we were unable to meet our contractual obligations to a customer and the
surety paid our customer the amount due under the bond, the surety would seek reimbursement of such
payment from us. At December 31, 2007, the cost to complete on our $294.8 million performance and
payment bonds was $46.2 million.
Seasonality
Our operations are historically slower in the first and fourth quarters of the year. This
seasonality is primarily the result of the effect of weather on our external activities and
customer budgetary constraints and preferences. Some of our customers tend to complete budgeted
capital expenditures before the end of the year and defer additional expenditures until the
following budget year.
37
Impact of Inflation
The primary inflationary factor affecting our operations is increased labor costs. We did not
experience significant increases in labor costs in 2007, 2006 or 2005. To a lesser extent, we are
also affected by changes in fuel costs which increased significantly in 2007 and 2006.
Recently Issued Accounting Pronouncements
See Note 1 Nature of the Business and Summary of Significant Accounting Policies in Item 8.
Financial Statements and Supplementary Data.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in interest rates and fluctuations in foreign
currency exchange rates.
Interest Rate Risk
Less than 8% of our outstanding debt at December 31, 2007 was subject to variable interest
rates. The remainder of our debt has fixed interest rates. Our fixed interest rate debt includes
$150 million (face value) in senior notes. The carrying value and market value of our debt at
December 31, 2007 was $163.0 million and $154.7 million, respectively. Based upon debt balances
outstanding at December 31, 2007, a 100 basis point (i.e. 1%) addition to our weighted average
effective interest rate for variable rate debt would increase our interest expense by less than
$0.1 million on an annual basis.
Our variable rate credit facility exposes us to interest rate risk. We had no cash borrowings
outstanding under our revolving credit facility at December 31, 2007.
Foreign Currency Risk
We had an investment in a subsidiary in Canada and sold our services into this foreign market.
On March 30, 2007, our Board of Directors voted to sell substantially all of our Canadian
operations. On April 10, 2007, we sold substantially all of our Canadian operations. Accordingly,
the operations in Canada have been accounted for as discontinued operations for all periods
presented. See Note 11 in Notes to our Consolidated Financial Statements.
Our foreign net asset/exposures (defined as assets denominated in foreign currency less
liabilities denominated in foreign currency) for Canada at December 31, 2007 of U.S. dollar
equivalents was $0.3 million compared to $1.7 million as of December 31, 2006.
See Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Report for further
disclosures about market risk.
38
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
|
|
|
|
|
|
|
Page |
|
|
Report of Independent Registered Public Accounting Firm |
|
|
40 |
|
Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2006 and 2005 |
|
|
41 |
|
Consolidated Balance Sheets as of December 31, 2007 and 2006 |
|
|
42 |
|
Consolidated Statements of Changes in Shareholders Equity
for the Years Ended December 31, 2007, 2006 and 2005 |
|
|
43 |
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007, 2006 and 2005 |
|
|
44 |
|
Notes to Consolidated Financial Statements |
|
|
45 |
|
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Shareholders
of MasTec, Inc.
We have audited the accompanying consolidated balance sheets of MasTec, Inc. and subsidiaries
as of December 31, 2007 and 2006 and the related consolidated statements of operations, changes in
shareholders equity, and cash flows for the three years then ended. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of MasTec, Inc. as of December 31, 2007 and 2006, and
the consolidated results of their operations and their cash flows for the three years then ended in
conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company changed the
manner in which it accounts for uncertain tax positions as of January 1, 2007 and the way it
accounted for share-based compensation as of January 1, 2006. Also, as discussed in Note 1 to the
consolidated financial statements, the Company has reclassified its Consolidated Balance Sheet as
of December 31, 2006 and Consolidated Statement of Cash Flows for the year ended December 31, 2006
to reflect the reclassification of certain financial instruments from Cash and cash equivalents
to Securities available for sale.
We also have audited, in accordance with the Standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of MasTec, Inc.s internal control over
financial reporting as of December 31, 2007, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated February 27, 2008, expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
Miami, Florida
February 27, 2008
40
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands, except per share amounts) |
|
Revenue |
|
$ |
1,037,779 |
|
|
$ |
940,421 |
|
|
$ |
838,663 |
|
Costs of revenue, excluding depreciation |
|
|
891,606 |
|
|
|
808,142 |
|
|
|
722,427 |
|
Depreciation |
|
|
16,988 |
|
|
|
14,490 |
|
|
|
16,069 |
|
General and administrative expenses, including non-cash
stock compensation expenses of $5,555, $7,401
and $552, respectively |
|
|
114,723 |
|
|
|
73,353 |
|
|
|
61,969 |
|
Interest expense, net of interest income |
|
|
9,236 |
|
|
|
10,083 |
|
|
|
19,253 |
|
Other income, net |
|
|
3,516 |
|
|
|
7,991 |
|
|
|
4,100 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income
taxes and minority interest |
|
|
8,742 |
|
|
|
42,344 |
|
|
|
23,045 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest |
|
|
(2,459 |
) |
|
|
(2,294 |
) |
|
|
(1,714 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
6,283 |
|
|
|
40,050 |
|
|
|
21,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax,
including non-cash stock compensation expense
of $0, $242 and $0, respectively |
|
|
(13,611 |
) |
|
|
(90,398 |
) |
|
|
(35,364 |
) |
Loss on sale of assets of discontinued
operations, net of tax benefit of $0 in 2005 |
|
|
|
|
|
|
|
|
|
|
(583 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,328 |
) |
|
$ |
(50,348 |
) |
|
$ |
(14,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.10 |
|
|
$ |
0.63 |
|
|
$ |
0.44 |
|
Discontinued operations |
|
|
(0.21 |
) |
|
|
(1.42 |
) |
|
|
(0.74 |
) |
|
|
|
|
|
|
|
|
|
|
Total basic net loss per share |
|
$ |
(0.11 |
) |
|
$ |
(0.79 |
) |
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
66,147 |
|
|
|
63,574 |
|
|
|
48,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.09 |
|
|
$ |
0.62 |
|
|
$ |
0.43 |
|
Discontinued operations |
|
|
(0.20 |
) |
|
|
(1.39 |
) |
|
|
(0.72 |
) |
|
|
|
|
|
|
|
|
|
|
Total diluted net loss per share |
|
$ |
(0.11 |
) |
|
$ |
(0.77 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
67,626 |
|
|
|
65,119 |
|
|
|
49,795 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
41
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
(In thousands, except shares) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents, including restricted cash of
$18,050 and $18,000, respectively |
|
$ |
74,288 |
|
|
$ |
35,282 |
|
Securities available for sale |
|
|
44,360 |
|
|
|
53,764 |
|
Accounts receivable, unbilled revenue and retainage, net |
|
|
160,089 |
|
|
|
163,608 |
|
Inventories |
|
|
32,402 |
|
|
|
28,832 |
|
Income tax refund receivable |
|
|
103 |
|
|
|
135 |
|
Prepaid expenses and other current assets |
|
|
56,165 |
|
|
|
38,752 |
|
Current assets held for sale |
|
|
|
|
|
|
19,547 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
367,407 |
|
|
|
339,920 |
|
Property and equipment, net |
|
|
81,939 |
|
|
|
61,212 |
|
Goodwill and other intangibles |
|
|
202,829 |
|
|
|
151,600 |
|
Deferred taxes, net |
|
|
30,386 |
|
|
|
49,317 |
|
Other assets |
|
|
28,188 |
|
|
|
43,405 |
|
Long-term assets held for sale |
|
|
|
|
|
|
659 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
710,749 |
|
|
$ |
646,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
2,694 |
|
|
$ |
1,769 |
|
Accounts payable |
|
|
113,347 |
|
|
|
101,211 |
|
Other current liabilities |
|
|
91,904 |
|
|
|
47,264 |
|
Current liabilities related to assets held for sale |
|
|
|
|
|
|
25,634 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
207,945 |
|
|
|
175,878 |
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
27,960 |
|
|
|
36,521 |
|
Long-term debt |
|
|
160,279 |
|
|
|
128,407 |
|
Long-term liabilities related to assets held for sale |
|
|
|
|
|
|
596 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
396,184 |
|
|
|
341,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value; authorized shares -
5,000,000; issued and outstanding shares none |
|
|
|
|
|
|
|
|
Common stock $0.10 par value; authorized shares
100,000,000; issued and outstanding shares 67,174,171
in 2007 and 65,182,437 in 2006 |
|
|
6,717 |
|
|
|
6,518 |
|
Capital surplus |
|
|
552,491 |
|
|
|
530,179 |
|
Accumulated deficit |
|
|
(239,576 |
) |
|
|
(232,248 |
) |
Accumulated other comprehensive (loss) income |
|
|
(5,067 |
) |
|
|
262 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
314,565 |
|
|
|
304,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
710,749 |
|
|
$ |
646,113 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
42
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Common Stock |
|
|
Capital |
|
|
Accumulated |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Surplus |
|
|
Deficit |
|
|
(Loss) Income |
|
|
Total |
|
Balance December 31, 2004 |
|
|
48,597 |
|
|
$ |
4,860 |
|
|
$ |
353,033 |
|
|
$ |
(167,284 |
) |
|
$ |
544 |
|
|
$ |
191,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,616 |
) |
|
|
|
|
|
|
(14,616 |
) |
Foreign currency translation adjustment. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash stock compensation |
|
|
|
|
|
|
|
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
|
541 |
|
Stock issued, primarily for stock
options exercised |
|
|
625 |
|
|
|
62 |
|
|
|
2,557 |
|
|
|
|
|
|
|
|
|
|
|
2,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005 |
|
|
49,222 |
|
|
|
4,922 |
|
|
|
356,131 |
|
|
|
(181,900 |
) |
|
|
450 |
|
|
|
179,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,348 |
) |
|
|
|
|
|
|
(50,348 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash stock compensation |
|
|
|
|
|
|
|
|
|
|
7,643 |
|
|
|
|
|
|
|
|
|
|
|
7,643 |
|
Issuance of common stock from public
offerings |
|
|
14,375 |
|
|
|
1,438 |
|
|
|
155,027 |
|
|
|
|
|
|
|
|
|
|
|
156,465 |
|
Issuance of common stock for acquisition |
|
|
637 |
|
|
|
64 |
|
|
|
6,824 |
|
|
|
|
|
|
|
|
|
|
|
6,888 |
|
Stock issued, primarily for stock
options exercised |
|
|
948 |
|
|
|
94 |
|
|
|
4,554 |
|
|
|
|
|
|
|
|
|
|
|
4,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
65,182 |
|
|
|
6,518 |
|
|
|
530,179 |
|
|
|
(232,248 |
) |
|
|
262 |
|
|
|
304,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,328 |
) |
|
|
|
|
|
|
(7,328 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(539 |
) |
|
|
(539 |
) |
Unrealized loss from securities
available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,790 |
) |
|
|
(4,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash stock compensation |
|
|
|
|
|
|
|
|
|
|
5,530 |
|
|
|
|
|
|
|
|
|
|
|
5,530 |
|
Issuance of common stock for acquisition |
|
|
300 |
|
|
|
30 |
|
|
|
3,031 |
|
|
|
|
|
|
|
|
|
|
|
3,061 |
|
Stock issued, primarily for stock
options exercised |
|
|
1,692 |
|
|
|
169 |
|
|
|
13,751 |
|
|
|
|
|
|
|
|
|
|
|
13,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
|
67,174 |
|
|
$ |
6,717 |
|
|
$ |
552,491 |
|
|
$ |
(239,576 |
) |
|
$ |
(5,067 |
) |
|
$ |
314,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
43
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,328 |
) |
|
$ |
(50,348 |
) |
|
$ |
(14,616 |
) |
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
18,088 |
|
|
|
15,437 |
|
|
|
18,188 |
|
Impairment of goodwill and assets |
|
|
328 |
|
|
|
44,545 |
|
|
|
11,497 |
|
Non-cash stock and restricted stock compensation expense |
|
|
5,555 |
|
|
|
7,643 |
|
|
|
541 |
|
Gain on disposal of assets and investments |
|
|
(2,854 |
) |
|
|
(2,306 |
) |
|
|
(5,141 |
) |
Provision for doubtful accounts |
|
|
17,573 |
|
|
|
9,960 |
|
|
|
4,932 |
|
Accrued losses on construction projects |
|
|
267 |
|
|
|
3,075 |
|
|
|
1,117 |
|
Income from equity investment |
|
|
(119 |
) |
|
|
(5,772 |
) |
|
|
(285 |
) |
Write-down of assets |
|
|
|
|
|
|
280 |
|
|
|
2,838 |
|
Income tax refunds |
|
|
515 |
|
|
|
861 |
|
|
|
2,180 |
|
Provision for inventory obsolescence |
|
|
|
|
|
|
583 |
|
|
|
965 |
|
Minority interest |
|
|
2,459 |
|
|
|
2,294 |
|
|
|
1,714 |
|
Changes in assets and liabilities net of effect of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, unbilled revenue and retainage, net |
|
|
891 |
|
|
|
4,172 |
|
|
|
(20,926 |
) |
Inventories |
|
|
24,756 |
|
|
|
8,976 |
|
|
|
(3,381 |
) |
Other assets, current and non-current portion |
|
|
7,728 |
|
|
|
23,502 |
|
|
|
(15,050 |
) |
Accounts payable |
|
|
(20,092 |
) |
|
|
(9,810 |
) |
|
|
3,682 |
|
Other liabilities, current and non-current portion |
|
|
20,931 |
|
|
|
(6,698 |
) |
|
|
(6,689 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
68,698 |
|
|
|
46,394 |
|
|
|
(18,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(32,135 |
) |
|
|
(22,283 |
) |
|
|
(6,421 |
) |
Cash paid for acquisitions and contingent consideration, net
of cash acquired |
|
|
(35,432 |
) |
|
|
(19,285 |
) |
|
|
|
|
Investments in unconsolidated companies |
|
|
(1,025 |
) |
|
|
(4,680 |
) |
|
|
(3,700 |
) |
Investment in life insurance policies |
|
|
(1,284 |
) |
|
|
(1,043 |
) |
|
|
(1,232 |
) |
Net proceeds from sale of assets and investments |
|
|
3,223 |
|
|
|
6,177 |
|
|
|
9,039 |
|
Payments received from sub-leases |
|
|
|
|
|
|
333 |
|
|
|
|
|
Purchases of securities available for sale |
|
|
(565,854 |
) |
|
|
(473,747 |
) |
|
|
|
|
Proceeds from sale of securities available for sale |
|
|
570,050 |
|
|
|
419,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(62,457 |
) |
|
|
(94,732 |
) |
|
|
(2,314 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility, net |
|
|
|
|
|
|
|
|
|
|
4,212 |
|
Proceeds from the issuance of senior notes |
|
|
150,000 |
|
|
|
|
|
|
|
|
|
Repayments of senior subordinated notes |
|
|
(121,000 |
) |
|
|
(75,000 |
) |
|
|
|
|
Repayments of other borrowings, net |
|
|
(3,909 |
) |
|
|
(3,829 |
) |
|
|
|
|
Payments of capital lease obligations |
|
|
(2,113 |
) |
|
|
(385 |
) |
|
|
(363 |
) |
Proceeds from issuance of common stock, net |
|
|
|
|
|
|
156,465 |
|
|
|
|
|
Proceeds from issuance of common stock pursuant to stock
option exercises |
|
|
13,895 |
|
|
|
4,648 |
|
|
|
2,620 |
|
Payments of financing costs |
|
|
(4,117 |
) |
|
|
(116 |
) |
|
|
(3,149 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
32,756 |
|
|
|
81,783 |
|
|
|
3,320 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
38,997 |
|
|
|
33,445 |
|
|
|
(17,428 |
) |
Net effect of translation on cash |
|
|
9 |
|
|
|
(187 |
) |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
|
|
35,282 |
|
|
|
2,024 |
|
|
|
19,548 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
74,288 |
|
|
$ |
35,282 |
|
|
$ |
2,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
13,557 |
|
|
$ |
13,876 |
|
|
$ |
17,300 |
|
Income taxes |
|
$ |
275 |
|
|
$ |
284 |
|
|
$ |
306 |
|
Supplemental non-cash disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired under capital lease |
|
$ |
6,246 |
|
|
$ |
8,635 |
|
|
$ |
|
|
Investment in unconsolidated companies |
|
$ |
|
|
|
$ |
925 |
|
|
$ |
925 |
|
The accompanying notes are an integral part of these consolidated financial statements.
44
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of the Business and Summary of Significant Accounting Policies
MasTec, Inc. (collectively, with its subsidiaries, MasTec, we, us, our or the
Company) is a leading specialty contractor operating mainly throughout the United States and
across a range of industries. Our core activities are the building, installation, maintenance and
upgrade of communications and utility infrastructure. Our primary customers are in the following
industries: communications (including satellite television and cable television), utilities and
government. MasTec provides similar infrastructure services across the industries it serves.
Customers rely on us to build and maintain infrastructure and networks that are critical to their
transport and delivery of voice, video and data communications, electricity and other energy
resources.
The following is a summary of the significant accounting policies followed in the preparation
of the accompanying consolidated financial statements:
Management estimates. The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. The more significant estimates relate to our revenue
recognition, allowance for doubtful accounts, intangible assets, accrued insurance, income taxes,
litigation and contingencies. Estimates are based on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the
basis for judgments about results and the carrying values of assets and liabilities. Actual results
and values may differ from these estimates.
Principles of consolidation. The accompanying consolidated financial statements include
MasTec, Inc. and its subsidiaries. We consolidate GlobeTec Construction, LLC as we have a
controlling interest in the company. Other parties interest in this entity is reported as minority
interest in the consolidated financial statements. All intercompany accounts and transactions have
been eliminated in consolidation.
Reclassifications. Certain reclassifications were made to the prior year financial statements
in order to conform to the current period presentation. Auction rate securities previously
classified as Cash and cash equivalents have been reclassified to Securities Available for Sale
on the Consolidated Balance Sheet and the Consolidated Statement of Cash Flows as of December 31,
2006 to conform to the current presentation.
As discussed in Note 11, on March 30, 2007, we reached the decision to sell substantially all
of our Canadian operations, accordingly, these operations have been classified as discontinued
operations and are not included in the results of continuing operations for any periods presented.
In addition, current and long-term assets, as well as current and non-current liabilities, have
been reclassified on the consolidated balance sheet as of December 31, 2006 to conform to the
current presentation.
Comprehensive Income (loss). Comprehensive income (loss) is a measure of net gain (loss) and
all other changes in equity that result from transactions other than with shareholders.
Comprehensive income (loss) consists of foreign currency translation adjustments and unrealized
losses on securities available for sale in the years ended December 31, 2007, 2006 and 2005.
Revenue recognition. Revenue and related costs for master and other service agreements billed
on a time and materials basis are recognized as the services are rendered. There are also some
service agreements that are billed on a fixed fee basis. Under our fixed fee master service and
similar type service agreements, MasTec furnishes various specified units of service for a separate
fixed price per unit of service. For service agreements on a fixed fee basis, profitability will be
reduced if the actual costs to complete each unit exceed original estimates.
In addition to master and other service agreements we enter into contracts that require the
installation or construction of specified units within an infrastructure system. Under these
contracts, revenue is recognized at the contractually agreed price per unit as the units are
completed and delivered. Profitability will be reduced if the actual costs to complete each unit
exceed original estimates. We also are required to immediately recognize the full amount of any
estimated loss on these projects if estimated costs to complete the remaining units for the project
exceed the revenue to be earned on such units.
45
MasTec, Inc.
Notes To Consolidated Financial Statements continued
We also enter into fixed price, long-term installation/construction contracts that primarily
require the construction and installationof an entire infrastructure system. We recognize
revenue and related costs as work progresses on fixed price, long-term contracts using the
percentage-of-completion method, which relies on contract revenue and estimates of total expected
costs. We estimate total project costs and profit to be earned on each long-term, fixed-price
contract. We follow this method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Under the percentage-of-completion method,
we record revenue and recognize profit or loss as work on the contract progresses. The cumulative
amount of revenue recorded on a contract at a specified point in time is that percentage of total
estimated revenue that incurred costs to date bear to estimated total contract costs. We recognize
the full amount of any estimated loss on a contract at the time the estimates indicate such a loss.
Our customers generally supply materials such as cable, conduit and telephone equipment.
Customer furnished materials are not included in revenue and cost of sales as these materials are
purchased by the customer. The customer determines the specification of the materials that are to
be utilized to perform installation/construction services. We are only responsible for the
performance of the installation/construction services and not the materials for any contract that
includes customer furnished materials and we have no risk associated with customer furnished
materials. Our customers retain the financial and performance risk of all customer furnished
materials.
Billings in excess of costs and estimated earnings on uncompleted contracts are classified as
current liabilities. Any costs and estimated earnings in excess of billings are classified as
current assets. Work in process on contracts is based on work performed but not billed to customers
as per individual contract terms.
Basic and diluted net income (loss) per share. The computation of basic net income (loss) per
common share is based on the weighted average number of common shares outstanding during each
period. The computation of diluted net income (loss) per common share is based on the weighted
average number of common shares outstanding during the period plus, when their effect is dilutive,
incremental shares consisting of shares subject to stock options and unvested restricted stock
(common stock equivalents). For the year ended December 31, 2007 and 2006 diluted net income
(loss) per common share includes the effect of common stock equivalents in the amount of 1,479,000
and 1,545,000 shares, respectively. For the year ended December 31, 2005, common stock equivalents
of approximately 843,000 shares were not included in the diluted net loss per common share because
their effect would be anti-dilutive.
Allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. Management analyzes
past due balances based on invoice date, historical bad debt experience, customer concentrations,
customer credit-worthiness, customer financial condition and credit reports, the availability of
mechanics and other liens, the existence of payment bonds and other sources of payment, and
current economic trends when evaluating the adequacy of the allowance for doubtful accounts.
Management reviews the adequacy of the reserves on a quarterly basis. Amounts are written off
against the allowance when deemed uncollectible.
Cash and cash equivalents. All short-term investments with maturities of three months or less
when purchased are considered to be cash equivalents stated at cost which approximates market
value. Restricted cash related to collateral of the credit facility is also included in cash and
cash equivalents.
Securities available for sale. We account for securities available-for-sale in accordance with
the provisions of Accounting For Certain Debt and Equity Securities (SFAS 115). Securities
available-for-sale are recorded at fair value, and temporary unrealized holding gains and losses
are recorded, net of tax, as a separate component of accumulated other comprehensive income (loss).
Unrealized losses are charged against net earnings when a decline in fair value is determined to be
other-than-temporary. In accordance with FSP FAS 115-1 and 124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, we review several
factors to determine whether a loss is other-than-temporary. These factors include but are not
limited to: i) the length of time a security is in an unrealized loss position, ii) the extent to
which fair value is less than cost, iii) the financial condition and near term prospects of the
issuer and, iv) our intent and ability to hold the security for a period of time sufficient to
allow for any anticipated recovery in fair value.
Inventories. Inventories consist of materials and supplies for construction and install to the
home projects, and are typically purchased on a project-by-project basis. Inventories are valued at
the lower of cost (using the specific identification method) or market. Construction projects are
completed pursuant to customer specifications. The loss of the customer or the cancellation of the
project could result in an impairment of the value of materials purchased for that customer or
project. Technological or market
changes can also render certain materials obsolete. Allowances for inventory obsolescence are
determined based upon the specific facts and circumstances for each project and market conditions.
There was no obsolescence provision included in 2007. During 2006 and 2005, we recorded a provision
for inventory obsolescence of approximately $0.6 million and $1.0 million, respectively, in Costs
of revenue and Loss on discontinued operations in the Consolidated Statements of Operations.
46
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Property and equipment. Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the respective assets. Leasehold
improvements are depreciated 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 and depreciated over
the remaining useful life of the asset. 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 or expense.
Deferred costs. Deferred financing costs related to our credit facility and the senior notes
whose short and long-term portions are included in other current and non-current assets in the
consolidated balance sheets are amortized over the related terms of the debt using the effective
interest method. Net deferred financing costs were $6.4 million and $3.9 million at December 31,
2007 and 2006, respectively.
Software capitalization. The Company capitalizes certain costs incurred in connection with
developing or obtaining internal use software in accordance with American Institute of Certified
Public Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. These capitalized software costs are included in Property
and equipment, net in the consolidated balance sheets and are being amortized over a period not to
exceed seven years.
Valuation of Equity Investments. At December 31, 2006, we had an investment which we
accounted for by the equity method because we owned 49% of the entity and had the ability to
exercise significant influence over the operational policies of the limited liability company. As
discussed in Note 3 in Notes to Consolidated Financial Statements, on February 6, 2007, we
acquired the remaining 51% equity interest of this entity.
Valuation of Long-Lived Assets. Management reviews long-lived assets, consisting primarily of
property and equipment and intangible assets with finite lives, for impairment in accordance with
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144). In analyzing potential impairment, we use projections of
future discounted cash flows from the assets. These projections are based on our view of growth
rates for the related business, anticipated future economic conditions and the appropriate discount
rates relative to risk and estimates of residual values. We believe that our estimates are
consistent with assumptions that marketplace participants would use in their estimates of fair
value.
Valuation of Goodwill and Intangible Assets. In accordance with SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS 142), we conduct, on at least an annual basis, a review of our
reporting entities to determine whether the carrying values of goodwill exceed the fair value using
a discounted cash flow methodology for each entity. Should this be the case, the value of goodwill
may be impaired and written down. Goodwill acquired in a purchase business combination and
determined to have an infinite useful life is not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. In addition, acquired intangible
assets are required to be recognized and amortized over their useful lives if the benefit of the
asset is based on contractual or legal rights.
In the year ended December 31, 2005, we charged $11.5 million, against goodwill related to the
decision to sell substantially all of our state Department of Transportation related projects and
assets.
During
the year ended December 31, 2007, we recorded approximately
$52.2 million of additional goodwill
and other intangible assets in connection with acquisitions and
payments of earnouts made throughout
the year. See Note 3 Acquisitions in Notes to Consolidated Financial Statements.
We could record additional impairment losses if, in the future, profitability and cash flows
of our reporting entities decline to the point where the carrying value of those units exceed their
fair value.
Accrued insurance. MasTec maintains insurance policies subject to per claim deductibles of $1
million for its workers compensation policy, $2 million for its general liability policy and $3
million for its automobile liability policy. We have excess umbrella coverage for losses in excess
of the primary coverages of up to $100 million per claim and in the aggregate. We also maintain an
insurance policy with respect to employee group health claims subject to per claim deductibles of
$300,000 after
satisfying an annual deductible of $100,000. All insurance liabilities are actuarially
determined on a quarterly basis for unpaid claims and associated expenses, including the ultimate
liability for claims incurred and an estimate of claims incurred but not reported. The
47
MasTec, Inc.
Notes To Consolidated Financial Statements continued
accruals are
based upon known facts, historical trends and a reasonable estimate of future expenses. However, a
change in experience or actuarial assumptions could nonetheless materially affect results of
operations in a particular period. Known amounts for claims that are in the process of being
settled, but have been paid in periods subsequent to those being reported, are also recorded in
such reporting period.
We are periodically required to post letters of credit and provide cash collateral to our
insurance carriers. As of December 31, 2007 and 2006, such letters of credit amounted to $64.8
million and $66.2 million, respectively, and cash collateral posted amounted to $3.3 million and
$6.6 million, respectively, which is included in other assets.
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. We estimate our income taxes in each of the jurisdictions
in which we operate. This process involves estimating our 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. The recording of a net deferred tax asset
assumes the realization of such asset in the future. Otherwise a valuation allowance must be
recorded to reduce this asset to its net realizable value. Management considers future pretax
income and ongoing prudent and feasible tax planning strategies in assessing the need for such a
valuation allowance. In the event that we determine that we may not be able to realize all or part
of the net deferred tax asset in the future, a valuation allowance for the deferred tax asset is
charged against income in the period such determination is made.
As a result of our operating losses, we have recorded valuation allowances aggregating $47.9
million and $49.2 million as of December 31, 2007 and 2006, respectively, to reduce certain of our
net deferred federal, foreign and state tax assets to their estimated net realizable value. We
anticipate that we will generate sufficient pretax income in the future to realize our deferred tax
assets. In the event that our future pretax operating income is insufficient for us to use our
deferred tax assets, we have based our determination that the deferred tax assets are still
realizable based on continuing operations and feasible tax planning strategies that are available
to us.
Stock based compensation. In the first quarter of 2006, MasTec adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). This Statement
requires companies to expense the estimated fair value of stock options and similar equity
instruments issued to employees over the vesting period in their statement of operations. SFAS 123R
eliminates the alternative to use the intrinsic method of accounting provided for in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), which
generally resulted in no compensation expense recorded in the financial statements related to the
grant of stock options to employees if certain conditions were met.
We adopted SFAS 123R using the modified prospective method effective January 1, 2006, which
requires us to record compensation expense over the vesting period for all awards granted after the
date of adoption, and for the unvested portion of previously granted awards that remain outstanding
at the date of adoption. Accordingly, amounts for periods prior to January 1, 2006 presented herein
have not been restated to reflect the adoption of SFAS 123R. The pro forma effect of the 2005 prior
period is as follows and has been disclosed to be consistent with prior accounting rules (in
thousands, except per share data):
|
|
|
|
|
|
|
2005 |
|
Net loss, as reported |
|
$ |
(14,616 |
) |
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards |
|
|
(6,913 |
) |
|
|
|
|
Pro forma net loss |
|
$ |
(21,529 |
) |
|
|
|
|
Basic net loss per share: |
|
|
|
|
As reported |
|
$ |
(0.30 |
) |
Pro forma |
|
$ |
(0.43 |
) |
Diluted net loss per share: |
|
|
|
|
As reported |
|
$ |
(0.29 |
) |
Pro forma |
|
$ |
(0.43 |
) |
48
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Assumptions utilized in determining the fair value of the Companys stock options are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Expected term-employees
|
|
4.25 7 years
|
|
4.26 7 years
|
|
4.17 6.17 years
|
Expected term-executives
|
|
5.88 7.88 years
|
|
5.74 7.74 years
|
|
5.38 7.38 years
|
Volatility
|
|
|
40% 65% |
|
|
|
40% 65% |
|
|
|
60% 65% |
|
Risk-free interest rate
|
|
|
3.04% 5.09% |
|
|
|
4.58% 4.85% |
|
|
|
4.51% 4.65% |
|
Dividends
|
|
None
|
|
None
|
|
None
|
Forfeiture rate.
|
|
|
7.52% |
|
|
|
7.47% |
|
|
|
6.97% |
|
On August 23, 2005, the compensation committee of our Board of Directors approved the
acceleration and vesting of all unvested stock options having an exercise price in excess of
current market value on or before December 31, 2005 for option grants under the Companys 2003
Employee Stock Incentive Plan (current employees, including executive officers) and the Companys
2003 Stock Incentive Plan for Non-Employees, as amended. Stock option awards granted in 2003 and
2004 with respect to 769,000 shares of the Companys common stock were accelerated resulting in
approximately $4.1 million of pro forma compensation expense in the pro forma calculation for the
year ended December 31, 2005. These options were not fully achieving their original objectives of
incentive compensation and employee retention. These accelerations had a positive effect on
employee morale, retention and perception of option value. The acceleration also eliminated future
compensation expense the Company recognized in its consolidated statement of operations with
respect to these options as required by SFAS 123R.
We also grant restricted stock, which is valued based on the market price of the common stock
on the date of grant. Compensation expense arising from restricted stock grants is recognized using
the ratable method over the vesting period. Unearned compensation for performance-based options and
restricted stock is shown as a reduction of shareholders equity in the consolidated balance
sheets.
Fair value of financial instruments. We estimate the fair 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. 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 managements estimates,
approximated their carrying values. At December 31, 2007 and 2006, the fair value of senior notes
was $154.7 million and $121.0 million, respectively, based on quoted market values. MasTec uses
letters of credit to back certain insurance policies. The letters of credit reflect fair value as a
condition of their underlying purpose and are subject to fees competitively determined in the
marketplace.
New accounting pronouncements. In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 141(R), Business Combinations
(SFAS 141(R)) and Statement of Financial Accounting Standards No. 160 Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS
160). SFAS 141(R) and SFAS 160 significantly change the accounting for and reporting of business
combination transactions and noncontrolling (minority) interests. SFAS 141(R) and SFAS 160 are
effective for the fiscal years beginning after December 15, 2008. SFAS 141(R) and SFAS 160 are
effective prospectively; however, the reporting provisions of SFAS 160 are effective retroactively.
SFAS 141(R) is required to be adopted concurrently with SFAS 160 and is effective for business
combination transactions for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. We are currently evaluating the
impact of the adoption of SFAS 141(R) and SFAS 160 on our consolidated financial statements.
On February 15, 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115 (SFAS 159). This standard permits an entity to measure financial
instruments and certain other items at estimated fair value. Most of the provisions of SFAS No. 159
are elective; however, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities, applies to all entities that own trading and available-for-sale securities.
The fair value option created by SFAS 159 permits an entity to measure eligible items at fair value
as of specified election dates. The fair value option (a) may generally be applied instrument by
instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the
entire instrument and not to only a
49
MasTec, Inc.
Notes To Consolidated Financial Statements continued
portion of the instrument. SFAS 159 is effective as of the beginning of the first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous
fiscal year provided that the entity (i) makes that choice in the first 120 days of that year, (ii)
has not yet issued financial statements for any interim period of such year, and (iii) elects to
apply the provisions of Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair
Value Measurements. We are currently evaluating the impact of SFAS 159, if any, on our
consolidated financial statements.
In November 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-04,
Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split of
Endorsement Split-Dollar Life Insurance Arrangements, (EITF 06-04). EITF 06-04 reached a
consensus that for a split-dollar life insurance arrangement that provides a benefit to an employee
that extends to postretirement periods, an employer should recognize a liability for future
benefits in accordance with Statement of Financial Accounting Standards No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions, (SFAS 106) or APB Opinion 12
(depending upon whether a substantive plan is deemed to exist) based on the substantive agreement
with the employee. This consensus was effective for fiscal years beginning after December 15, 2006
and did not have a material effect on our consolidated financial statements.
In November 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-05,
Accounting for Purchase of Life Insurance-Determining the Amount That Could Be Realized in
Accordance with FASB Technical Bulletin No. 85-04, (EITF 06-05). EITF 06-05 reached a consensus
that a policyholder should consider any additional amounts included in the contractual terms of the
policy in determining the amount that could be realized under the insurance contract. The Task
Force agreed that contractual limitations should be considered when determining the realizable
amounts. Those amounts that are recoverable by the policyholder at the discretion of the insurance
company should be excluded from the amount that could be realized. The Task Force also agreed that
fixed amounts that are recoverable by the policyholder in future periods in excess of one year from
the surrender of the policy should be recognized at their present value. The Task Force also
reached a consensus that a policy holder should determine the amount that could be realizable under
the life insurance contract assuming the surrender of an individual-life by individual policy (or
certificate by certificate in a group policy). The Task Force noted that any amount that is
ultimately realized by the policyholder upon the assumed surrender of the final policy (or final
certificate in a group policy) shall be included in the amount that could be realized under the
insurance contract. This consensus was effective for fiscal years beginning after December 15, 2006
and did not have a material effect on our consolidated financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of
FASB Statements No. 87, 88 and 132(R) (SFAS 158). This statement requires an employer to
recognize the funded status of a benefit plan as an asset or liability in its financial statements.
The funded status is measured as the difference between plan assets at fair value and the plans
specific benefit obligation, which would be the projected benefit obligation. Under SFAS 158, the
gains or losses and prior service cost or credits that arise in a period but are not immediately
recognized as components of net periodic benefit expense will now be recognized, net of tax, as a
component of other comprehensive income. SFAS 158 is effective for fiscal years ending after
December 15, 2008. We do not expect this pronouncement to have a material effect on our
consolidated financial statements.
In September 2006, the Securities and Exchange Commission (SEC) staff issued Staff
Accounting Bulletin No. 108 (SAB 108), Considering the effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements. Traditionally, there have been two
widely recognized methods for quantifying the effects of financial statement misstatements: the
roll-over method and the iron-curtain method. The roll-over method focuses primarily on the
impact of a misstatement on the income statement, including the reversing effect of prior year
misstatements. The iron-curtain method focuses primarily on the effect of correcting the period-end
balance sheet with less emphasis on the reversing effects of prior year errors on the income
statement. In SAB 108, the SEC staff established an approach that is commonly referred to as a
dual approach because it now requires quantification of errors under both the iron-curtain and
the roll-over methods. SAB 108 is effective for the fiscal year ending December 31, 2006. The
adoption of SAB 108 did not have any effect on MasTecs financial position, net earnings or prior
year financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS
157), Fair Value Measurements. This statement establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. SFAS 157 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. SFAS 157 is effective for the fiscal
year after November 15, 2007. We
are currently evaluating this standard to determine its impact, if any, on our consolidated
financial statements.
50
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Note 2 Sale of the Companys Common Stock
On January 24, 2006, MasTec completed a public offering of 14,375,000 shares of our common
stock at $11.50 per share. The net proceeds from the sale were approximately $156.4 million after
deducting underwriting discounts and offering expenses. We used $18.5 million of the net proceeds
for the cash portion of the purchase price for the DSSI acquisition, as described in Note 3 below.
On March 2, 2006, we used $75.5 million of the net proceeds of the public offering to redeem a
portion of our 7.75% senior subordinated notes due February 2008.
Note 3 Acquisitions
Acquisition of Digital Satellite Services, Inc.
Effective January 31, 2006, we acquired substantially all of the assets and assumed certain
operating liabilities and contracts of Digital Satellite Services, Inc., which we refer to as the
DSSI acquisition. The purchase price was composed of $18.5 million in cash, $6.9 million of MasTec
common stock (637,214 shares based on the closing price of MasTecs common stock of $11.77 per
share on January 27, 2006 discounted by 8.75% due to the shares being restricted for 120 days),
$0.9 million of estimated transaction costs and an earnout based on future performance. We
registered the resale of these shares on April 28, 2006.
DSSI was involved in the installation of residential and commercial satellite and security
services in several markets including Atlanta, Georgia, the Greenville-Spartanburg area of South
Carolina and Asheville, North Carolina, and portions of Tennessee, Kentucky and Virginia. These
markets are contiguous to areas in which we are active with similar installation services.
Following the DSSI acquisition, we provide installation services from the mid-Atlantic states to
South Florida.
The purchase price allocation for the DSSI acquisition is based on fair-value of each of the
following components on January 31, 2006 (in thousands):
|
|
|
|
|
Net assets |
|
$ |
2,026 |
|
Non-compete agreement |
|
|
658 |
|
Goodwill |
|
|
23,559 |
|
|
|
|
|
Purchase price |
|
$ |
26,243 |
|
|
|
|
|
The operations of DSSI are immaterial to our consolidated financial statements.
Acquisition of Remaining Interest in Our 49% Equity Investment.
In September 2004, MasTec purchased a 49% interest in a limited liability company from a third
party. The purchase price for this investment was an initial amount of $3.7 million which was paid
in four quarterly installments of $925,000 through December 31, 2005. Beginning in the first
quarter of 2006, eight additional contingent quarterly payments were expected to be made to the
third party from which the interest was purchased. The contingent payments were to be up to a
maximum of $1.3 million per quarter based on the level of unit sales and profitability of the
limited liability company in specified preceding quarters. The first five quarterly payments, each
of $925,000, were made on January 10, 2006, April 10, 2006, July 11, 2006, October 10, 2006 and
January 10, 2007. The January 10, 2007 amount was included in accrued expenses and other assets at
December 31, 2006. In March 2006, The entity requested an additional capital contribution in the
amount of $2.0 million of which $980,000, or 49%, was paid by MasTec.
Effective February 1, 2007, we acquired the remaining 51% equity interest in this investment.
As a result of our acquisition of the remaining 51% equity interest, we have consolidated the
operations of the acquired entity with our results commencing in February 2007. In February 2007,
we paid the seller $8.65 million in cash, in addition to approximately $6.35 million which we also
paid at that time to discharge our remaining obligations to the seller under the purchase agreement
for the original 49% equity interest, and issued to the seller 300,000 shares of our common stock.
We have also agreed to pay the seller an earnout through the eighth anniversary of the closing date
based on the future performance of the acquired business. In connection with the purchase, we
entered into a service agreement with the sellers for them to manage the business. Under certain
circumstances, including a change of control of MasTec or the acquired entity or in certain cases a
termination of the service agreement, the remaining earnout payments will be accelerated and become
payable. Under certain circumstances, we may be required to invest up to an additional $3.0 million
in the acquired entity. In
connection with the acquisition, we registered for resale 300,000 shares of the total shares
issued to the seller. On May 15, 2007, this registration statement was declared effective by the
SEC.
51
MasTec, Inc.
Notes To Consolidated Financial Statements continued
The
purchase price allocation for the 51% acquisition of this entity is based on the fair-value of each
of the components as of February 1, 2007 (in thousands):
|
|
|
|
|
Net assets |
|
$ |
3,281 |
|
Tradename |
|
|
476 |
|
Non-compete agreement |
|
|
311 |
|
Contract
Intangible |
|
|
5,941 |
|
Customer
related intangible |
|
|
774 |
|
Goodwill |
|
|
928 |
|
|
|
|
|
Purchase price |
|
$ |
11,711 |
|
|
|
|
|
The purchase price for the original 49% equity interest exceeded the carrying value of the net
assets as of original acquisition date and accordingly the excess was considered goodwill.
The non-compete agreements are in force with the former shareholders of the acquired entity
and are being amortized over their contractual life. Customer related intangibles are being
amortized using an accelerated method over five years.
Prior to the acquisition of the remaining 51% equity interest, we accounted for this
investment using the equity method as we had the ability to exercise significant influence over the
financial and operational policies of this limited liability company. We recognized approximately
$0.1 million, $5.8 million and $0.3 million in equity income during the years ended December 31,
2007, 2006 and 2005, respectively. As of December 31, 2006 the
carrying amount of this
investment was approximately
$15.7 million and was included in other assets in the
consolidated balance sheet.
Acquisition of Additional Ownership interest in GlobeTec
During 2007, we acquired an additional 45% ownership interest in GlobeTec Construction, LLC
(GlobeTec) for $6.5 million in cash. In addition to the cash payments, we have agreed to pay
certain sellers an earnout based on future performance through the fourth anniversary of the
closing date. As a result of these investments, our ownership interest in GlobeTec increased from
51% to 96% during the year ended December 31, 2007. The aggregate purchase price of $6.5 million
has been allocated, on a preliminary basis, to the estimated fair value of acquired tangible assets
of $2.9 million and identifiable intangible assets of $0.7 million, resulting in goodwill totaling
$2.9 million.
Acquisition of Three Phase Line Construction, Inc.
In October 2007, we acquired all the outstanding shares of capital stock of Three Phase Line
Construction, Inc. for a purchase price of $8.0 million in cash, subject to adjustments, and an
earnout based on future performance of the acquired entity through the fifth anniversary of the
closing date based on fiscal year. We may, at our option, issue shares of our common stock to the sellers of Three
Phase Line Construction, Inc. in connection with the earnout for this acquisition. Three Phase
Line Construction is involved in the construction and maintenance of transmission and distribution
utility systems, substation and storm restoration in several northern states. The purchase price,
including acquisition cost, of approximately $0.1 million has been allocated, on a preliminary
basis, to the estimated fair value of acquired tangible assets of $3.3 million, assumed liabilities
of $1.9 million, and identifiable intangible assets of $0.7 million, resulting in goodwill
totaling $6.0 million.
Acquisition of Power Partners, LLC.
In December 2007, we acquired certain assets, of Power Partners, LLC. for $5.5 million in
cash, and assumed certain liabilities of $1.1 million and agreed to pay the seller an earnout based
on future performance through the fifth anniversary of the closing date. Power Partners, LLC, is
an electrical utility contractor specializing in wind farm construction. The purchase price of
approximately $6.6 million has been allocated, on a preliminary basis, to the estimated fair value
of acquired tangible assets of $0.2 million, and identifiable intangible assets of $0.5 million
resulting in goodwill totaling $5.9 million.
None of the acquisitions made during the year ended December 31, 2007 were material, either
individually or in the aggregate, to our revenue, results of operations and financial position.
52
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Note 4 Goodwill and Other Intangible Assets
SFAS No. 142 requires companies to stop amortizing goodwill and certain intangible assets with
an infinite useful life. Instead, SFAS No. 142 requires that goodwill and certain intangible assets
deemed to have an infinite useful life be reviewed for impairment upon adoption of SFAS No. 142 and
annually thereafter.
Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a
reporting unit exceeds its estimated fair value as determined using a discounted cash flow
methodology applied to the particular entity.
During the year ended December 31, 2007, we recorded approximately $52.2 million of goodwill
and other identifiable intangible assets in connection with acquisitions and payment of earnouts
made throughout the year.
During the fourth quarters of 2007, 2006 and 2005, management performed its annual review of
goodwill and certain identifiable intangible assets with an infinite useful life for impairment. No
additional impairment charges for 2007, 2006 and 2005 were required as a result of this review. In
the year ended December 31, 2005, we charged $11.5 million against goodwill related to the decision
to sell substantially all of our state Department of Transportation related projects and assets.
At
December 31, 2007, identifiable intangible assets amount to
approximately $10.7 million, including $3.6 million of identifiable intangible assets with finite lives. At December 31, 2006
identifiable intangible assets amount to approximately
$1.3 million. We continue to amortize identifiable
intangible assets that have a finite useful life. Total amortization expense related to these
identifiable intangible assets was $1.0 million, $0.3 million and $0.2 million in 2007, 2006 and
2005, respectively.
Identifiable intangible assets that have a finite useful life will be amortized as
summarized in the following table:
|
|
|
|
|
2008 |
|
$ |
1,104 |
|
2009 |
|
|
994 |
|
2010 |
|
|
696 |
|
2011 |
|
|
338 |
|
2012 |
|
|
225 |
|
Thereafter |
|
|
238 |
|
|
|
|
|
Total |
|
$ |
3,595 |
|
|
|
|
|
Note 5 Securities available for sale
Securities available for sale consist of auction rate securities that most often represent
interest in pools of either collateralized debt obligations, student loans, taxable municipal bonds
and similar securities. Unrealized gains and losses related to auction rate securities are included
in accumulated other comprehensive income (loss) as a separate component of shareholders equity.
While the underlying securities of auction rate securities may have contractual maturities of more
than ten years, the interest rates on such securities reset at intervals of 7, 28 or 35 days.
Auction rate securities are priced and trade as short-term investments and are considered
available-for-sale investments because of such interest rate reset
feature and expected liquidity.
As of December 31, 2007, we have identified approximately $16.2 million of investments subject
to this auction process for which there have been insufficient bidders at the scheduled rollover
dates and held another approximately $33.0 million of these securities. As a result, we recorded
an unrealized loss of $4.8 million in 2007. Subsequent to year end, of the approximately $33.0
million of these securities, $8.5 million were sold at par, approximately $7.9 million had
insufficient bidders and failed the reset process, and we believe the remaining approximately $16.6
million may be at risk of having this occur. While the investments
are of a high credit quality and the rating of these securities has not been lowered, at this time
we are uncertain when the liquidity issues associated with these investments will improve, when we
will be able to exit these investments at their par value or whether
we will incur any additional
losses as a result of these investments.
The cost basis, gross unrealized gains and losses and fair value for these securities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Cost |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Basis |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Basis |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Auction rate securities |
|
$ |
49,150 |
|
|
$ |
|
|
|
$ |
(4,790 |
) |
|
$ |
44,360 |
|
|
$ |
53,764 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
53,764 |
|
53
MasTec, Inc.
Notes To Consolidated Financial Statements continued
The contractual maturity of the auction rate securities available for sale at December
31, 2007 is greater than ten years.
Note 6 Accounts Receivable
Accounts receivable, classified as current, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Contract billings |
|
$ |
130,158 |
|
|
$ |
128,359 |
|
Retainage |
|
|
8,865 |
|
|
|
9,051 |
|
Unbilled revenue |
|
|
36,342 |
|
|
|
37,735 |
|
|
|
|
|
|
|
|
|
|
|
175,365 |
|
|
|
175,145 |
|
Less allowance for doubtful accounts |
|
|
15,276 |
|
|
|
11,537 |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
160,089 |
|
|
$ |
163,608 |
|
|
|
|
|
|
|
|
Retainage, which has been billed but is not due until completion of performance and acceptance
by customers, is expected to be collected within one year. Any receivables, including retainage
expected to be collected beyond a year is recorded in long-term other assets.
Activity for the allowance for doubtful accounts from continuing operations is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Allowance for doubtful accounts at beginning of year |
|
$ |
11,537 |
|
|
$ |
15,515 |
|
Provision for doubtful accounts from continuing operations,
includes $14,034 related to anticipated legal settlements for 2007 |
|
|
17,473 |
|
|
|
2,064 |
|
Amounts charged against the allowance |
|
|
(13,734 |
) |
|
|
(6,042 |
) |
|
|
|
|
|
|
|
Allowance for doubtful accounts at end of year |
|
$ |
15,276 |
|
|
$ |
11,537 |
|
|
|
|
|
|
|
|
Note 7 Other Assets and Liabilities
Prepaid expenses and other current assets as of December 31, 2007 and 2006 consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets |
|
$ |
26,467 |
|
|
$ |
7,639 |
|
Notes receivable |
|
|
113 |
|
|
|
213 |
|
Non-trade receivables |
|
|
17,081 |
|
|
|
14,664 |
|
Other investments |
|
|
2,738 |
|
|
|
5,548 |
|
Prepaid expenses and deposits |
|
|
5,708 |
|
|
|
7,249 |
|
Other |
|
|
4,058 |
|
|
|
3,439 |
|
|
|
|
|
|
|
|
Total |
|
$ |
56,165 |
|
|
$ |
38,752 |
|
|
|
|
|
|
|
|
Other non-current assets as of December 31, 2007 and 2006 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Investment in real estate |
|
$ |
1,683 |
|
|
$ |
1,683 |
|
Equity investments |
|
|
100 |
|
|
|
15,719 |
|
Long-term portion of deferred financing costs, net |
|
|
5,380 |
|
|
|
2,486 |
|
Cash surrender value of insurance policies |
|
|
8,939 |
|
|
|
7,654 |
|
Receivable from insurance carrier |
|
|
2,071 |
|
|
|
|
|
Insurance escrow |
|
|
3,286 |
|
|
|
6,564 |
|
Other receivables |
|
|
1,500 |
|
|
|
2,910 |
|
Long-term portion of notes receivable |
|
|
200 |
|
|
|
3,150 |
|
Deferred
project cost |
|
|
1,815 |
|
|
|
965 |
|
Other |
|
|
3,214 |
|
|
|
2,274 |
|
|
|
|
|
|
|
|
Total |
|
$ |
28,188 |
|
|
$ |
43,405 |
|
|
|
|
|
|
|
|
54
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Other current and non-current liabilities as of December 31, 2007 and 2006 consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Current liabilities: |
|
|
|
|
|
|
|
|
Obligations related to acquisitions |
|
$ |
5,919 |
|
|
$ |
|
|
Accrued compensation |
|
|
12,556 |
|
|
|
10,980 |
|
Accrued insurance |
|
|
16,645 |
|
|
|
16,784 |
|
Accrued interest |
|
|
4,734 |
|
|
|
3,907 |
|
Billings in excess of costs |
|
|
6,142 |
|
|
|
3,122 |
|
Accrued costs related to sale of DOT assets |
|
|
9,882 |
|
|
|
|
|
Accrued settlements |
|
|
25,619 |
|
|
|
748 |
|
Accrued professional fees |
|
|
3,224 |
|
|
|
4,810 |
|
Accrued losses on contracts |
|
|
364 |
|
|
|
410 |
|
Accrued payments related to equity investment |
|
|
|
|
|
|
925 |
|
Other |
|
|
6,819 |
|
|
|
5,578 |
|
|
|
|
|
|
|
|
Total |
|
$ |
91,904 |
|
|
$ |
47,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Accrued insurance |
|
$ |
27,572 |
|
|
$ |
34,158 |
|
Minority interest |
|
|
312 |
|
|
|
2,305 |
|
Other |
|
|
76 |
|
|
|
58 |
|
|
|
|
|
|
|
|
Total |
|
$ |
27,960 |
|
|
$ |
36,521 |
|
|
|
|
|
|
|
|
Note 8 Property and Equipment
Property and equipment including property and equipment under capital leases, is comprised of
the following as of December 31, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
Useful Lives |
|
|
|
2007 |
|
|
2006 |
|
|
(In Years) |
|
Land |
|
$ |
3,654 |
|
|
$ |
3,654 |
|
|
|
|
|
Buildings and leasehold improvements |
|
|
8,944 |
|
|
|
8,686 |
|
|
|
5 - 40 |
|
Machinery and equipment |
|
|
139,735 |
|
|
|
125,228 |
|
|
|
2 - 15 |
|
Office furniture and equipment |
|
|
41,578 |
|
|
|
37,576 |
|
|
|
3 - 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,911 |
|
|
|
175,144 |
|
|
|
|
|
Less accumulated depreciation |
|
|
(111,972 |
) |
|
|
(113,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
81,939 |
|
|
$ |
61,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment under capitalized leasing arrangements are depreciated over their
estimated useful lives.
Management reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be realizable. If an evaluation is
required, the estimated future undiscounted cash flows associated with the asset are compared to
the assets carrying amount to determine if an impairment of such asset is necessary. The effect of
any impairment would be to expense the difference between the fair value of such asset and its
carrying value.
55
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Note 9 Debt
Debt is comprised of the following at December 31, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
7.75% senior subordinated notes due February 2008 |
|
$ |
|
|
|
$ |
120,970 |
|
Revolving credit facility |
|
|
|
|
|
|
|
|
7.625% senior notes due February 2017 |
|
|
150,000 |
|
|
|
|
|
Capital lease obligations |
|
|
12,289 |
|
|
|
8,045 |
|
Notes payable for equipment, at interest rates
from 4.34% to 7.65% due in installments through
the year 2008 |
|
|
684 |
|
|
|
1,161 |
|
|
|
|
|
|
|
|
Total debt |
|
|
162,973 |
|
|
|
130,176 |
|
Less current maturities |
|
|
(2,694 |
) |
|
|
(1,769 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
160,279 |
|
|
$ |
128,407 |
|
|
|
|
|
|
|
|
Revolving Credit Facility
We have a secured revolving credit facility under which we may borrow up to $150 million,
subject to certain adjustments and restrictions (the Credit Facility). Pursuant to an amendment
of the Credit Facility that became effective June 30, 2007, the expiration date of the Credit
Facility was extended from May 10, 2010 to May 10, 2012. The amendment added an accordion feature
which allows us to request an increase in the maximum amount borrowed under the Credit Facility
from $150 million to $200 million, if certain criteria under the credit facility is met. This
amendment also reduced the interest rate margin applied to borrowings and increased the maximum
available amount we can borrow at any given time, among other things. Deferred financing costs
related to the Credit Facility are included in prepaid expenses and other current assets, and in
other assets in the consolidated balance sheets.
The amount that we can borrow at any given time is based upon a formula that takes into
account, among other things, eligible billed and unbilled accounts receivable, equipment, real
estate and eligible cash collateral, which can result in borrowing availability of less than the
full amount of the Credit Facility. At December 31, 2007 and December 31, 2006, net availability
under the Credit Facility totaled $44.0 million and $35.1 million, respectively, which includes
outstanding standby letters of credit aggregating $86.4 million and $83.3 million in each period,
respectively. At December 31, 2007, $64.8 million of the outstanding letters of credit were issued
to support MasTecs casualty and medical insurance requirements. These letters of credit mature at
various dates and most have automatic renewal provisions subject to prior notice of cancellation.
The Credit Facility is collateralized by a first priority security interest in substantially all of
our assets and a pledge of the stock of certain of our operating subsidiaries. Substantially all of
our wholly-owned subsidiaries collateralize the Credit Facility. At December 31, 2007 and December
31, 2006, we had no outstanding cash draws under the Credit Facility. Interest under the Credit
Facility accrues at variable rates based, at our option, on the agent banks base rate plus a
margin of between 0.0% and 0.50%, or at the LIBOR rate (as defined in the Credit Facility) plus a
margin of between 1.00% and 2.00%, depending on certain financial thresholds. Currently the margin
we pay over LIBOR is 1.125%. The Credit Facility includes an unused facility fee of 0.25%.
The Credit Facility contains customary events of default (including cross-default) provisions
and covenants related to our operations that prohibit, among other things, making investments and
acquisitions in excess of specified amounts, incurring additional indebtedness in excess of
specified amounts, paying cash dividends, making other distributions, creating liens against our
assets, prepaying other indebtedness excluding our 7.625% senior notes, and engaging in certain
mergers or combinations without the prior written consent of the lenders. In addition, any
deterioration in the quality of billed and unbilled receivables, reduction in the value of our
equipment or an increase in our lease expense related to real estate, would reduce availability
under the Credit Facility.
If the net availability under the Credit Facility does not exceed $15.0 million, MasTec is
required to be in compliance with a minimum fixed charge coverage ratio of 1.1 to 1.0 measured on a
monthly basis. The $15.0 million availability trigger is subject to adjustment if the maximum
amount we may borrow under the Credit Facility is adjusted. The fixed charge coverage ratio is
generally defined to mean the ratio of our net income before interest expense, income tax expense,
depreciation expense, and amortization expense minus net capital expenditures and cash taxes to the
sum of all interest expense plus current maturities of debt for the period. The financial covenant
was not applicable as of December 31, 2007 because at that time the net availability under the
Credit Facility did not decline below the required threshold specified above.
We are dependent upon borrowings and letters of credit under this Credit Facility to fund
operations. Should we be unable to comply with the terms and conditions of the Credit Facility, we
would be required to obtain further modifications of the Credit Facility or obtain another source
of financing to continue to operate. We may not be able to achieve our 2007 projections and thus
may not be in compliance with the Credit Facilitys minimum net availability requirements and
minimum fixed charge ratio in the future.
56
MasTec, Inc.
Notes To Consolidated Financial Statements continued
The variable rate Credit Facility exposes us to interest rate risk.
Senior Notes
As of December 31, 2007, $150.0 million of our 7.625% senior notes due in February 2017, with
interest due semi-annually were outstanding. The notes contain default (including cross-default)
provisions and covenants restricting many of the same transactions as under our credit facility.
The indenture which governs our senior notes allows us to incur the following additional
indebtedness among others: the credit facility (up to $200 million), renewals to existing debt
permitted under the indenture plus an additional $50 million of indebtedness, further indebtedness
if our fixed charge coverage ratio is at least 2:1 for the four most recently ended fiscal quarters
determined on a pro forma basis as if that additional debt has been incurred at the beginning of
the period. In addition, the indenture prohibits incurring additional capital lease obligations in
excess of 5% of our consolidated net assets at any time the senior notes remain outstanding. The
definition of our fixed charge coverage ratio under the indenture is essentially equivalent to that
under our credit facility.
MasTec had no holdings of derivative financial or commodity instruments at December 31, 2007.
The following table summarizes our contractual maturities of long-term debt obligations as of
December 31, 2007 (in thousands).
|
|
|
|
|
2008 |
|
$ |
2,694 |
|
2009 |
|
|
2,654 |
|
2010 |
|
|
2,553 |
|
2011 |
|
|
2,668 |
|
2012 |
|
|
1,988 |
|
Thereafter |
|
|
150,416 |
|
|
|
|
|
Total |
|
$ |
162,973 |
|
|
|
|
|
Capital Leases
During 2007, we entered into agreements which provided financing for various machinery and
equipment totaling $6.2 million. These capital leases are non-cash transactions and, accordingly,
have been excluded from the consolidated statements of cash flows. These leases range between 60
and 72 months and have effective interest rates ranging from 3.31% to 5.12%. In accordance with
Statement of Financial Accounting Standard No. 13, Accounting for Leases (SFAS 13), as amended,
these leases were capitalized. SFAS 13 requires the capitalization of leases meeting certain
criteria, with the related asset being recorded in property and equipment and an offsetting amount
recorded as a liability. As of December 31, 2007, we had $12.3 million in total indebtedness
relating to the capital leases entered into during 2007, of which $10.0 million was considered
long-term.
Note 10 Lease Commitments
We have operating lease agreements for premises and equipment that expire on various dates.
The operating lease agreements are subject to escalation. Rent expense from continuing operations
for the years ended December 31, 2007, 2006 and 2005 was approximately $48.1 million, $50.2 million
and $47.5 million, respectively.
We also have capital lease agreements for equipment that expire on various dates.
57
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Minimum future lease commitments under non-cancelable operating leases and future minimum
capital lease payments, including effect of escalation clauses in effect at December 31, 2007 were
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
Capital Leases |
|
2008 |
|
$ |
21,914 |
|
|
$ |
3,112 |
|
2009 |
|
|
12,285 |
|
|
|
3,112 |
|
2010 |
|
|
6,272 |
|
|
|
3,112 |
|
2011 |
|
|
2,961 |
|
|
|
3,065 |
|
2012 |
|
|
1,424 |
|
|
|
2,355 |
|
Thereafter |
|
|
1,005 |
|
|
|
526 |
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
45,861 |
|
|
|
15,282 |
|
|
|
|
|
|
|
|
|
Less amounts representing interest |
|
|
|
|
|
|
(2,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,289 |
|
Less current portion |
|
|
|
|
|
|
(2,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,022 |
|
|
|
|
|
|
|
|
|
For leases with purchase options, the option to purchase equipment is at estimated fair market
value. We have non-cancelable subleases for certain capital leases which are recorded in other
assets.
Note 11 Discontinued Operations
During the fourth quarter 2004, we ceased performing new services in the network services
operations and sold these operations in 2005. On May 24, 2005, the Company sold certain assets of
its network services operations to a third party for $0.2 million consisting of $0.1 million in
cash and a promissory note in the principal amount of $0.1 million due in May 2006. We recorded a
loss on sale of approximately $0.6 million, net of tax, in the year ended December 31, 2005. The
loss on sale resulted from additional selling costs and remaining obligations that were not assumed
by the buyer. These operations have been classified as a discontinued operation in all periods
presented. The net loss for the years ended December 31, 2007, 2006 and 2005, for the network
services operations was $0.0 million, $0.3 million and $1.7 million, respectively.
The following table summarizes the results of operations for the network services operations
for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
10 |
|
|
$ |
115 |
|
|
$ |
4,001 |
|
Cost of revenue |
|
|
(10 |
) |
|
|
(115 |
) |
|
|
(3,938 |
) |
Operating and other expenses |
|
|
(20 |
) |
|
|
(317 |
) |
|
|
(1,764 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from operations before benefit for income taxes |
|
$ |
(20 |
) |
|
$ |
(317 |
) |
|
$ |
(1,701 |
) |
Benefit for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(20 |
) |
|
$ |
(317 |
) |
|
$ |
(1,701 |
) |
|
|
|
|
|
|
|
|
|
|
On December 31, 2005, the executive committee of our Board of Directors voted to sell
substantially all of our state Department of Transportation related projects and assets. The
decision to sell was made after evaluation of short and long-term prospects. The projects and
assets that went for sale have been accounted for as discontinued operations for all periods
presented. During the year
ended December 31, 2005, we wrote-off approximately $11.5 million in goodwill in connection
with our decision to sell substantially all of these related projects and assets. We determined
that this goodwill amount would not be realized after evaluating the cash flows from the operations
of these projects and assets in light of our decisions on future operations and our decision to
sell. The remaining
58
MasTec, Inc.
Notes To Consolidated Financial Statements continued
net asset value was also reviewed by management and impairment charges were
recorded to reserve for inventory items that were considered obsolete, accounts receivable that was
considered uncollectible, write-off of fixed assets that were no longer in use or not saleable,
estimated cost to complete for all projects in process and accrued estimated losses on the
projects. We also assumed closing costs and other liabilities expected from the sale. As a
result, we recorded impairment charges totaling $2.9 million and $44.5 million during the years
ended December 31, 2007 and 2006, respectively. Effective on February 1, 2007, we sold the state
Department of Transportation related projects and net assets. We agreed to keep certain assets and
liabilities related to the state Department of Transportation related projects. The sales price of
$1.0 million in cash was paid at closing. In addition, the buyer is required to pay us an earnout
of up to $12.0 million contingent on the future operations of the projects sold. However, as the
earnout is contingent upon the future performance of the state Department of Transportation related
projects, we may not receive any of these earnout payments.
On January 24, 2008, we entered into a settlement with the buyer of our state Department of
Transportation projects and assets to settle previously disclosed warranty, indemnification and
other claims primarily relating to work we had performed on the projects which were sold. Under
the terms of the Settlement Agreement, MasTec paid $6.0 million in cash and obtained a covenant not
to sue and general release from nearly all obligations owed by us to the buyer under the purchase
agreement including warranty and other indemnification obligations.
As a result of the settlement, we have recorded a charge of $6.0
million which is reflected in our loss from discontinued operations for the year ended December 31,
2007.
The following table summarizes the assets and liabilities for the state Department of
Transportation operations considered to be discontinued for the year ended 2006 as follows (in
thousands);
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
Accounts receivable, net |
|
$ |
10,315 |
|
Inventory |
|
|
8,461 |
|
Other current assets |
|
|
37 |
|
|
|
|
|
Current assets held for sale |
|
$ |
18,813 |
|
|
|
|
|
Long-term
assets |
|
|
70 |
|
|
|
|
|
Long-term assets held for sale |
|
$ |
70 |
|
|
|
|
|
Current liabilities related to assets held for sale |
|
$ |
24,946 |
|
|
|
|
|
Long-term liabilities related to assets held for sale |
|
$ |
596 |
|
|
|
|
|
The following table summarizes the results of operations for the state Department of
Transportation related projects and assets that are considered to be discontinued for the years
ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
5,663 |
|
|
$ |
81,967 |
|
|
$ |
94,445 |
|
Cost of revenue |
|
|
(6,892 |
) |
|
|
(112,337 |
) |
|
|
(106,183 |
) |
Operating expenses |
|
|
(11,070 |
) |
|
|
(58,444 |
) |
|
|
(19,782 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from operations before benefit for income taxes |
|
|
(12,299 |
) |
|
|
(88,814 |
) |
|
|
(31,520 |
) |
Benefit for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,299 |
) |
|
$ |
(88,814 |
) |
|
$ |
(31,520 |
) |
|
|
|
|
|
|
|
|
|
|
On March 30, 2007, our Board of Directors voted to sell substantially all of our Canadian
operations. The decision to sell was made after our evaluation of short and long term prospects
for these operations. Due to this decision, operations in Canada have been accounted for as
discontinued operations for all periods presented. In addition, we reviewed the carrying value of
the net assets related to our Canadian operations. During the year ended December 31, 2007, we
wrote-off $0.4 million in goodwill in connection with our decision to sell substantially all of our
Canadian net assets. Based on managements estimate and expected selling price, we recorded a
non-cash impairment charge of approximately $0.6 million. On April 10, 2007, we sold substantially
all of our Canadian
for approximately $1.0 million. The purchase price is subject to adjustments based on the value of
the net assets sold as of March 31, 2007.
59
MasTec, Inc.
Notes To Consolidated Financial Statements continued
The following table summarizes the assets and liabilities for the Canadian operations
considered to be discontinued for the year ended on
(in thousands):
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
Accounts receivable, net |
|
$ |
352 |
|
Prepaid expenses and other current assets |
|
|
383 |
|
|
|
|
|
Current assets |
|
|
735 |
|
|
|
|
|
Property and equipment, net |
|
|
188 |
|
Other assets |
|
|
401 |
|
|
|
|
|
Long-term assets |
|
|
589 |
|
|
|
|
|
Current liabilities |
|
|
687 |
|
|
|
|
|
Long-term liabilities |
|
$ |
|
|
|
|
|
|
The following table summarizes the results of operations for Canadian operations that are
considered to be discontinued for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
675 |
|
|
$ |
5,385 |
|
|
$ |
9,383 |
|
Cost of revenue |
|
|
(824 |
) |
|
|
(5,263 |
) |
|
|
(9,077 |
) |
Operating expenses |
|
|
(1,090 |
) |
|
|
(1,257 |
) |
|
|
(3,032 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from operations before benefit for income taxes |
|
|
(1,239 |
) |
|
|
(1,135 |
) |
|
|
(2,726 |
) |
Benefit for income taxes |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,254 |
) |
|
$ |
(1,135 |
) |
|
$ |
(2,726 |
) |
|
|
|
|
|
|
|
|
|
|
Note 12 Retirement and Stock Option Plans
MasTec has 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
did not match employee contributions in 2004 and 2005. Commencing in the first quarter of 2006, we
began to match contributions under the 401(k) plan. MasTec matches $0.50 on the dollar for the
first 2% of the employees contribution which is payable in common shares of MasTec.
We have granted options to purchase our common stock to our employees and members of our Board
of Directors and our affiliates under various stock option plans at no less than the fair market
value of the underlying stock on the date of grant. These options are granted for a term not
exceeding ten years and are forfeited in the event the employee or director terminates his or her
employment or relationship with us or one of our affiliates. All option plans contain anti-dilutive
provisions that require the adjustment of the number of shares of our common stock represented by
each option for any stock splits or dividends.
We have five stock option plans that have stock options outstanding as of December 31, 2007:
the 1994 Stock Incentive Plan (the 1994 Plan), the 1994 Stock Option Plan for Non-Employee
Directors (the Directors Plan), the 1999 Non-Qualified Option Plan (the Non-Qualified Plan),
the 2003 Employee Stock Incentive Plan as amended (the 2003 Plan) and the Amended and Restated
2003 Stock Incentive Plan for Non-Employees as amended (the 2003 Non-Employee Plan) and
individual option agreements. Typically, options under these plans are granted at fair market value
at the date of grant, vest between three to five years after grant and terminate no later than 10
years from the date of grant. The 1994 Plan and the Directors Plan expired in 2004 and no future
stock options can be granted under these plans. During 2006, MasTec entered into the Deferred Fee
Plan for its directors.
The 2003 Non-Employee Plan was adopted in April 2003 and authorized granting of restricted
stock to non-employees. We have reserved 2,500,000 shares of common stock for grant under the 2003
Non-Employee Plan which covers stock options or restricted stock awards. We grant restricted stock
which is valued based on the market price of the common stock on the date of grant.
Compensation expense arising from restricted stock grants is recognized using the ratable
method over the period of the restrictions. Unearned compensation for the restricted stock is shown
as a reduction of shareholders equity in the consolidated balance sheets. We approved the issuance
of restricted stock to the Board of Directors and certain employees in 2006. In the year ended
December 31, 2007,
60
MasTec, Inc.
Notes To Consolidated Financial Statements continued
we issued 284,388 shares of restricted stock to key employees and certain board
members, which were valued at approximately $3.4 million and are being expensed over a vesting
period ranging from 12 to 36 months. In the year ended December 31, 2006, we issued 104,751 shares
of restricted stock to key employees and board members. Total unearned compensation related to
restricted stock grants as of December 31, 2007 and 2006 is $2.5 million and $0.7 million,
respectively. Restricted stock expense for the years ended December 31, 2007, 2006 and 2005 is $1.5
million, $1.4 million and $.05 million, respectively.
Under these plans there were a total of 5,622,935, 5,526,667 and 6,354,015 options available
for grant at December 31, 2007, 2006 and 2005, respectively. The 1997 Non-Qualified Employee Stock
Purchase Plan also allows eligible employees to purchase the MasTecs common stock through payroll
deductions or in a lump sum at a 15% discount from fair market value. The amount of compensation
expense related to these transactions is immaterial.
The following is a summary of all stock option transactions during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Weighted Average |
|
|
|
Options |
|
|
Exercise Price |
|
Outstanding December 31, 2004 |
|
|
8,962,030 |
|
|
$ |
12.80 |
|
Granted |
|
|
1,370,500 |
|
|
|
9.70 |
|
Exercised |
|
|
(452,815 |
) |
|
|
5.60 |
|
Canceled |
|
|
(1,225,654 |
) |
|
|
14.19 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2005 |
|
|
8,654,061 |
|
|
$ |
12.54 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,064,500 |
|
|
|
13.50 |
|
Exercised |
|
|
(832,287 |
) |
|
|
5.40 |
|
Canceled |
|
|
(549,156 |
) |
|
|
19.24 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2006 |
|
|
8,337,118 |
|
|
$ |
12.94 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,395,497 |
) |
|
|
9.28 |
|
Canceled |
|
|
(1,079,166 |
) |
|
|
20.23 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2007 |
|
|
5,862,455 |
|
|
$ |
12.47 |
|
|
|
|
|
|
|
|
The weighted average fair value of stock options granted for 2006 and 2005 is $8.45 and $7.52
per share, respectively.
The following table summarizes information about stock options outstanding as of December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Options Exercisable |
|
|
|
Number of |
|
|
Remaining |
|
|
Weighted Average |
|
|
Number of |
|
|
Weighted Average |
|
Range of Exercise Prices |
|
Stock Options |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
Stock Options |
|
|
Exercise Price |
|
$2.0050 - $2.2100 |
|
|
33,334 |
|
|
|
2.27 |
|
|
$ |
2.00 |
|
|
|
33,334 |
|
|
$ |
2.00 |
|
$2.2101 - $4.8600 |
|
|
64,813 |
|
|
|
5.37 |
|
|
$ |
4.83 |
|
|
|
64,813 |
|
|
$ |
4.83 |
|
$4.8601 - $7.0900 |
|
|
358,855 |
|
|
|
5.10 |
|
|
$ |
5.56 |
|
|
|
358,855 |
|
|
$ |
5.56 |
|
$7.0901 - $10.5600 |
|
|
2,221,072 |
|
|
|
5.07 |
|
|
$ |
9.26 |
|
|
|
2,024,722 |
|
|
$ |
9.23 |
|
$10.5601 - $21.0417 |
|
|
3,184,381 |
|
|
|
3.89 |
|
|
$ |
15.76 |
|
|
|
2,556,673 |
|
|
$ |
16.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.0050 - $21.0417 |
|
|
5,862,455 |
|
|
|
4.42 |
|
|
$ |
12.47 |
|
|
|
5,038,397 |
|
|
$ |
12.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, we had 5,038,397 options which were exercisable at a weighted
average exercise price of $12.47 per share. As of December 31, 2006, we had 6,722,313 options which
were exercisable at a weighted average exercise price of $13.17 per share.
Note 13 Income Taxes
We adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB Statement 109, (FIN 48) in the first
quarter of 2007. FIN 48 is an interpretation of FASB Statement No. 109, Accounting for Income
Taxes, and seeks to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for
61
MasTec, Inc.
Notes To Consolidated Financial Statements continued
financial statement recognition and measurement of a tax
position that an entity takes or expects to take in a tax return. Under FIN 48, an entity may only
recognize or continue to recognize tax positions that meet a more likely than not threshold. In
the ordinary course of business there is inherent uncertainty in quantifying our income tax
positions. We assess our income tax positions and record tax benefits for all years subject to
examination based on managements evaluation of the facts, circumstances and information available
at the reporting date. For those tax positions where it is more likely than not that a tax benefit
will be sustained, we have recognized the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. For those income tax positions where it is not more likely
than not that a tax benefit will be sustained, no tax benefit has been recognized in our financial
statements.
On January 1, 2007, we recorded the cumulative effect of applying FIN 48 of $1.9 million as an
adjustment to the balance of deferred tax assets, and an offset to the valuation allowance on that
deferred tax asset. As of the adoption date, we had no accrued interest expense or penalties related to the
unrecognized tax benefits. Interest and penalties, if incurred, would be recognized as a component
of income tax expense. There are no open Federal tax years under
audit.
The expense (benefit) for income taxes from continuing operations consists of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(103 |
) |
|
$ |
(415 |
) |
|
$ |
39 |
|
Foreign |
|
|
|
|
|
|
7 |
|
|
|
(322 |
) |
State and local |
|
|
|
|
|
|
589 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103 |
) |
|
|
181 |
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
103 |
|
|
|
415 |
|
|
|
(39 |
) |
Foreign |
|
|
|
|
|
|
(7 |
) |
|
|
322 |
|
State and local, net of valuation provisions |
|
|
|
|
|
|
(589 |
) |
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
(181 |
) |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of significant items comprising our net deferred tax asset as of December 31,
2007 and 2006 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Non-compete |
|
$ |
2,636 |
|
|
$ |
2,914 |
|
Bad debts |
|
|
7,207 |
|
|
|
5,867 |
|
Accrued self insurance |
|
|
16,809 |
|
|
|
18,874 |
|
Operating loss and tax credit carry forward |
|
|
75,694 |
|
|
|
79,617 |
|
Other |
|
|
23,533 |
|
|
|
23,413 |
|
|
|
|
|
|
|
|
|
|
Valuation Allowance |
|
|
(47,921 |
) |
|
|
(49,178 |
) |
|
|
|
|
|
|
|
Subtotal |
|
|
77,958 |
|
|
|
81,507 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable retainage |
|
|
2,534 |
|
|
|
4,860 |
|
Property and equipment |
|
|
1,925 |
|
|
|
4,021 |
|
Basis differences in acquired assets |
|
|
405 |
|
|
|
399 |
|
Other |
|
|
4,194 |
|
|
|
5,284 |
|
Goodwill |
|
|
12,047 |
|
|
|
9,987 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
21,105 |
|
|
|
24,551 |
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
56,853 |
|
|
$ |
56,956 |
|
|
|
|
|
|
|
|
62
MasTec, Inc.
Notes To Consolidated Financial Statements continued
At December 31, 2007, we had approximately $176 million of net operating loss carryforwards
for U.S. federal income tax purposes that expire beginning in 2022. We have net operating loss
carryforwards for U.S. state and local purposes of approximately $18.1 million that expire from
2007 to 2026. We have an unrealized excess tax benefit of approximately $1.7 million, that when
realized, will increase capital surplus.
In assessing the ability to realize the deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which these temporary differences become deductible. Management
considers the projected future taxable income and prudent and feasible tax planning strategies in
making this assessment. As of December 31, 2007 and 2006, valuation allowances of $47.9 million and
$49.2 million have been recorded, respectively.
A reconciliation of U.S. statutory federal income tax rate related to pretax income (loss)
from continuing operations to the effective tax rate for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
U.S. statutory federal rate applied to
pretax (loss) income from continuing
operations |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
State and local income taxes |
|
|
3 |
|
|
|
1 |
|
|
|
5 |
|
Non-deductible expenses |
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
Effect of non U.S operations |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Other |
|
|
|
|
|
|
9 |
|
|
|
3 |
|
Valuation allowance for deferred tax assets |
|
|
(39 |
) |
|
|
(46 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
Note 14 Operations by Geographic Areas and Segments
MasTec manages its business on a project basis. All of our projects have been aggregated into
one reportable segment as a specialty trade contractor. We provide services to our customers in the
communications, utilities and government industries. Revenue for customers in these industries is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Communications |
|
$ |
769,611 |
|
|
$ |
684,217 |
|
|
$ |
610,787 |
|
Utilities |
|
|
217,385 |
|
|
|
217,947 |
|
|
|
183,889 |
|
Government |
|
|
50,783 |
|
|
|
38,257 |
|
|
|
43,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,037,779 |
|
|
$ |
940,421 |
|
|
$ |
838,663 |
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2007, 2006 and 2005, we operated in the United States and
Canada. In March 2007, we declared our Canadian operations as discontinued. Accordingly, results
of operations for all periods presented reflect our Canadian business as discontinued and our
results from continuing operations for all periods presented relate only to our United States
operations.
Note 15 Commitments and Contingencies
Change in Strategy Regarding Litigation and Other Disputes. In the third quarter of 2007, our
senior management performed a reassessment of our major legal cases, claims and other disputes,
including disputes involving amounts due us, and decided to accelerate the closure of a number of
these matters, particularly older legal cases, claims and disputes from the years 2001 through2005,
which generally do not involve current customers. In part, this decision was driven by a desire to
reduce the high levels of legal expense and related costs that we have incurred in recent years,
and to reduce the amount of managements time devoted to litigation matters and other claims and
disputes. While we will attempt to accelerate the closure of these matters, it will only do so if
we believe such resolution is in the best interests of MasTec and its shareholders.
Legacy Litigation. MasTec is subject to significant outstanding litigation, primarily dating
from the period 2001 through 2005.
In 2005, former employees filed a Fair Labor Standards Act (FLSA) collective action against
MasTec in the Federal District Court in Tampa, Florida, alleging failure to pay overtime wages as
required under the FLSA. While MasTec denies the allegations underlying the lawsuit, in October
2007 we agreed to a settlement to avoid significant legal fees, the uncertainty of a jury trial,
other expenses and management time that would have to be devoted to protracted litigation. The
settlement covers MasTecs current and
63
MasTec, Inc.
Notes To Consolidated Financial Statements continued
former install to the home employees who were employed by
MasTec from October 2001 through September 2007 in California, Florida, Georgia, Maryland, New
Jersey, New Mexico, North Carolina, South Carolina, Texas and Virginia. The gross amount of the
settlement is up to $12.6 million, and is subject to court approval. This amount represents the
maximum payout, assuming 100% opt-in by all potential members of the purported class.
We contracted to construct a natural gas pipeline for Coos County, Oregon in 2003.
Construction work on the pipeline ceased in December 2003 after Coos County refused payment due us
on regular contract invoices of $6.3 million and refused to process change orders submitted after
November 2003 for additional work. In February 2004, we declared a breach of contract and brought
an action for breach of contract against Coos County in Federal District Court in Oregon, seeking
payment for work done and interest. In April 2004, Coos County announced it was terminating the
contract and seeking another company to complete the project. Coos County subsequently
counterclaimed against us in the Federal District Court action seeking damages in excess of $15
million for breach of contract for alleged failures to properly construct the pipeline and for
alleged environmental and labor law violations, and other causes. The amount of revenue recognized
on the Coos County project that remained uncollected in accounts receivable on the December 31,
2007 balance sheet amounted to $6.3 million representing amounts due to us on normal progress
payment invoices submitted under the contract. In February 2008, we entered into a tentative
agreement to settle our dispute with Coos County, which provides for a $4.35 million payment to
Coos County in June 1, 2008 and a $4.35 million payment to Coos County on June 1, 2009 with 3%
interest accruing beginning June 1, 2008. The tentative agreement is subject to the negotiation
and approval of a definitive settlement agreement and MasTec not being penalized greater than $1.5
million in the Corps of Engineers case described below. We cannot assure you that these conditions
will be met.
In connection with the Coos County pipeline project, the United States Army Corps of
Engineers, or Corps of Engineers, and the Oregon Department of Environmental Quality issued cease
and desist orders and notices of non-compliance to Coos County and to us with respect to the
project. While we do not agree that the notices were appropriate or justified, we have cooperated
with the Corps of Engineers and the Oregon Division of State Land, Department of Environmental
Quality to mitigate any adverse impact as a result of construction. On March 30, 2006, the Corps of
Engineers brought a complaint in a federal district court against us and Coos County and are
seeking damages in excess of $16 million. The matter went to trial in February 2008 and we are
awaiting a verdict.
In June 2005, we posted a $2.3 million bond in order to pursue the appeal of a $2.0 million
final judgment entered against us for damages plus attorneys fees resulting from a break in a
Citgo pipeline that occurred in 1999. We are seeking a new trial and a reduction in the amount of
damages awarded. We will continue to contest this matter in the appellate court, and on subsequent
retrial, if any.
During 2003 and 2004, we provided services to MSE Power Systems on five separate projects in
Pennsylvania, New York and Georgia, with invoices in excess of $8 million in dispute. In 2004, we
filed suit against MSE seeking payment. To date, we have recovered $1.3 million from MSE in
settlement on three of these projects and are seeking additional amounts owed us. An arbitration
was held in August 2007, and in January 2008, we were awarded a $2.65 million judgment in
connection therewith.
In November 2004, MasTec entered into, and bonded, a conditional $12.6 million settlement of
litigation brought for subcontract work done in 2001 by Hugh OKane Electric for MasTec on a
telecommunication project for Telergy in New York. Telergy is in bankruptcy and did not pay MasTec
for this work. The settlement was conditioned upon the resolution of all of the Court proceedings
including appeals. MasTec filed an appeal seeking to enforce contractual terms which relieved
MasTec of its obligation to pay Hugh OKane when MasTec was not paid by Telergy. New Yorks
appellate level court upheld the enforceability of the terms of MasTecs contract, but remanded the
case to the trial court to determine whether there were factual issues that prevented MasTec from
using the contractual provision as a defense. The trial court found that factual issues prevented
MasTec from using the contractual provision as a defense and MasTec appealed. The appellate court
upheld the trial courts ruling and MasTec has requested a rehearing, which was denied.
Similar litigation was filed against MasTec by other subcontractors performing work in 2001 on
the Telergy project. In a related matter, MasTec filed suit against Con Edison in May 2002,
alleging that Con Edison directly interfered with MasTecs work for Telergy, and that this
interference resulted in the bankruptcy of Telergy and resulted in Con Edison obtaining MasTecs
work on the Telergy project without paying for it. MasTec seeks in excess of $40 million from Con
Edison.
64
MasTec, Inc.
Notes To Consolidated Financial Statements continued
In April 2006, we settled, without payment to the plaintiffs by us, several complaints for
purported securities class actions that were filed against us and certain officers in the second
quarter of 2004. As part of the settlement, our excess insurance carrier has retained the rights to
seek reimbursement of up to $2.0 million from us based on its claim that notice was not properly
given under the policy. We are also seeking reimbursement of expenses incurred by us which we
believe are reimbursable by our excess insurance carrier. We believe the claims of the excess
insurance carrier are without merit and plan to continue vigorously pursuing this action. Although
a district court ruled in March 2007 that there is no coverage provided under the excess policy, we
have appealed. We are also pursuing claims against the insurance broker for any losses arising from
the same issue involving notice.
We provided telecommunication infrastructure services to Adesta Communications, Inc. in 2000
and 2001. Adesta filed for bankruptcy in 2001. At December 31, 2007 we were seeking to recover
amounts in excess of $4 million from the Adesta bankruptcy trustee from the proceeds of the sale of
Adestas assets. Based on our understanding of the current status of the bankruptcy trustees sales
negotiations with respect to these assets, we have reflected $1.3 million in other current assets
on our consolidated balance sheet at December 31, 2007 related to Adesta.
In February 2008, we were notified in writing by the SEC staff that its formal investigation
related to the restatement of our financial statements in 2001 through 2003 has been completed and
that it does not intend to recommend any enforcement action.
Financial Statement Impact. Primarily as a result of the change in strategy noted above, we
entered into settlement negotiations on several of these legal cases, claims and other disputes,
including disputes involving amounts due us, reached settlement on the FLSA matter discussed above
and on other disputes, and authorized settlement on a number of other matters, including certain
accounts receivable for which we had been pursuing collection via negotiation or via the legal
process. As a result of these negotiations and actual or anticipated
settlements (including FLSA and Coos County), and other
developments, we recorded charges totaling $39.1 million for the actual or anticipated settlement
of litigation, claims and other disputes in the nine months ended September 30, 2007 and $0.2
million in the three months ended December 31, 2007. This charge is for the actual or anticipated
settlement of legacy legal claims and other disputes, including adjustments to reserves and other
valuation accounts for litigated or disputed collections, and relates mostly to the years
2001-2005.
Accrued aggregate liabilities related to the matters discussed above amounted to approximately
$25.6 million at December 31, 2007, which is included in other current liabilities. Our allowance
for doubtful accounts and other asset valuation accounts related to the matters discussed above
amounted to $9.7 million and $4.4 million, respectively, in the year ended December 31, 2007. These
charges relate mostly to the years 2001-2005.
The labor union representing the workers of Sistemas e Instalaciones de Telecomunicación S.A.
(Sintel), a former MasTec subsidiary, initiated an investigative action with a Spanish federal
court that commenced in July 2001 alleging that six former members of the Board of Directors of
Sintel, including Jorge Mas, our chairman, and his brother Juan Carlos Mas, approved a series of
allegedly unlawful transactions that led to the bankruptcy of Sintel. We were also named as a
potentially liable party. The Court conducted extensive discovery, including the declarations of
certain present and former executives of MasTec, Inc. In December 2007, the Court decided to close
the investigation and issued an order allowing the trial phase against the former officers of
MasTec, Inc. to proceed. The order does not name MasTec, Inc. as a potentially liable party. The
union has alleged Sintel and its creditors were damaged in the approximate amount of 269 million
euros ($396 million at December 31, 2007). The order is subject to appeal by several of the
parties. To date, no actions have been taken by the Court against us or any of the named
individuals. Our directors and officers insurance carrier has reimbursed us all of our legal fees
to date and agreed to fund legal expenses for the remainder of the litigation under a reservation
of rights. The amount of loss, if any, relating to this matter cannot presently be determined.
Although we believe that we have gone through review of these legacy and other matters and
have developed our best estimate for settling the legacy legal cases, claims and other disputes,
these matters are subject to inherent uncertainties and managements view of these matters may
change in the future as facts and circumstances change. We have incurred substantial costs in
connection with these claims and will continue to do so until there is a resolution of these
matters. We can not assure you that a favorable outcome will be reached in any of these cases. If
we are not able to settle these cases at the amounts estimated, or if we are subject to an
unfavorable trial outcome or other final resolution on these matters, there exists the possibility
of a material adverse impact on the Companys financial position and on the results of operations
for the period in which the effect becomes reasonably estimable.
Other Litigation, Claims, and Disputes. In addition to the matters discussed above, we are
also subject to a variety of legal cases, claims and other disputes that arise from time to time in
the ordinary course of our business.
Other Commitments and Contingencies. We are required to provide payment and performance bonds
for some of our contractual commitments related to projects in process. At December 31, 2007, the
cost to complete projects for which the $294.8 million in performance and payment bonds are
outstanding was $46.2 million.
65
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Note 16 Concentrations of Risk
We are subject to certain risk factors, including, but not limited to risks related to
economic downturns in the telecommunications and broadband industries, collectability of
receivables, competition within our industry, the nature of our contracts (which do not obligate
our customers to undertake any infrastructure projects and may be canceled on short notice),
acquisition integration and financing, seasonality, availability of qualified employees,
recoverability of goodwill, and potential exposures to environmental liabilities.
We have more than 280 customers which include some of the largest and most prominent companies
in the communications, utilities and government industries. Our customers include incumbent local
exchange carriers, broadband and satellite operators, public and private energy providers, long
distance carriers, financial institutions and wireless service providers.
We grant credit, generally without collateral, to our customers. Consequently, we are subject
to potential credit risk related to changes in business and economic factors. However, we generally
have certain lien rights on that work and concentrations of credit risk are limited due to the
diversity of the customer base. We believe our billing and collection policies are adequate to
minimize potential credit risk. During the year ended December 31, 2007, 59.7% of our total revenue
was attributed to three customers. Revenue from these three customers accounted for 44.1%, 9.1% and
6.8% of total revenue for the year ended December 31, 2007. During the year ended December 31,
2006, 56.0% of our total revenue was attributed to three customers. Revenue from these three
customers accounted for 37.5%, 10.2% and 8.3% of the total revenue for the year ended December 31,
2006. During the year ended December 31, 2005, 53.9% of our total revenue was attributed to three
customers. Revenue from these three customers accounted for 32.1%, 11.4% and 10.4% of total
revenue for the year ended December 31, 2005.
We maintain an allowance for doubtful accounts for estimated losses resulting from the
inability of customers to make required payments. Management analyzes historical bad debt
experience, customer concentrations, customer credit-worthiness, the availability of mechanics and
other liens, the existence of payment bonds and other sources of payment, and current economic
trends when evaluating the adequacy of the allowance for doubtful accounts. If judgments regarding
the collectability of accounts receivables were incorrect, adjustments to the allowance may be
required, which would reduce profitability. As of December 31, 2007, we had remaining receivables
from customers undergoing bankruptcy reorganization totaling $1.6 million net of $0.3 million in
specific reserves. As of December 31, 2006, we had remaining receivables from customers undergoing
bankruptcy reorganization totaling $10.4 million net of $4.1 million in specific reserves. Based on
the analytical process described above, management believes that we will recover the net amounts
recorded. We maintain an allowance for doubtful accounts of $15.3 million and $11.5 million as of
December 31, 2007 and December 31, 2006, respectively, for both specific customers and as a reserve
against other past due balances. Should additional customers file for bankruptcy or experience
difficulties, or should anticipated recoveries in existing bankruptcies and other workout
situations fail to materialize, we could experience reduced cash flows and losses in excess of the
current allowance.
66
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Note 17 Quarterly Information (Unaudited)
The following table presents unaudited quarterly operating results for the years ended
December 31, 2007 and 2006. 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, 2007 and 2006.
The quarterly information has been adjusted for the reclassification of the net loss related to our
discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Quarter Ended |
|
|
2006 Quarter Ended |
|
|
|
Mar 31 |
|
|
Jun 30 |
|
|
Sep 30 |
|
|
Dec 31 |
|
|
Mar 31 |
|
|
Jun 30 |
|
|
Sep 30 |
|
|
Dec 31 |
|
|
|
(In thousands, except per share data) |
|
|
(In thousands, except per share data) |
|
Revenue |
|
$ |
240,996 |
|
|
$ |
256,284 |
|
|
$ |
266,864 |
|
|
$ |
273,635 |
|
|
$ |
217,608 |
|
|
$ |
230,516 |
|
|
$ |
252,236 |
|
|
$ |
240,060 |
|
Income (loss) from continuing operations |
|
$ |
7,019 |
|
|
$ |
16,059 |
|
|
$ |
(26,740 |
) |
|
$ |
9,946 |
|
|
$ |
4,120 |
|
|
$ |
12,297 |
|
|
$ |
14,314 |
|
|
$ |
9,319 |
|
Loss from discontinued operations |
|
$ |
(5,349 |
) |
|
$ |
(158 |
) |
|
$ |
(5,416 |
) |
|
$ |
(2,689 |
) |
|
$ |
(8,344 |
) |
|
$ |
(35,954 |
) |
|
$ |
(21,936 |
) |
|
$ |
(24,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
1,670 |
|
|
$ |
15,901 |
|
|
$ |
(32,156 |
) |
|
$ |
7,257 |
|
|
$ |
(4,224 |
) |
|
$ |
(23,657 |
) |
|
$ |
(7,622 |
) |
|
$ |
(14,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.40 |
) |
|
$ |
0.15 |
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
|
$ |
0.22 |
|
|
$ |
0.14 |
|
Discontinued operations |
|
$ |
(0.08 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.56 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic net income (loss) per share |
|
$ |
0.03 |
|
|
$ |
0.24 |
|
|
$ |
(0.48 |
) |
|
$ |
0.11 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.37 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.11 |
|
|
$ |
0.24 |
|
|
$ |
(0.40 |
) |
|
$ |
0.15 |
|
|
$ |
0.07 |
|
|
$ |
0.19 |
|
|
$ |
0.22 |
|
|
$ |
0.14 |
|
Discontinued operations |
|
$ |
(0.08 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.54 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted net income (loss) per share |
|
$ |
0.03 |
|
|
$ |
0.24 |
|
|
$ |
(0.48 |
) |
|
$ |
0.11 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2007, we recorded approximately $38.4 million of selling and
administrative expenses related to the actual or expected settlement of legal cases, disputes, and
other contingencies, including litigation or other disputes involving accounts receivable.
Additionally, for the year ended December 31, 2007, we incurred over $6.5 million for outside legal
fees and other costs related to litigation.
In the fourth quarter of 2006, we recorded a non-cash impairment charge of approximately $10.0
million in connection with our sale in February 2007 of substantially all of our state Department
of Transportation related projects and underlying assets.
Note 18 Related Party Transactions
MasTec purchases, rents and leases equipment used in its business from a number of different
vendors, on a non-exclusive basis, including Neff Corp. (Neff), in which Jorge Mas, Chairman of
our Board of Directors, and Jose Mas, our President and Chief Executive Officer, were directors and
owners of a controlling interest through June 4, 2005. Juan Carlos Mas, the brother of Jorge and
Jose Mas, was the Chairman, Chief Executive Officer, a director and a shareholder of Neff until May
31, 2007 when he sold his Neff shares and resigned as its chief executive officer. Juan Carlos Mas
remains as chairman of the Neff Board of Directors. During the years ended December 31, 2007 and
2006, we paid Neff approximately $2.4 million and $1.4 million, respectively, for equipment
purchases, rentals and leases. MasTec believes the amount paid to Neff is equivalent to the
payments that would have been made between unrelated parties for similar transactions acting at
arms length.
During 2007, we paid $76,000 to Irma Mas, the mother of Jorge Mas,
our Chairman and Jose Mas, our President and Chief Executive Officer, for the lease of certain property located
in Florida.
During the years ended December 31, 2007 and 2006, we had an arrangement with a customer
whereby we leased employees to that customer and charged approximately $0.4 million and $0.3
million, respectively, to the customer. As of December 31, 2007
and 2006, $0.4 million and $0.3 million, respectively, receivable is
included within other current assets. Jorge Mas, Chairman of our Board of Directors, and Jose Mas,
our President and Chief Executive Officer, are minority owners of this customer.
We charter aircrafts from a third party who leases two of its aircraft from entities in which
Jorge Mas, Chairman of our Board of Directors, and Jose Mas, our President and Chief Executive
Officer, have an ownership interest. We paid this unrelated chartering company approximately $0.8
million and $0.7 million during the years ended December 31, 2007 and 2006, respectively.
Effective as of August 27, 2002, MasTec and Jorge Mas entered into a split dollar agreement,
as subsequently amended, wherein MasTec agreed to pay the premiums due on two life insurance
policies with an aggregate face amount of $50.0 million. Mr. Mas and his spouse are the insured
under the policies. Under the terms of this agreement, MasTec is the sole owner and beneficiary of
the policies and is entitled to recover the greater of (i) all premiums it pays on the policies
plus interest equal to four percent, compounded annually, or (ii) the aggregate cash value of the
life insurance policy immediately before the death of the insureds. The remainder of the policies
proceeds will be paid in accordance with Mr. Mas designations. MasTec will make the premium
payments until the agreement is terminated, which occurs upon any of the following events: (i) bankruptcy, or
dissolution of MasTec, or (ii) a change of control of MasTec.
67
MasTec, Inc.
Notes To Consolidated Financial Statements continued
Additionally, effective as of September 13, 2002, MasTec and Jorge Mas entered into a second
split dollar agreement, as subsequently amended, wherein we agreed to pay the premiums due on a
life insurance policy with a face amount of $80.0 million, $60.0 million of which is subject to the
agreement and the remaining $20.0 million is deemed to be key-man insurance payable to MasTec and
falls outside of the agreement. Jorge Mas is the insured under this policy. Under the terms of this
agreement, MasTec is the sole owner and beneficiary of the policy and is entitled to recover the
greater of (i) all premiums it pays on the portion of the policy subject to the agreement, plus
interest equal to four percent, compounded annually, or (ii) the aggregate cash value of the life
insurance policy immediately before the death of the insured. We will make the premium payments
until the agreement is terminated, which occurs upon any of the following events: (i) bankruptcy,
or dissolution of MasTec, or (ii) a change of control of MasTec. An amount equal to $60.0 million
of the policys proceeds will be paid in accordance with Jorge Mas designations. Any remainder of
the proceeds will be paid to us. In 2007, 2006 and 2005, we paid approximately $0.4 million, $1.1
million and $0.6 million, respectively, in premiums in connection with the split dollar agreements
for Jorge Mas.
On November 1, 2002, MasTec and Jorge Mas entered into a deferred bonus agreement in which we
agreed to pay Mr. Mas a bonus in the event that the split dollar agreements Mr. Mas had entered
into with MasTec were terminated due to a change of control of MasTec. The amount of the bonus is
equal to the total premiums made by MasTec under the terms of the split dollar agreements, plus
interest of four percent, compounded annually. The bonus is to be paid within 60 days after
termination of the split dollar agreement. The deferred bonus agreement was subsequently amended
to comply with Section 409A of the Internal Revenue Code.
On November 1, 2002, MasTec and Mr. Shanfelter entered into a split dollar agreement, as
subsequently amended, wherein MasTec agreed to pay the premiums due on a life insurance policy with
an aggregate face amount of $18.0 million. Mr. Shanfelter and his spouse are the insureds under the
policy. Under the terms of this agreement, we are the sole owner and beneficiary of the policy and
is entitled, upon the death of the insureds, to recover the greater of (i) all premiums it pays on
the policy plus interest equal to four percent, compounded annually or (ii) the aggregate cash
value of the life insurance policy immediately before the death of the insureds. The remainder of
the policys proceeds will be paid in accordance with Mr. Shanfelters designations. We have made
all of the premium payments required by the agreement. The agreement terminates upon any of the
following events: (i) bankruptcy or dissolution of MasTec, or (ii) change of control of MasTec.
During the year ended December 31, 2005, MasTec paid $0.5 million in premiums in connection with
the split dollar agreement for Mr. Shanfelter and his family.
On November 1, 2002, MasTec and Mr. Shanfelter entered into a deferred bonus agreement in
which we agreed to pay Mr. Shanfelter a bonus in the event that the split dollar agreement Mr.
Shanfelter had entered into with MasTec were terminated upon a change of control of MasTec. The
amount of the bonus is equal to the total premiums made by MasTec under the terms of the split
dollar agreements, plus interest of four percent, compounded annually. The bonus is to be paid
within 60 days after termination of the split dollar agreement. The deferred bonus agreement was
subsequently amended to comply with Section 409A of the Internal Revenue Code.
Effective as of August 3, 2004, MasTec and Jose Mas entered into a split dollar agreement
wherein we agreed to pay premiums on a life insurance policy with an aggregate face amount of $10.0
million. Under the terms of the agreement, we are the sole owner and beneficiary of the policy and
is entitled to recover the greater of (i) all premiums it pays on the policy plus interest equal to
four percent, compounded annually, or (ii) the aggregate cash value of the life insurance policy
immediately prior to the death of the survivor of the insured. The remainder of the policys
proceeds will be paid in accordance with Mr. Mas designations. We have agreed to make the premium
payments until at least July 15, 2009. In 2007, 2006 and 2005, we paid approximately $0.2 million
in premiums in connection with the split dollar agreement for Mr. Jose Mas in each of the years.
On April 3, 2006, MasTec and Jose Mas entered into a deferred bonus agreement in which we
agreed to pay Mr. Mas a bonus in the event the split dollar agreement Mr. Mas had entered into with
us were terminated due to a change of control. The amount of the bonus is equal to the total
premium payments made by us under the terms of the split dollar agreements, plus interest of four
percent, compounded annually. The bonus is to be paid within 60 days after termination of the split
dollar agreement.
In December 2006, we sold a property used in our operations for $3.5 million to an entity
whose principal is also a principal of our then 51% owned subsidiary. We received a note in the
amount of $2.8 million due December 2007, and guaranteed by the principal noted above. Concurrent
with the sale of this property, we entered into a month-to-month lease agreement at $25,000 per
month. In the second quarter of 2007 we terminated this lease. In accordance with Statement of
Financial Accounting Standards No. 66, Accounting for Sales of Real Estate and Statement of
Financial Accounting Standards No. 98, Accounting for Leases; Sale-
Leaseback Transactions Involving Real Estate; Sales-Type Leases of Real Estate; Definition of the
Lease Term; Initial Direct Costs of Direct Financing Lease-An Amendment of FASB Statements No. 13,
66 and 91 and a Rescission of FASB Statement No. 26 and Technical Bulletin No. 79-11, we
recognized a gain on this sale of approximately $2.5 million in the first quarter of 2007. In
October of 2007, we collected the amount due on the note receivable of $2.8 million plus accrued
interest.
68
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedure
Evaluation of Disclosure Controls and Procedures. As of the end of the period
covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act). We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Exchange Act is recorded,
processed, summarized and reported within specified time periods. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and are subject to certain
limitations, including the exercise of judgment by individuals, the difficulty in identifying
unlikely future events, and the difficulty in eliminating misconduct completely.
In connection with this annual report on Form 10-K, our Chief Executive Officer and Chief
Financial Officer evaluated, with the participation of our management, the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. Based on
managements evaluation, our Chief Executive Officer and Chief Financial Officer each concluded
that our disclosure controls and procedures were effective as of December 31, 2007.
Managements Report on Internal Control Over Financial Reporting. Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Our internal control over financial
reporting is designed to provide reasonable assurance to management and to our Board of Directors
regarding the reliability of financial reporting and the preparation and fair presentation of
financial statements for external purposes in accordance with generally accepted accounting
principles. MasTecs internal control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures are being made only in accordance with authorizations of
management and directors of MasTec; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
In connection with this annual report on Form 10-K, our Chief Executive Officer and Chief
Financial Officer evaluated, with the participation of our management, the effectiveness of our
internal control over financial reporting as of the end of the period covered by this
report. Based on managements evaluation, our Chief Executive Officer and Chief Financial Officer
each concluded that our internal control over financial reporting was effective as of December 31,
2007.
BDO SEIDMAN LLP, the independent registered public accounting firm who audits our financial
statements, has audited our internal control over financial reporting as of December 31, 2007 and
has expressed an unqualified opinion thereon.
69
Changes in Internal Controls over Financial Reporting. In preparing our financial statements
for the year ended December 31, 2007, we determined that we had
been improperly classifying certain auction
rate securities as cash and cash equivalents as of December 31, 2006, March 31, 2007, June 30, 2007
and September 30, 2007. The proper classification is to report them separately as securities
available for sale. See Notes 1 and 5 to the consolidated financial statements. In the Fourth
Quarter of 2007, we determined that our prior classification of auction rate securities as cash and
cash equivalents was a material disclosure control weakness and took steps to remediate this
disclosure control weakness. The Companys remediation consisted of three items. First, we revised
our investment policy to preclude future investments in auction rate securities. Second, we
established a more thorough and independent analysis of cash, cash equivalents and investment
securities by our accounting, treasury and internal audit functions. And, finally, we added a
specific quarterly disclosure control to include an examination of cash, cash equivalents and short
term investment instruments by senior management prior to the
finalization of the financial statements.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Shareholders MasTec, Inc.
We have audited MasTec, Inc.s internal control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO criteria). MasTec, Inc.s
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, MasTec, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2007, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of MasTec, Inc. as of December 31, 2007 and
2006, as reclassified, the related consolidated statements of operations, changes in shareholders
equity, and cash flows for the three years then ended and our report dated February 27, 2008
expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
Miami, FL
February 27, 2008
70
Item 9B. Other Information
We have entered into a new employment agreement with Mr. Alberto de Cardenas, our Executive
Vice President, General Counsel and Secretary, effective January 1, 2008 (the Agreement). The
Agreement expires on December 31, 2011 unless earlier terminated, and provides that Mr. de Cardenas
will be paid an annual salary of $315,000. The Agreement also provides for annual performance
bonuses of up to 50% of his base salary based on the achievement of goals established by the
Companys Board of Directors. In addition, Mr. de Cardenas is awarded 5,000 shares of the
Companys common stock which vest 100% on December 31, 2010. Following termination of employment
without cause or good reason, Mr. de Cardenas will receive his base salary and benefits from the
date of termination for twelve months (collectively, the Severance Benefits). If there is a
change of control of MasTec during the employment term, Mr. de Cardenas will be entitled to two
times his base salary, the immediate vesting of any previously unvested options and restricted
stock and the continuation of benefits as provided in the Agreement. The Agreement also contains
confidentiality, non-competition and non-solicitation provisions. The foregoing description of the
Agreement is qualified in its entirety by the Agreement which is attached to this Annual Report on
Form 10-K as Exhibit 10.53 and is incorporated by reference herein.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information about directors required for this item is incorporated by reference from our
Proxy Statement to be filed in connection with our 2008 Annual Meeting of Shareholders.
We have adopted a code of ethics that applies to our principal officer, principal financial
officer, principal accounting officer, or persons performing similar functions. We have posted our
code of ethics on our website (www.mastec.com) as Appendix E to the MasTec Personal
Responsibility Code, and it is available to any shareholder upon request. We intend to post any
amendments to, or any waivers from, a provision of the code of ethics that applies to the principal
executive officer, principal financial officer, principal accounting officer or controller, or any
other person performing a similar function, on our website. See also, Item 1. Business Available
Information.
Item 11. Executive Compensation
The information required for this item is incorporated by reference from our Proxy Statement
to be filed in connection with our 2008 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
During the year ended December 31, 2007, there were no stock options awarded. The following
table sets forth information about our common stock that may be issued under all of our existing
equity compensation plans as of December 31, 2007 which include the 1994 Stock Incentive Plan, 1994
Stock Option Plan for Non-Employee Directors, 1997 Annual Incentive Compensation Plan, 1997
Non-Qualified Employee Stock Purchase Plan, Non-Employee Directors Stock Plan, 1999 Non-Qualified
Employee Stock Option Plan, 2003 Employee Stock Incentive Plan, Amended and Restated 2003 Stock
Incentive Plan for Non-Employees and individual option agreements. The 1994 Stock Incentive Plan,
1994 Stock Option Plan for Non-Employee Directors, the 1997 Annual Incentive Compensation Plan,
2003 Employee Stock Incentive Plan and the Amended and Restated 2003 Stock Incentive Plan for
Non-Employees were approved by our shareholders.
71
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|
|
|
|
|
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|
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|
Number of Securities |
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|
|
|
|
|
|
|
|
|
Remaining Available for |
|
|
|
Number of Securities to |
|
|
Weighted Average |
|
|
Future Issuance Under |
|
|
|
be Issued Upon Exercise |
|
|
Exercise Price |
|
|
Equity Compensation |
|
|
|
of Outstanding Options, |
|
|
Outstanding Options, |
|
|
(Excluding Securities |
|
|
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Reflected in Column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity
compensation plans
approved by
security holders |
|
|
4,717,455 |
(1) |
|
$ |
10.77 |
|
|
|
4,472,185 |
(3) |
Equity compensation
plans not approved
by security holders |
|
|
1,145,000 |
(2) |
|
$ |
14.89 |
|
|
|
1,150,750 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,862,455 |
|
|
|
|
|
|
|
5,622,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents 1,233,333 shares issuable under the 1994 Stock Incentive Plan, 135,000 shares
issuable under the 1994 Stock Option Plan for Non-Employee Directors, 2,699,122 shares
issuable under the 2003 Employee Stock Incentive Plan, and 650,000 shares issuable under the
Amended and Restated 2003 Stock Incentive Plan for Non-Employees. |
|
(2) |
|
Represents 1,145,000 shares issuable under the 1999 Non-Qualified Employee Stock Option Plan. |
|
(3) |
|
Under the 2003 Employee Stock Incentive Plan and the Amended and Restated 2003 Stock
Incentive Plan for Non-Employees 2,801,991 shares and 1,670,194 shares, respectively, remain
available for future issuance. We are no longer issuing options under the 1994 Stock Option
Plan for Non-Employee Directors and the 1994 Stock Incentive Plan. We have never issued any
shares under the 1997 Annual Incentive Compensation Plan and have no current plans to do so. |
|
(4) |
|
Under the MasTec, Inc. Non-Qualified Employee Stock Option Plan 1,150,750 shares,
respectively, remain available for future issuance. |
Summaries of Plans Not Approved by Our Shareholders
1997 Non-Qualified Employee Stock Purchase Plan. The MasTec, Inc. 1997 Non-Qualified Employee
Stock Purchase Plan is administered by the Compensation Committee, and permits employees of MasTec
who meet certain criteria set by the Committee to purchase our common stock at a 15% discount to
the market price at the time of purchase. Such purchases are made through regular payroll
deductions or lump sum investments. Employees are limited to a maximum investment of $25,000 in the
plan each year. The total amount of common stock reserved under the plan is approximately 600,000
shares, substantially all of which has been purchased.
Non-Employee Directors Stock Plan. The MasTec, Inc. Non-Employee Directors Stock Plan
adopted in 1999 permits non-employee directors to elect to receive all or a specified percentage of
any director fees paid for each year of service on the board in shares of our common stock. The
number of shares issued to each non-employee director is determined by dividing the directors fees
owed to such director by the fair-market value of a share of common stock on the date of the issue.
The shares issued are delivered to the non-employee director and the non-employee director has all
the rights and privileges of a stockholder as to the shares. The shares are immediately vested upon
grant and are not forfeitable to us. The maximum number of shares of common stock that may be
issued under the plan is 150,000. As of December 31, 2007, there
were no shares available for issuance under this plan.
1999 Non-Qualified Employee Stock Option Plan. The 1999 Non-Qualified Employee Stock Option
Plan is administered by the Compensation Committee of the Board and permits the Committee to grant
non-qualified options to purchase up to 2,000,000 shares of common stock to any MasTec employee.
The Compensation Committee determines the recipient of options, the number of shares covered by
each option, and the terms and conditions of options within the parameters of the plan (including
the exercise price, vesting schedule, and the expiration date) and may adopt rules and regulations
necessary to carry out the plan. Options may be granted pursuant to the plan until January 31,
2009. The Compensation Committee has the authority to change or discontinue the plan or the options
issued pursuant thereto at any time without the holders consent so long as the holders rights
would not be impaired. The plan permits the Compensation Committee to determine and accept
different forms of payment pursuant to the exercise of options.
The plan provides for the termination of all outstanding options whether or not vested in the
event of a termination of employment, and permits the Committee to take certain actions in the
event of a change of control to ensure fair and equitable treatment of the employees who hold
options granted under the plan, including accelerating the vesting of any outstanding option,
offering to purchase any outstanding option and making other changes to the terms of the
outstanding options. As of December 31, 2007, 1,150,750 shares remained available for issuance under
this plan.
72
Deferred Fee Plan. The Deferred Fee Plan became effective on January 1, 2006. Under the terms
of the Deferred Fee Plan, directors may elect to defer the receipt of cash and stock fees for their
services as directors. Each director may elect the type of fees to be deferred, the percentage of
such fees to be deferred, and the form in which the deferred fees and any earnings thereon are to
be paid. Deferred cash fees may be directed to a deferred cash account or a deferred stock account
(or both). Deferred stock fees may only be directed to a deferred stock account. Elections to defer
fees remain in force, unless amended or revoked within the required time periods.
The deferred cash account will be credited with interest on the cash balance at the end of
each calendar quarter. The interest rate is equal to the rate of interest payable by us on our
revolving credit facility, as determined as of the first day of each calendar quarter.
The deferred stock account will be credited with stock dividends (or with cash dividends that are
converted to deferred stock credits pursuant to the plan.)
Distribution of a directors cash and stock accounts will begin on January 15 of the year
following the directors termination of all services with us. Distributions from the deferred stock
account will be made in cash. Distribution will either be made in a lump-sum payment or in up to
five consecutive installments as elected by the director.
Individual Option Grants. We have entered into various option agreements with non-employee
directors, advisors and other parties in connection with providing certain services, acquisitions
and other matters. Such options have various vesting schedules and exercise prices and have been
included in the equity compensation plan table above.
The other information required for this item is incorporated by reference from our Proxy
Statement to be filed in connection with our 2007 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required for this item is incorporated by reference from our Proxy Statement
to be filed in connection with our 2008 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services
The information required for this item is incorporated by reference from our Proxy Statement
to be filed in connection with our 2008 Annual Meeting of Shareholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules
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(a)
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1. |
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Financial Statements the consolidated financial statements and the reports of the Independent Registered Public
Accounting firms are listed on pages 39 through 68. |
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2. |
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Financial Statement Schedules The financial statement schedule information
required by Item 14(a)2 is included as part of Note 4 Accounts Receivable of the
Notes to Consolidated Financial Statements. |
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3. |
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Exhibits including those incorporated by reference: |
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Exhibits |
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Description |
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3.1
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Amended and Restated Articles of Incorporation filed as Exhibit 3.1 to our Registration Statement on
Form S-1 (Registration No. 333-129790) and incorporated by reference herein. |
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3.2
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Third Amended and Restated Bylaws of MasTec, Inc. Amended and Restated as of December 12, 2007,
filed as Exhibit 3.1 to our Form 10-Q filed with the SEC on December 12, 2007 and incorporated by
reference herein. |
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4.1
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Indenture, dated January 31, 2007, by and among MasTec, Inc., certain of MasTecs subsidiaries and
U.S. Bank National Association, as trustee filed as Exhibit 4.1 to our Form 8-K filed with the SEC
on February 2, 2007 and incorporated by reference herein. |
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4.2
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Supplemental Indenture dated as of May 2, 2007 among MasTec, Inc., U.S. Bank National Association
and each of the MasTec subsidiary guarantors set forth therein filed as Exhibit 4.1 to our Form 10-Q
filed with the SEC on May 2, 2007 and incorporated by reference herein. |
73
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Exhibits |
|
Description |
|
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10.1+
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1994 Stock Incentive Plan filed as Exhibit 10.1 to our Registration Statement on Form S-1
(Registration No. 333-129790) and incorporated by reference herein. |
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10.2+
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1994 Stock Option Plan for Non-employee Directors filed as Exhibit 10.2 to our Registration
Statement on Form S-1 (Registration No. 333-129790) and incorporated by reference herein. |
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10.3+
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1997 Non-Qualified Employee Stock Purchase Plan filed as Exhibit 10.3 to our Registration Statement
on Form S-1 (Registration No. 333-129790) and incorporated by reference herein. |
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10.4+
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1999 Non-Qualified Employee Stock Option Plan, as amended October 4, 1999, filed as Exhibit 10.4 to
our Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated by reference
herein. |
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10.5+
|
|
1999 Non-Qualified Employee Stock Option Plan filed as Exhibit 10.5 to our Registration Statement on
Form S-1 (Registration No. 333-129790) and incorporated by reference herein. |
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10.6+
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|
Non-Employee Directors Stock Plan filed as Exhibit 10.6 to our Registration Statement on Form S-1
(Registration No. 333-129790) and incorporated by reference herein. |
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10.7+
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|
Employment Agreement dated September 27, 2002, between MasTec, Inc. and Austin J. Shanfelter, filed
as Exhibit 10.1 to our Form 10-Q for the quarter ended September 20, 2002, and filed with the SEC on
November 14, 2002 and incorporated by reference herein. |
|
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10.8+
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|
Split-Dollar Agreement effective August 27, 2002 between MasTec, Inc. and Jorge Mas, filed as
Exhibit 10.15 to our Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein. |
|
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10.9+
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|
Split-Dollar Agreement effective September 13, 2002 between MasTec, Inc. and Jorge Mas, filed as
Exhibit 10.16 to our Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein. |
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10.10+
|
|
Split-Dollar Agreement effective September 13, 2002 between MasTec, Inc. and Austin J. Shanfelter,
filed as Exhibit 10.18 to our Annual Report on Form 10-K for the year ended December 31, 2002 and
incorporated by reference herein. |
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10.11+
|
|
2003 Employee Stock Incentive Plan as amended and restated as of January 1, 2006, filed as Exhibit
10.5 to our Form 8-K dated March 31, 2006 and incorporated by reference herein. |
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10.12+
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|
Amended and Restated 2003 Stock Incentive Plan for Non-Employees as amended and restated as of
January 1, 2006, filed as Exhibit 10.4 to our Form 8-K dated March 31, 2006 and incorporated by
reference herein. |
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10.13+
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|
Split-Dollar Agreement effective July 16, 2004 between MasTec, Inc and Jose Mas, filed as Exhibit
10.30 to our Form 10-K for the year ended December 31, 2004 and filed with the SEC on March 31, 2005
and incorporated by reference herein. |
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10.14
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Amended and Restated Loan and Security Agreement dated as of May 10, 2005 between MasTec, Inc.,
certain of its subsidiaries, Bank of America, N.A., as collateral and administrative agent and
General Electric Capital Corporation, as syndication agent, filed as Exhibit 10.1 to our Form 8-K
filed with the SEC on May 12, 2005 and incorporated by reference herein. |
|
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10.15+
|
|
Amendment to Employment Agreement dated November 3, 2005 between MasTec, Inc. and Austin J.
Shanfelter, filed as Exhibit 10.1 to our Form 10-Q for the quarter ended September 30, 2005, and
incorporated by reference herein. |
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10.16+
|
|
Second Amendment to Employment Agreement dated December 19, 2005 by and between MasTec, Inc. and
Austin J. Shanfelter filed as Exhibit 10.36 to our Registration Statement on Form S-1 (Registration
No. 333-129790) and incorporated by reference herein. |
|
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10.17+
|
|
1997 Annual Incentive Compensation Plan filed as Exhibit 10.37 to our Registration Statement on Form
S-1 (Registration No. 333-129790) and incorporated by reference herein. |
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10.18+
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|
Deferred Fee Plan for Directors dated December 19, 2005, filed as Exhibit 10.38 to our Form 8-K
filed with the SEC on December 23, 2005 and incorporated by reference herein. |
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10.19
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Asset Purchase Agreement dated December 30, 2005, by and among MasTec North America AC, LLC, MasTec,
Inc., Ronald E. Phillips, Dawn M. Phillips, Digital Satellite Services Employee Stock Ownership
Trust and Digital Satellite Services, Inc filed as Exhibit 10.39 to our Registration Statement on
Form S-1 (Registration No. 333-129790) and incorporated by reference herein. |
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10.20+
|
|
Deferred Bonus Agreement dated November 1, 2002 between MasTec, Inc. and Jorge Mas filed as Exhibit
10.40 to our Registration Statement on Form S-1 (Registration No. 333-129790) and incorporated by
reference herein. |
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10.21+
|
|
First Amendment to Deferred Bonus Agreement dated January 6, 2006 between MasTec Inc. and Jorge Mas
filed as Exhibit 10.41 to our Registration Statement on Form S-1 (Registration No. 333-129790) and
incorporated by reference herein. |
|
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10.22+
|
|
Deferred Bonus Agreement dated November 1, 2002 between MasTec, Inc. and Austin Shanfelter filed as
Exhibit 10.42 to our Registration Statement on Form S-1 (Registration No. 333-129790) and
incorporated by reference herein. |
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10.23+
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|
First Amendment to Deferred Bonus Agreement dated January 6, 2006 between MasTec, Inc. and Austin
Shanfelter filed as Exhibit 10.43 to our Registration Statement on Form S-1 (Registration No.
333-129790) and incorporated by reference herein. |
74
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|
Exhibits |
|
Description |
|
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|
10.24+
|
|
First Amendment to Split-Dollar Agreement between MasTec, Inc. and Austin Shanfelter dated September
15, 2003 filed as Exhibit 10.44 to our Registration Statement on Form S-1 (Registration No.
333-129790) and incorporated by reference herein. |
|
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10.25+
|
|
Second Amendment to Split-Dollar Agreement between MasTec, Inc. and Austin Shanfelter dated January
6, 2006 filed as Exhibit 10.45 to our Registration Statement on Form S-1 (Registration No.
333-129790) and incorporated by reference herein. |
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10.26+
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First Amendment to Split-Dollar Agreement (dated December 2002) between MasTec, Inc. and Jorge Mas
dated May 4, 2003 filed as Exhibit 10.46 to our Registration Statement on Form S-1 (Registration No.
333-129790) and incorporated by reference herein. |
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10.27+
|
|
Amendment to Split-Dollar Agreement (dated December 2002) between MasTec, Inc. and Jorge Mas dated
September 15, 2003 filed as Exhibit 10.47 to our Registration Statement on Form S-1 (Registration
No. 333-129790) and incorporated by reference herein. |
|
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10.28+
|
|
Third Amendment to Split-Dollar Agreement (dated December 2002) between MasTec, Inc. and Jorge Mas
dated January 6, 2006 filed as Exhibit 10.48 to our Registration Statement on Form S-1 (Registration
No. 333-129790) and incorporated by reference herein. |
|
|
|
10.29+
|
|
First Amendment to Split-Dollar Agreement (dated May 2003) between MasTec, Inc. and Jorge Mas dated
September 15, 2003 filed as Exhibit 10.49 to our Registration Statement on Form S-1 (Registration
No. 333-129790) and incorporated by reference herein. |
|
|
|
10.30+
|
|
Second Amendment to Split-Dollar Agreement (dated May 2003) between MasTec, Inc. and Jorge Mas dated
January 6, 2006 filed as Exhibit 10.50 to our Registration Statement on Form S-1 (Registration No.
333-129790) and incorporated by reference herein. |
|
|
|
10.31+
|
|
First Amendment to Split-Dollar Agreement between MasTec, Inc. and Jorge Mas dated January 6, 2006
filed as Exhibit 10.51 to our Registration Statement on Form S-1 (Registration No. 333-129790) and
incorporated by reference herein. |
|
|
|
10.32+
|
|
Amendment to Employment Agreement dated as of March 31, 2006 by and between MasTec, Inc. and C.
Robert Campbell filed as Exhibit 10.1 to our Form 8-K filed with the SEC on April 6, 2006 and
incorporated by reference herein. |
|
|
|
10.33+
|
|
Deferred Bonus Agreement dated as of April 3, 2006, by and between Jose Mas and MasTec, Inc. filed
as Exhibit 10.3 to our Form 8-K filed with the SEC on April 6, 2006and incorporated by reference
herein. |
|
|
|
10.34+
|
|
Form of Restricted Stock Agreement for the MasTec, Inc. Amended and Restated 2003 Stock Incentive
Plan for Employees filed as Exhibit 10.7 to our Form 8-K filed with the SEC on April 6, 2006 and
incorporated by reference herein. |
|
|
|
10.35+
|
|
Form of Stock Option Agreement for the MasTec, Inc. Amended and Restated 2003 Stock Incentive Plan
for Employees filed as Exhibit 10.8 to our Form 8-K filed with the SEC on April 6, 2006 and
incorporated by reference herein. |
|
|
|
10.36+
|
|
Form of Restricted Stock Agreement for the MasTec, Inc. Amended and Restated 2003 Stock Incentive
Plan for Non-Employees filed as Exhibit 10.9 to our Form 8-K filed with the SEC on April 6, 2006 and
incorporated by reference herein. |
|
|
|
10.37+
|
|
Form of Stock Option Agreement for the MasTec, Inc. Amended and Restated 2003 Stock Incentive Plan
for Non-Employees filed as Exhibit 10.10 to our Form 8-K filed with the SEC on April 6, 2006 and
incorporated by reference herein. |
|
|
|
10.38
|
|
First Amendment to Amended and Restated Loan and Security Agreement dated May 8, 2006 by and between
MasTec, Inc., the subsidiaries of MasTec, Inc. identified therein, the financial institutions party
from time to time to the Loan Agreement and Bank of America, N.A., as administrative agent filed as
Exhibit 10.52 to our Form 10-Q for the quarter ended March 31, 2006 and filed with the SEC on May 8,
2006, and incorporated by reference herein. |
|
|
|
10.39+
|
|
Renewal Employment Agreement dated as of August 3, 2006, by and between MasTec, Inc. and C.
Robert Campbell filed as Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 2006 and filed
with the SEC on August 3, 2006, and incorporated by reference herein. |
|
|
|
10.40
|
|
Second Amendment to the Amended and Restated Loan and Security Agreement dated November 7, 2006 by
and between MasTec, Inc., the subsidiaries of MasTec, Inc. identified therein, the financial
institutions party from time to time to the Loan Agreement and Bank of America, N.A., as
administrative agent filed as Exhibit 10.53 to our Form 10-Q for the quarter ended September 30,
2006 and filed with the SEC on November 9, 2006, and incorporated by reference herein. |
|
|
|
10.41
|
|
Asset Purchase Agreement dated as of November 9, 2006 between MasTec North America, Inc. and LM-ITS
Acquisition LLC filed as Exhibit 10.54 to our Form 10-Q for the quarter ended September 30, 2006 and
filed with the SEC on November 9, 2006, and incorporated by reference herein. |
|
|
|
10.42+
|
|
Employment Agreement dated as of January 1, 2007, by and between MasTec, Inc. and Robert Apple filed
as Exhibit 10.1 to our Form 8-K filed with the SEC on December 8, 2006 and incorporated by reference
herein. |
|
|
|
10.43
|
|
Amended and Restated Asset Purchase Agreement dated February 14, 2007, by and between MasTec North
America and Atlas Traffic Management Systems, LLC (Atlas), filed as Exhibit 10.1 to the Form 8-K
with the SEC on February 20, 2007 and incorporated by reference herein. |
|
|
|
75
|
|
|
Exhibits |
|
Description |
|
|
|
10.44
|
|
Consent and Amendment, dated January 16, 2007, by and among MasTec, Inc., certain of the Companys
subsidiaries, the Lenders and Bank of America, N.A. in its capacity as collateral and administrative
agent for the Lenders filed as Exhibit 10.50 to the Form 10-K filed with the SEC on March 8, 2007
and incorporated by reference herein. |
|
|
|
10.45
|
|
Consent and Amendment, dated February 6, 2007, by and among MasTec, Inc., certain of the Companys
subsidiaries, the Lenders and Bank of America, N.A. in its capacity as collateral and administrative
agent for the Lenders filed as Exhibit 10.51 to the Form 10-K filed with the SEC on March 8, 2007
and incorporated by reference herein. |
|
|
|
10.46+
|
|
Second Amendment to Deferred Bonus Agreement between MasTec, Inc. and Austin Shanfelter dated June
22, 2007 filed as Exhibit 10.52 to the Form 10-Q filed with the SEC on August 1, 2007 and
incorporated by reference herein. |
|
|
|
10.47+
|
|
Third Amendment to Split-Dollar Agreement between MasTec, Inc. and Austin Shanfelter dated June 22,
2007 filed as Exhibit 10.53 to the Form 10-Q filed with the SEC on August 1, 2007 and incorporated
by reference herein. |
|
|
|
10.48
|
|
Third Amendment to Amended and Restated Loan and Security Agreement dated July 31, 2007 by and
between MasTec, Inc., the subsidiaries of MasTec, Inc. identified therein, the financial
institutions party from time to time to the Loan Agreement and Bank of America, N.A., as
administrative agent, filed as Exhibit 10.54 to the Form 10-Q filed with the SEC on August 1, 2007
and incorporated by reference herein. |
|
|
|
10.49
|
|
Stipulation and Settlement Agreement filed at Exhibit 10.55 to the Form 10-Q filed with the SEC on
November 6, 2007 and incorporated by reference herein. |
|
|
|
10.50+
|
|
Employment Agreement dated April 18, 2007 by and between MasTec, Inc. and Jose Mas filed as Exhibit
10.1 to the Form 8-K filed with the SEC on April 20, 2007 and incorporated by reference herein. |
|
|
|
10.51
|
|
Settlement Agreement dated January 24, 2008 by and between MasTec North America, Inc. and Atlas
filed as Exhibit 10.1 to the Form 8-K filed with the SEC on January 30, 2008 and incorporated by
reference herein. |
|
|
|
10.52
|
|
Revised Amended and Restated Asset Purchase Agreement dated January 24, 2008 by and between MasTec
North America, Inc. and Atlas filed as Exhibit 10.2 to the Form 8-K filed with the SEC on January
30, 2008 and incorporated by reference herein. |
|
|
|
10.53+*
|
|
Employment Agreement dated as of January 1, 2008 by and between MasTec, Inc. and Alberto de Cardenas. |
|
|
|
21*
|
|
Subsidiaries of the MasTec, Inc. |
|
|
|
23.1*
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
31.1*
|
|
Certifications required by Section 302(b) of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2*
|
|
Certifications required by Section 302(b) of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1*
|
|
Certifications required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2*
|
|
Certifications required by Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Filed herewith. |
|
+ |
|
Management contract or compensation plan arrangement. |
76
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 February 27, 2008.
|
|
|
|
|
|
MASTEC, INC.
|
|
|
/s/ JOSE R. MAS
|
|
|
Jose R. Mas |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
/s/ C. ROBERT CAMPBELL
|
|
|
C. Robert Campbell |
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
|
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 February 27, 2008.
|
|
|
/s/ JORGE MAS
Jorge Mas |
|
Chairman of the Board of Directors |
/s/ JOSE R. MAS
Jose R. Mas |
|
President and Chief Executive Officer and Director
(Principal Executive Officer) |
/s/ C. ROBERT CAMPBELL
C. Robert Campbell |
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
/s/ ERNST N. CSISZAR
Ernst N. Csiszar |
|
Director |
/s/ CARLOS M. DE CESPEDES
Carlos M. de Cespedes |
|
Director |
/s/ ROBERT J. DWYER
Robert J. Dwyer |
|
Director |
/s/ FRANK E. JAUMOT
Frank E. Jaumot |
|
Director |
/s/ JULIA L. JOHNSON
Julia L. Johnson |
|
Director |
/s/ AUSTIN J. SHANFELTER
Austin J. Shanfelter |
|
Director |
/s/ JOSE S. SORZANO
Jose S. Sorzano |
|
Director |
/s/ JOHN VAN HEUVELEN
John Van Heuvelen |
|
Director |
77
EX-10.53 EMPLOYMENT AGREEMENT
Exhibit 10.53
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the Agreement) is entered into as of January 1, 2008 (the
Effective Date), by and between MASTEC, INC., a Florida corporation (the
Company), and ALBERTO DE CARDENAS (Employee).
Recitals
The Company desires to employ Employee and Employee desires to be employed by the Company on
the terms and subject to the conditions set forth in this Agreement.
ACCORDINGLY, in consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and adequacy of which are
acknowledged, the Company and Employee agree as follows:
Terms
1. Employment. The Company employs Employee and Employee desires to be employed by the
Company on the terms and subject to the conditions set forth in this Agreement.
2. Term. The term of Employees employment under this Agreement will be from the
Effective Date to and through December 31, 2011, unless earlier terminated in accordance with this
Agreement; provided, however, that the term of the Employees employment hereunder shall be
automatically extended without further action of either party for additional twelve month periods,
unless written notice of either partys intention not to extend has been given to the other party
hereto at least 60 days prior to the expiration of the then effective term. The period commencing
as of the Effective Date and ending on December 31, 2011 or such later date to which the term of
the Employees employment under this Agreement shall have been extended is hereinafter referred to
as the Term.
3. Duties.
a. Position. During the Term, Employee will serve as Executive Vice President and
General Counsel of the Company. Subject to the direction of the Chief Executive Officer (CEO),
Employee will perform all duties commensurate with his position and such other tasks as may be
assigned to him by the CEO or the Board of Directors of the Company (the Board). If
requested by the Company, Employee will serve as an officer or director of any subsidiary of the
Company, without additional compensation, provided, however, that if Employee is asked to serve as
a director of any subsidiary of the Company, Employee may refuse to accept, or resign from, such
appointment without causing a breach of this Agreement by Employee. If asked to serve as an
officer or director of a subsidiary of the Company, Employee will be provided those officer and
director indemnifications provided to other officers and directors of the company and any such
subsidiary.
b. Full Time and Attention. During the Term, Employee will devote his full business time
and energies to the business and affairs of the Company and will use his best
efforts, skills and abilities solely to promote the interests of the Company and to diligently
and competently perform his duties, all in a manner in compliance with all applicable laws and
regulations and in accordance with applicable policies and procedures adopted or amended from time
to time by the Company, including, without limitation, the 2007 Employee Handbook, a copy of which
Employee acknowledges having received. Employees primary place of employment shall be at the
Companys primary place of business in Miami-Dade County, Florida; however, Employee agrees and
acknowledges that a material part of the time devoted to his duties and position hereunder will
require that Employee travel on behalf of the Company.
4. Compensation and Benefits.
a. Base Salary. During the Term, Employee will be paid, as compensation for services
rendered pursuant to this Agreement and Employees observance and performance of all of the
provisions of this Agreement, the amount of Three Hundred and Fifteen Thousand and No/100 Dollars
($315,000.00) per annum (the Base Salary). The Base Salary will be payable in accordance
with the normal payroll procedures of the Company as in effect from time to time.
b. Benefits. During the Term, Employee will be entitled to participate in or benefit
from, in accordance with the eligibility and other provisions thereof, such life, health, medical,
accident, dental and disability insurance and such other benefit plans as the Company may make
generally available to, or have in effect for, other employees of the Company at the same general
level as Employee. The Company retains the right to terminate or amend any such plans from time to
time in its sole discretion.
c. Performance Bonus. Employee shall be entitled to participate in the Companys bonus
plan for senior management (the SMBP), and shall be eligible to receive an annual bonus
in an amount up to fifty percent (50%) of Employees Base Salary. The amount of the annual bonus
payable to Employee for a year (if any) shall be based upon the achievement of certain performance
goals established by the Compensation Committee of the Board, in its sole discretion, on or before
the last day of the first calendar quarter to which the annual bonus relates. Any bonuses
payable pursuant to this Section 4(c) shall be referred to herein as Performance Bonuses.
d. Equity. Employee shall receive 5,000 shares of the Companys common stock (the
Restricted Stock), which shall vest 100 % on the third anniversary of the Effective Date. So
long as the Employee is not terminated for Cause (as defined in Section 11(c) hereof), the
Restricted Stock shall continue to vest during any Period of Non-Competition unless and until
Employee breaches any of his obligations set forth in Sections 6, 7 and 8 hereof. The Restricted
Stock will be subject to the terms and conditions of the Companys incentive plans, as in effect
and as may be amended from time to time in the Companys sole discretion.
e. Expenses. The Company will reimburse Employee, in accordance with the Companys
expense reimbursement policies as may be established from time to time by the Company, for all
reasonable travel and other expenses actually incurred or paid by him during
the Term in the performance of his services under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company may require.
2
f. Withholding. All payments under this Agreement will be subject to applicable taxes
and required withholdings.
g. Automobile Allowance. During the Term of this Agreement, the Company shall provide
Employee with a non-accountable automobile allowance of Six Hundred Dollars ($600) per month, which
shall include, without limitation, reimbursements for car payments, gasoline, oil, repairs,
maintenance, insurance and other expenses incurred by Employee by reason of the use of Employees
automobile for Company business from time to time.
5. Representations of Employee. Employee represents and warrants that he is not, (i) a
party to any enforceable employment agreement or other arrangement, whether written or oral, with
any past employer, that would prevent or restrict Employees employment with the Company; (ii) a
party to or bound by any agreement, obligation or commitment, or subject to any restriction,
including, but not limited to, confidentiality agreements, restrictive covenants or non-compete and
non-solicitation covenants, except for agreements with the Company or its affiliates; or (iii)
involved with any professional endeavors which in the future may possibly adversely affect or
interfere with the business of the Company, the full performance by Employee of his duties under
this Agreement or the exercise of his best efforts hereunder.
6. Confidentiality.
a. Confidential Information. Employee acknowledges that as a result of his employment
with the Company, Employee will gain knowledge of, and access to, proprietary and confidential
information and trade secrets of the Company and its subsidiaries and affiliates, including,
without limitation, (1) the identity of customers, suppliers, subcontractors and others with whom
they do business; (2) their marketing methods and strategies; (3) contract terms, pricing, margin,
cost information and other information regarding the relationship between them and the persons and
entities with which they have contracted; (4) their services, products, software, technology,
developments, improvements and methods of operation; (5) their results of operations, financial
condition, projected financial performance, sales and profit performance and financial
requirements; (6) the identity of and compensation paid to their employees, including Employee; (7)
their business plans, models or strategies and the information contained therein (8) their sources,
leads or methods of obtaining new business; and (9) all other confidential information of, about or
concerning the business of the Company and its subsidiaries and affiliates (collectively, the
Confidential Information). Employee further acknowledges that such information, even
though it may be contributed, developed or acquired by Employee, and whether or not the foregoing
information is actually novel or unique or is actually known by others, constitutes valuable assets
of the Company developed at great expense which are the exclusive property of the Company or its
subsidiaries and affiliates. Accordingly, Employee will not, at any time, either during or
subsequent to the Term, in any fashion, form or manner, directly or indirectly, (i) use, divulge,
disclose, communicate, provide or permit access to any person or entity, any Confidential
Information of any kind, nature or description, or (ii) remove from the Companys or its
subsidiaries or affiliates premises any notes or records relating
3
thereto, or copies or facsimiles thereof (whether made by electronic, electrical, magnetic,
optical, laser acoustic or other means) except in the case of both (i) and (ii), (A) as reasonably
required in the performance of his services to the Company under this Agreement, (B) to responsible
officers and employees of the Company who are in a contractual or fiduciary relationship with the
Company and who have a need for such information for purposes in the best interests of the Company,
(C) for such information which is or becomes generally available to the public other than as a
result of an unauthorized disclosure by Employee, and (D) or as otherwise necessary to comply with
the requirements of law, after providing the Company with not less than five (5) days prior written
notice of Employees intent to disclose. Employee acknowledges that the Company would not enter
into this Agreement without assurance that all Confidential Information will be used for the
exclusive benefit of the Company.
b. Return of Confidential Information. Upon request by the Company, Employee
will promptly deliver to the Company all drawings, manuals, letters, notes, notebooks, reports and
copies thereof, including all originals and copies contained in computer hard drives or other
electronic or machine readable format, all Confidential Information and other materials relating to
the Companys business, including, without limitation, any materials incorporating Confidential
Information, which are in Employees possession or control.
7. Intellectual Property. Any and all material eligible for copyright or trademark
protection and any and all ideas and inventions (Intellectual Property), whether or not
patentable, in any such case solely or jointly made, developed, conceived or reduced to practice by
Employee (whether at the request or suggestion of any officer or employee of the Company or
otherwise, whether alone or in conjunction with others, and whether during regular hours of work or
otherwise) during the Term which arise from the fulfillment of Employees duties hereunder and
which may be directly or indirectly useful in the business of the Company will be promptly and
fully disclosed in writing to the Company. The Company will have the entire right, title and
interest (both domestic and foreign) in and such Intellectual Property, which is the sole property
of the Company. All papers, drawings, models, data and other materials relating to any such idea,
material or invention will be included in the definition of Confidential Information, will remain
the sole property of the Company, and Employee will return to the Company all such papers, and all
copies thereof, including all originals and copies contained in computer hard drives or other
electronic or machine readable format, upon the earlier of the Companys request thereof, or the
expiration or termination of Employee employment hereunder. Employee will execute, acknowledge
and deliver to the Company any and all further assignments, contracts or other instruments the
Company deems necessary or expedient, without further compensation, to carry out and effectuate the
intents and purposes of the Agreement and to vest in the Company each and all of the rights of the
Company in the Intellectual Property.
4
8. Covenants
a. Non-Competition and Non-Solicitation. Employee acknowledges and agrees that Companys
and its subsidiary and affiliated companies (collectively, the Companies) existing or
contemplated businesses (collectively, the Business) are conducted throughout the United
States of America. Until two (2) years following the date of the termination of Employees
employment with the Company (the Period of Non-competition and within the United States
of America and the Commonwealth of Canada (including their
possessions, protectorate and territories, the Territory), Employee will not
(whether or not then employed by the Company for any reason), without the Companys prior written
consent:
(i) directly or indirectly own, manage, operate, control, be employed by, act as agent,
consultant or advisor for, or participate in the ownership, management, operation or control of,
or be connected in any manner through the investment of capital, lending of money, or rendering of
services or otherwise, with, any business of the type and character engaged in and competitive with
the Business. For these purposes, ownership of securities of one percent (1%) or less of any class
of securities of a public company will not be considered to be competition with the Business;
(ii) solicit, persuade or attempt to solicit or persuade or cause or authorize directly or
indirectly to be solicited or persuaded any existing customer or client, or potential customer or
client to which the Companies have made a presentation or with which the Companies have been having
discussions, to cease doing business with or decrease the amount of business done with or not to
hire the Companies, or to commence doing Business with or increase the amount of Business done with
or hire another company;
(iii) solicit, persuade or attempt to solicit or persuade or cause or authorize directly or
indirectly to be solicited or persuaded the business of any person or entity that is a customer or
client of the Companies, or was their customer or client within two (2) years prior to cessation of
Employees employment by any of the Companies or any of their subsidiaries, for the purpose of
competing with the Companies in the Business; or
(iv) solicit, persuade or attempt to solicit or persuade or cause or authorize directly or
indirectly to be solicited or persuaded for employment, or employ or cause or authorize directly or
indirectly to be employed, on behalf of Employee or any other person or entity, any individual who
is or was at any time within six (6) months prior to cessation of Employees employment by the
Companies, an employee of any of the Companies.
If Employee breaches or violates any of the provisions of this Section 8, the running
of the Period of Non-Competition (but not of any of Employees obligations under this Section 8 )
will be tolled with respect to Employee during the continuance of any actual breach or violation.
In addition to any other rights or remedies the Company may have under this Agreement applicable
law, the Company will be entitled to receive from Employee reimbursement for all attorneys and
paralegal fees and expenses and court costs incurred by the Companies in enforcing this Agreement
and will have the right and remedy to require Employee to account for and pay over to the Company
all compensation, profit, monies, accruals or other benefits derived or received, directly or
indirectly, by Employee from the action constituting a breach or violation of this Section
8.
b. Exceptions. Telecommunications operators (such as Sprint, MCI, AT&T), cable companies
and other non-construction or installation customers of the Company shall not be considered engaged
in and competitive with the Business.
5
9. Reasonable Restrictions. The parties acknowledge and agree that the restrictions set
forth in Sections 6, 7, and 8 of this Agreement are reasonable for the purpose of
protecting the value of the business and goodwill of the Companies. It is the desire and
intent of the parties that the provisions of Sections 6, 7, and 8 be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in which enforcement is
sought. If any particular provisions or portions of Sections 6, 7 or 8 are adjudicated to be
invalid or unenforceable, then such section will be deemed amended to delete such provision or
portion adjudicated to be invalid or unenforceable; provided, however, that such amendments to
apply only with the respect to the operation of such section in the particular jurisdiction in
which such adjudication is made.
10. Breach or Threatened Breach. The parties acknowledge and agree that the performance
of the obligations under Sections 6, 7 and 8 by Employee are special, unique and extraordinary in
character, and that in the event of the breach or threatened breach by Employee of the terms and
conditions of Sections 6, 7 or 8, the Companies will suffer irreparable injury and that monetary
damages would not provide an adequate remedy at law and that no remedy at law may exist.
Accordingly, in the event of such breach or threatened breach, the Company will be entitled, if it
so elects and without the posting of any bond or security, to institute and prosecute proceedings
in any court of competent jurisdiction, in law and in equity, to obtain damages for any breach of
Sections 6, 7 or 8 or to enforce the specific performance of this Agreement by Employee or to
enjoin Employee from breaching or attempting to breach Sections 6, 7 or 8. In the event the
Company believes that the Employee has breached Employees obligations under Sections 6, 7 or 8,
or threatens to do so, it shall promptly provide the Employee written notice of such belief setting
forth the basis for its belief and, (unless under exigent circumstances, as determined by the
Company at its sole discretion, it would harm the Company to delay the institution of legal
proceedings) five (5) business days to respond to the notice, prior to the initiation of legal
proceedings.
11. Termination. This Agreement and Employees employment under this Agreement may be
terminated upon the occurrence of any of the events described in, and subject to the terms of, this
Section 11:
a. Death. Immediately and automatically upon the death of Employee.
b. Disability. At the Companys option, immediately upon written notice if Employee
suffers a permanent disability, meaning any incapacity, illness or disability of Employee
which renders Employee mentally or physically unable to perform his duties under this Agreement for
a continuous period of sixty (60) days, or one hundred twenty (120) days (whether or not
consecutive), during the Term, as reasonably determined by the Company.
c. Termination for Cause. At the Companys option, immediately upon notice to Employee,
upon the occurrence of any of the following events (each Cause), (i) Employee being
convicted of any felony (whether or not against the Company or its subsidiaries or affiliates);
(ii) a material failure of Employee to perform Employees responsibilities after ten (10) days
written notice given by an Executive Officer to Employee, which notice shall identify the
Employees failure in sufficient detail and grant Employee an opportunity to cure such failure
within such ten (10) day period (Notice); (iii) a breach by Employee of any of his
obligations under Sections 6, 7 or 8; (iv) any material act of dishonesty or other misconduct by
Employee against the Company or any of its subsidiaries or affiliates; (v) a material violation by
6
Employee of any of the policies or procedures of the Company or any of its subsidiaries or affiliates,
including without limitation the 2007 Company Handbook, provided, however, that if such violation
is curable, then Employee will be given ten (10) days written Notice and the opportunity to cure
such violation; or (vi) Employee voluntarily terminates this Agreement or leaves the employ of the
Company or its subsidiaries or affiliates for any reason, other than Good Reason.
d. Termination Without Cause. At the Companys option for any reason, or no reason, upon
five (5) days notice to Employee given by the CEO.
e. Termination With Good Reason. At Employees option, upon not less than thirty (30)
business days written notice to the Company, and the Companys failure to cure within such thirty
(30) business days, upon the occurrence of any of the following events (each Good Reason)
(i) the material diminution of, Employees position, duties, titles, offices and responsibilities
with the Company; (ii) a material reduction of Employees compensation, bonus opportunity and
benefits; (iii) a relocation of the Companys principal executive offices outside of Miami-Dade and
Broward Counties, Florida; or (iv) a material breach of any other provision of this Agreement by
the Company.
f. Payments After Termination. If this Agreement and Employees employment hereunder are
terminated for the reasons set forth in Sections 11(a) or 11(b), then Employee or Employees estate
will receive the Base Salary and any Performance Bonus earned for the year in which the Employees
employment so terminates, and all of Employees stock options and restricted stock shall
immediately vest. If the Company terminates this Agreement and Employees employment hereunder for
the reasons set forth in Section 11(c)(i-vi), then (i) Employee will receive his Base Salary
through the date of termination and (ii) Employee will forfeit any entitlement that Employee may
have to receive any Performance Bonus. If this Agreement is terminated for the reason set forth in
Section 11(d) or Section 11(e), then (i) Employee will receive his Base Salary, and benefits set
forth in Section 4(b) hereof (collectively, with the payment of the Base Salary, the Severance
Benefits), for a period of twelve (12) months from the date of termination (the Severance
Period) and the Restricted Stock referred to in Section 4(d) shall immediately vest. The
Severance Benefit shall be payable in accordance with the Companys payroll procedures and subject
to applicable withholdings, and Employee will forfeit any entitlement that Employee may have to
receive any Performance Bonus.
g. General. Notwithstanding anything to the contrary set forth in this Agreement, the
provision of payments after termination in accordance with the provisions of Section 11(f) above,
shall not be a bar to the Employees continued entitlement from the Company of (i) reimbursements
of proper expenses, (ii) automobile and expense allowances, (iii) vested benefit and welfare
entitlements; (iv) unemployment compensation, (v) workers compensation benefits, (vi) accrued
vacation time (if consistent with Company policy), (vii) Base Salary through date of termination.
Notwithstanding anything in this Agreement to the contrary, if Employee is employed by the Company
for an entire calendar (e.g., the 2008 calendar year) and is terminated for any reason prior to the
payment of the Performance Bonus for that year, if any, the Company hereby agrees to pay Employee
any Performance Bonus that he would have otherwise been entitled to for that prior year,
simultaneous with the payment of such bonuses to the Companys employees, and (viii) continued
vesting of options and restricted
stock as may be provided in accordance with the provisions of this Agreement or any incentive
plan. Upon payment by the Company of the amounts described in Section 11(f) and this Section 11(g),
Employee will not be entitled to receive any further compensation or benefits from the Company.
7
h. Change in Control. If, prior to the completion of the Term, there occurs a Change
in Control, as defined in Exhibit A, then and in that case only, in lieu of any payments previously
described in this Section 11, all Employees stock options and restricted stock then outstanding
shall immediately vest and Employee will receive an amount on the date of the Change of Control
equal to 2.0 times the Employeess Base Salary set forth in Section 4(a) above, and shall continue
to receive those benefits as set forth in Section 4(b) hereof for a period of 12 months.
12. Compliance with Section 409A: To the extent the Employee would otherwise be
entitled to any payment (whether pursuant to this Agreement or otherwise) during the six months
beginning on termination of employment, that would be subject to the additional tax imposed under
Section 409A of the Code (Section 409A), (i) the payment will not be made and (ii) the payment,
with interest at the rate being paid by the Company on its senior credit facility (the Senior
Credit Interest Rate) determined as of the date of termination of the Employees employment, will
be paid to the Employee on the earlier of the six-month anniversary of the Employees date of
termination of employment or the Employees death or disability (within the meaning of Section
409A). Similarly, to the extent the Employee otherwise would be entitled to any benefit (other
than a payment) during the six months beginning on termination of employment that would be subject
to the Section 409A additional tax, the benefit will be delayed and will begin being provided
(together, if applicable, with an adjustment to compensate the Employee for the delay) on the
earlier of the six-month anniversary of the date of termination, death or disability (within the
meaning of Section 409A). It is the Companys intention that the benefits and rights to which the
Employee could become entitled in connection with termination of employment comply with Section
409A. If the Employee or the Company believes, at any time, that any of such benefit or right does
not comply, it will promptly advise the other and will negotiate reasonably and in good faith to
amend the terms of such arrangement such that it complies.
13. Miscellaneous.
a. Survival. The provisions Sections 6, 7, 8, 10, 11, 12 and 13 will survive the
termination or expiration of this Agreement for any reason.
b. Entire Agreement. This Agreement constitutes the entire agreement of the parties
pertaining to its subject matter and supersedes all prior or contemporaneous agreements or
understandings between the parties pertaining to the subject matter of this Agreement (including,
without limitation, the employment agreement by and between the Company dated November 16, 2005),
and there are no promises, agreements, conditions, undertakings, warranties, or representations,
whether written or oral, expressed or implied, between the parties other than as set forth in this
Agreement.
c. Modification. This Agreement may not be amended or modified, or any provision waived,
unless in writing and signed by both parties.
d. Waiver. Failure of a party to enforce one or more of the provisions of this Agreement
or to require at any time performance of any of the obligations of this Agreement will not be
construed to be a waiver of such provisions by such party nor to in any way affect the validity of
this Agreement or such partys right thereafter to enforce any provision of this Agreement, nor to
preclude such party from taking any other action at any time which it would legally be entitled to
take.
e. Successors and Assigns. This Agreement may not be assigned or the duties delegated
unless in writing and signed by both parties, except for any assignment by the Company occurring by
operation of law or the transfer of substantially all of the Companys assets. Subject to the
foregoing, this Agreement will inure to the benefit of, and be binding upon, the parties and their
heirs, beneficiaries, personal representatives, successors and permitted assigns.
f. Notices. Any notice, demand, consent, agreements, request, or other communication
required or permitted under this Agreement will be in writing and will be, (i) mailed by
first-class mail, registered or certified, return receipt requested, postage prepaid, (ii)
delivered personally by independent courier, or (iii) transmitted by facsimile, to the parties at
the addressee as follows (or at such other addresses as will be specified by the parties by like
notice. If to Employee, then to:
Alberto de Cardenas
1508 Zoreta Avenue
Coral Gables, Florida 33146
If to the Company, then to:
MasTec, Inc.
Douglas Entrance, 12th Floor
80 Douglas Road
Coral Gables, Florida
Attn: Legal Department
Facsimile: 305-406-1907
Each party may designate by notice in writing a new address to which any notice, demand, consent,
agreement, request or communication may thereafter be given, served or sent. Each notice, demand,
consent, agreement, request or communication that is mailed, hand delivered or transmitted in the
manner described above will be deemed received for all purposes at such time as it is delivered to
the addresses (with the return receipt, the courier delivery receipt or the telecopier answer back
confirmation being deemed conclusive evidence of such delivery) or at such time as deliver is
refused by the addressee upon presentation.
8
g. Severability. If any provision of this Agreement is held to be invalid or
unenforceable by a court of competent jurisdiction, then such invalidity or unenforceability will
not affect the validity and enforceability of the other provisions of this Agreement and the
provision held to be invalid or unenforceable will be enforced as nearly as possible according
to its original terms and intent to eliminate such invalidity or unenforceability.
h. Counterparts. This Agreement may be executed in any number of counterparts, and
all counterparts will collectively be deemed to constitute a single binding agreement.
i. Governing Law; Venue. This Agreement will be governed by the laws of the State of
Florida, without regard to its conflicts of law principles. Employee consents to the jurisdiction
of any state or federal court located within Miami-Dade County, State of Florida, agrees that such
courts shall be the exclusive jurisdiction for any suit, action, or legal proceeding arising
directly or indirectly out of this Agreement, and consents that all service of process may be made
by registered or certified mail directed to Employee at the address in Section 13(f) of this
Agreement. Employee waives any objection which Employee may have based on lack of personal
jurisdiction or improper venue or forum non conveniens to any suit or proceeding instituted by the
Company under this Agreement in any state or federal court located within Miami-Dade County,
Florida and consents to the granting of such legal or equitable relief as is deemed appropriate by
the court. This provision is a material inducement for the Company to enter into this Agreement
with Employee.
j. Participation of Parties. The parties acknowledge that this Agreement and all
matters contemplated herein have been negotiated between both of the parties and their respective
legal counsel and that both parties have participated in the drafting and preparation of this
Agreement from the commencement of negotiations at all times through execution. Therefore, the
parties agree that this Agreement will be interpreted and construed without reference to any rule
requiring that this Agreement be interpreted or construed against the party causing it to be
drafted.
k. Injunctive Relief. It is possible that remedies at law may be inadequate and,
therefore, the parties will be entitled to equitable relief including, without limitation,
injunctive relief, specific performance or other equitable remedies in addition to all other
remedies provided hereunder or available to the parties hereto at law or in equity.
l. Waiver of Jury Trial. EACH OF THE COMPANY AND EMPLOYEE IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE
PROVISIONS OF THIS AGREEMENT.
m. Right to Setoff. The Company will be entitled, in its discretion and in addition
to any other remedies it may have in law or in equity, to set-off against any amounts payable to
Employee under this Agreement or otherwise the amount of any obligations of Employee to the Company
under this Agreement that are not paid by Employee when due. In the event of any such setoff, the
Company will promptly provide the Employee with a written explanation of such setoff , and an
opportunity to register a written protest thereof.
n. Litigation: Prevailing Party. In the event of any litigation,
administrative proceeding, arbitration, mediation or other proceeding with regard to this
Agreement, the prevailing party will be entitled to receive from the non-prevailing party and
the non-prevailing party will pay upon demand all court costs and all reasonable fees and expenses
of counsel and paralegals for the prevailing party.
o. Descriptive Headings. The descriptive headings herein are inserted for convenience
only and are not intended to be part of or to affect the meaning or interpretation of this
Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
9
EXECUTED as of the date set forth in the first paragraph of this Agreement.
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EMPLOYEE
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/s/Alberto de Cardenas
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Alberto de Cardenas |
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MASTEC, INC.
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By: |
/s/ Jose Mas
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Jose Mas, Chief Executive Officer |
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10
EXHIBIT A
Change in Control shall mean:
(a) |
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Acquisition By Person of Substantial Percentage. The acquisition by a Person
(including affiliates and associates of such Person, but excluding the Company, and
parent or subsidiary of the Company, or any employee benefit plan of the Company) of a
sufficient number of shares of the Common Stock, or securities convertible into the Common
Stock, and whether through direct acquisition of shares or by merger, consolidation, share
exchange, reclassification of securities or recapitalization of or involving the Company or
any parent or subsidiary of the Company, to constitute actual or beneficial owner of 51%
or more of the Common Stock.; |
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(b) |
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Disposition of Assets. Any sale, lease, transfer, exchange, mortgage, pledge or
other disposition, in one transaction or a series of transactions, of all or substantially all
of the assets of the Company or of any subsidiary of the Company to a Person described in
subsection (a) above, but only if such transaction occurs without approval or ratification by
a majority of the members of the Board; or |
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(c) |
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Substantial Change of Board Members. During any fiscal year of the Company,
individuals who at the beginning of such year constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by a majority of the
directors in office at the beginning of the fiscal year. |
For purposes of this Section, the terms affiliate, associate, parent and subsidiary shall
have the respective meanings ascribed to such terms in Rule 12b-2 under Section 12 of the 1934 Act.
11
EX-21 SUBSIDIARIES
Exhibit 21
MasTec, Inc.
AFFILIATED ENTITIES
January 2008
NORTH AMERICA
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Church & Tower, Inc. (FL)
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(100% owned by MasTec, Inc.) |
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MasTec Asset Management Company, Inc. (NV)
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(100% owned by MasTec, Inc) |
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MasTec Contracting Company, Inc. (NV)
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(100% owned by MasTec, Inc) |
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Integral Power & Telecommunications Incorporated
(Canadian)
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(100% owned by Phasecom Systems, Inc.) |
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MasTec North America, Inc. (FL)
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(100% owned by MasTec, Inc.) |
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MasTec North America AC, LLC (FL)
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(Sole member MasTec North America, Inc.) |
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MasTec Services Company, Inc. (FL) |
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f/k/a Central America Construction, Inc.
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(100% owned by MasTec, Inc.) |
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Phasecom Systems Inc. (Canadian)
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(100% owned by MasTec, Inc.) |
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Globetec Construction, LLC (Florida)
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(100% owned by MasTec North America, Inc.) |
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Direct Star TV LLC (NC)
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(100% owned by MasTec North America, Inc.) |
DS D4U, LLC (NC)
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(100% owned by DirectStar TV LLC) |
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Three Phase Line Construction, Inc. (NH)
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(100% owned by Three Phase Acquisition Corp.) |
Three Phase Acquisition Corp. (NH)
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(100% owned by MasTec, Inc.) |
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Power Partners MasTec LLC (NC)
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(Sole member MasTec North America, Inc.) |
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Holding Companies
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MasTec FC, Inc. (NV)
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(100% owned by MasTec, Inc.) |
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MasTec of Texas, Inc. (TX)
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(100% owned by MasTec, Inc.) |
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MasTec TC, Inc. (NV)
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(100% owned by MasTec, Inc.) |
INTERNATIONAL
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Latin America
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Aidco de Mexico, S.A. de C.V. (Mex.)
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(98% owned by MasTec, Inc.) |
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(2% owned by MasTec International Holdings, Inc.) |
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MasTec Latin America, Inc. (DE)
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(100% owned by MasTec, Inc.) |
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Acietel Mexicana, S.A. (Mex.)
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(99% owned by Dresser Acquisition Company) |
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(1% owned by MasTec International Holdings, Inc.) |
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MasTec Brasil S/A (Brazil)
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(88% owned by MasTec Latin America, Inc.) |
CIDE Engenharia, Ltda. (Brazil)
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(100% owned by MasTec Brasil S/A) |
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Mastec Participações Do Brasil LTDA
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(100% owned by MasTec, Inc.) |
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MasTelecom Europe I APS (Denmark)
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(100% owned by MasTec, Inc.) |
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MasTelecom Europe II BV (Netherlands)
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(100% owned by MasTelecom Europe I APS) |
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MasTelecom S. DE R.L. DE C.V
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(100% owned by MasTelecom Europe II BV) |
(Mexico) |
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Pantel Inversiones de Venezuela, CA
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(100% owned by MasTec Venezuela, Inc.) |
(Venezuela) |
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Burntel Telecommunications, C.A.
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(50% owned by Pantel Inversiones) |
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Holding Companies
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MasTec Brazil I, Inc. (FL)
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(100% owned by MasTec, Inc.) |
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MasTec Brazil II, Inc. (FL)
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(100% owned by MasTec, Inc.) |
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MasTec Venezuela, Inc. (FL)
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(100% owned by MasTec, Inc.) |
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MasTec Spain, Inc. (FL)
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(100% owned by MasTec, Inc.) |
2
EX-23.1 CONSENT OF BDO SIEDMAN, LLP
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 333-139996, 333-112010, 333-105781, 333-105516, 333-38932,
333-77823, 333-47003, 333-38940 and 333-30647 and Form S-3 Nos. 333-142083,
333-133252, 333-46067) of MasTec, Inc. of our reports dated February 27, 2008 relating
to the consolidated financial statements and the effectiveness of MasTec, Incs
internal control over financial reporting which appear in this Form 10-K.
/s/ BDO Seidman LLP
Miami, Florida
February 27, 2008
EX-31.1 Section 302 Certification of CEO
Exhibit 31.1
Certifications
I, Jose R. Mas, certify that:
I have reviewed this Form 10-K of MasTec, Inc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrants other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
Date: February 27, 2008
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/s/ Jose R. Mas
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Jose R. Mas |
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President and Chief Executive Officer
(Principal Executive Officer) |
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EX-31.2 Section 302 Certification of CFO
Exhibit 31.2
Certifications
I, C. Robert Campbell, certify that:
I have reviewed this Form 10-K of MasTec, Inc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrants other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and
The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
Date: February 27, 2008
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/s/ C. Robert Campbell
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C. Robert Campbell |
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Chief Financial Officer
(Principal Financial and Accounting Officer) |
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EX-32.1 Section 906 Certification of CEO
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of MasTec, Inc. (the Company) on Form 10-K for the year
ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Jose R. Mas, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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Date: February 27, 2008 |
/s/ Jose R. Mas
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Name: |
Jose R. Mas |
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Title: |
President and Chief Executive Officer |
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The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Annual Report of MasTec,
Inc. on Form 10-K for the period ending December 31, 2007, or as a separate disclosure document of
the Company or the certifying officers.
EX-32.2 Section 906 Certification of CFO
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of MasTec, Inc. (the Company) on Form 10-K for the year
ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, C. Robert Campbell, Executive Vice President Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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Date: February 27, 2008 |
/s/ C. Robert Campbell
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Name: |
C. Robert Campbell |
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Title: |
Executive Vice President/ Chief
Financial Officer |
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The certification set forth above is being furnished as an Exhibit solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Annual Report of MasTec,
Inc. on Form 10-K for the period ending December 31, 2007, or as a separate disclosure document of
the Company or the certifying officers.