MasTec, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
Commission File Number 001-08106
MASTEC, INC.
(Exact name of registrant as specified in Its charter)
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Florida
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65-0829355 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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800 S. Douglas Road, 12th Floor, Coral Gables, FL
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33134 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (305) 599-1800
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 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 a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No x
As of April 25, 2008, MasTec, Inc. had 67,208,839 shares of common stock, $0.10 par value,
outstanding.
MASTEC, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2008
TABLE OF CONTENTS
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASTEC, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
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For the Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Revenue |
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$ |
261,992 |
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$ |
240,996 |
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Costs of revenue, excluding depreciation |
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226,844 |
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210,591 |
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Depreciation |
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4,788 |
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3,780 |
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General and administrative expenses, including non-cash stock
compensation expense of $844 in 2008 and $1,967 in 2007 |
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20,046 |
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19,679 |
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Interest expense, net of interest income |
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2,496 |
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2,795 |
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Other income, net |
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151 |
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3,485 |
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Income from continuing operations before minority interest |
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7,969 |
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7,636 |
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Provisions for income taxes |
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(33 |
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Minority interest |
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(617 |
) |
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Income from continuing operations |
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7,936 |
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7,019 |
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Loss from discontinued operations |
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(155 |
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(5,349 |
) |
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Net income |
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$ |
7,781 |
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$ |
1,670 |
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Basic net income (loss) per share: |
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Continuing operations |
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$ |
0.12 |
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$ |
0.11 |
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Discontinued operations |
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(0.00 |
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(0.08 |
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Total basic net income per share |
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$ |
0.12 |
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$ |
0.03 |
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Basic weighted average common shares outstanding |
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67,187 |
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65,414 |
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Diluted net income (loss) per share: |
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Continuing operations |
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$ |
0.12 |
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$ |
0.11 |
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Discontinued operations |
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(0.00 |
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(0.08 |
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Total diluted net income per share |
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$ |
0.12 |
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$ |
0.03 |
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Diluted weighted average common shares outstanding |
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67,585 |
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66,586 |
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The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
3
MASTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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March 31, |
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December 31, |
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2008 |
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2007 |
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(Unaudited) |
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(Audited) |
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Assets |
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Current assets: |
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Cash and cash equivalents, including restricted cash of
$18,050 at March 31, 2008 and December 31,
2007 |
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$ |
81,523 |
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$ |
74,288 |
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Securities available for sale |
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28,116 |
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44,360 |
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Accounts receivable, unbilled revenue and retainage, net |
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153,049 |
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160,089 |
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Inventories |
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22,309 |
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32,402 |
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Income tax refund receivable |
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103 |
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103 |
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Prepaid expenses and other current assets |
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50,276 |
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56,165 |
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Total current assets |
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335,376 |
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367,407 |
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Property and equipment, net |
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84,379 |
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81,939 |
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Goodwill and other intangibles, net |
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206,043 |
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202,829 |
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Deferred income taxes, net |
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36,187 |
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30,386 |
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Other assets |
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27,070 |
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28,188 |
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Total assets |
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$ |
689,055 |
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$ |
710,749 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Current maturities of debt |
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$ |
3,022 |
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$ |
2,694 |
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Accounts payable and accrued expenses |
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95,391 |
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113,347 |
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Other current liabilities |
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77,728 |
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87,554 |
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Total current liabilities |
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176,141 |
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203,595 |
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Other liabilities |
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31,832 |
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32,310 |
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Long-term debt |
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160,636 |
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160,279 |
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Total liabilities |
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368,609 |
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396,184 |
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Commitments and contingencies |
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Shareholders equity: |
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Preferred stock, $1.00 par value; authorized shares
5,000,000; issued and outstanding shares
none |
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Common stock, $0.10 par value; authorized shares 100,000,000;
issued and outstanding shares 67,207,155 and 67,174,171
shares at March 31, 2008 and December 31, 2007,
respectively |
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6,720 |
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6,717 |
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Capital surplus |
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553,380 |
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552,491 |
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Accumulated deficit |
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(231,794 |
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(239,576 |
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Accumulated other comprehensive income (loss) |
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(7,860 |
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(5,067 |
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Total shareholders equity |
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320,446 |
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314,565 |
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Total liabilities and shareholders equity |
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$ |
689,055 |
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$ |
710,749 |
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The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
4
MASTEC, INC.
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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For the Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
7,781 |
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$ |
1,670 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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5,028 |
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3,959 |
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Impairment of goodwill and assets |
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572 |
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Non-cash stock and restricted stock compensation expense |
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844 |
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1,967 |
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(Gain) on sale of fixed assets |
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(358 |
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(3,246 |
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Provision for doubtful accounts |
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961 |
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813 |
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Income from equity investment |
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(119 |
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Accrued losses on construction projects |
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480 |
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Minority interest |
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617 |
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Changes in assets and liabilities, net of assets acquired: |
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Accounts receivable, unbilled revenue and retainage, net |
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6,079 |
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2,129 |
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Inventories |
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5,269 |
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12,159 |
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Income tax refund receivable |
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4 |
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Other assets, current and non-current portion |
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(1,672 |
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10,608 |
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Accounts payable and accrued expenses |
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(13,133 |
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(11,690 |
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Other liabilities, current and non-current portion |
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(3,945 |
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(3,367 |
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Net cash provided by operating activities |
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7,334 |
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16,076 |
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Cash flows provided by (used in) investing activities: |
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Cash paid for acquisitions and contingent considerations, net of cash acquired |
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(6,324 |
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(11,213 |
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Capital expenditures |
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(7,447 |
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(6,320 |
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Investments in unconsolidated companies |
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(925 |
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Investments in life insurance policies |
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(284 |
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(283 |
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Net proceeds from sale of assets |
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1,452 |
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2,259 |
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Purchases of securities available for sale |
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(16,437 |
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(216,449 |
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Proceeds from sale of securities available for sale |
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29,875 |
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189,200 |
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Net cash provided by (used in) investing activities |
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835 |
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(43,731 |
) |
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Cash flows provided by (used in) financing activities: |
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Proceeds from (payments of) other borrowings, net |
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(190 |
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150,031 |
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Payments of capital lease obligations |
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(792 |
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(438 |
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Payments of senior subordinated notes |
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(121,000 |
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Proceeds from issuance of common stock pursuant to stock option exercises |
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48 |
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432 |
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Payments of financing costs |
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(3,195 |
) |
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Net cash provided by (used in) financing activities |
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(934 |
) |
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25,830 |
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Net increase (decrease) in cash and cash equivalents |
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7,235 |
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(1,825 |
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Net effect of currency translation on cash |
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9 |
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Cash and cash equivalents, including restricted cash, beginning of period |
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74,288 |
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35,282 |
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Cash and cash equivalents, including restricted cash, end of period |
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$ |
81,523 |
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$ |
33,466 |
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Cash paid during the period for: |
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Interest |
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$ |
5,482 |
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$ |
5,761 |
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Income taxes |
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$ |
93 |
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$ |
6 |
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Supplemental disclosure of non-cash information: |
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Equipment acquired under capital lease |
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$ |
875 |
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$ |
882 |
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Equipment auction receivable |
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$ |
663 |
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$ |
186 |
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The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
5
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
Note 1 Nature of the Business
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. We provide similar infrastructure services across the industries we serve. 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.
Note 2 Basis for Presentation
The accompanying condensed unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
these financial statements do not include all information and notes required by accounting
principles generally accepted in the United States for complete financial statements and should be
read in conjunction with the audited consolidated financial statements and notes thereto included
in our Form 10-K for the year ended December 31, 2007. In our opinion, all adjustments necessary
for a fair presentation of the financial position, results of operations and cash flows for the
periods presented have been included.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Key estimates for us include
the recognition of revenue, allowance for doubtful accounts, accrued self-insured claims, the fair
value of goodwill and intangible assets, asset lives used in computing depreciation and
amortization, including amortization of intangibles, and accounting for income taxes, contingencies
and litigation. While we believe that such estimates are fair when considered in conjunction with
the consolidated financial position and results of operations taken as a whole, actual results
could differ from those estimates and such differences may be material to the financial statements.
Note 3 Significant Accounting Policies
(a) Principles of Consolidation
The accompanying financial statements include MasTec, Inc. and its subsidiaries. For the three
months ended March 31, 2007, we consolidated GlobeTec Construction, LLC (GlobeTec) as we had a 51%
controlling interest in this entity. Other parties interest in GlobeTec was reported as minority
interest in the condensed unaudited consolidated financial statements for such period. During
2007, we acquired an additional 45% ownership interest in GlobeTec, and during the three months
ended March 31, 2008, we acquired the remaining 4% interest in GlobeTec, bringing our ownership
interest in this entity to 100%. All intercompany accounts and transactions have been eliminated in
consolidation.
(b) 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
net income (loss), foreign currency translation adjustments, and unrealized losses on securities
available for sale.
6
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
Comprehensive income (loss) consisted of the following (in thousands):
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For the Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Net income |
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$ |
7,781 |
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$ |
1,670 |
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Foreign currency translation gain |
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|
9 |
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Unrealized loss from securities available for sale |
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(2,794 |
) |
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Comprehensive income |
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$ |
4,987 |
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$ |
1,679 |
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(c) Basic and Diluted Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share from
continuing operations for the three months ended March 31, 2008 and 2007 (in thousands):
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For the Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Basic net income from continuing operations per share computation: |
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Net income from continuing operations |
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$ |
7,936 |
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$ |
7,019 |
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|
Weighted average common shares outstanding |
|
|
67,187 |
|
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|
65,414 |
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Basic net income per share from continuing operations |
|
|
0.12 |
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|
0.11 |
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Diluted net income from continuing operations per share computation: |
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Net income from continuing operations |
|
$ |
7,936 |
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$ |
7,019 |
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Weighted average common shares outstanding |
|
|
67,187 |
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|
65,414 |
|
Incremental shares attributable to the assumed exercise of
outstanding options and unvested restricted stock
(common share equivalents) |
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398 |
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1,172 |
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Total diluted weighted average shares |
|
|
67,585 |
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|
66,586 |
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Diluted net income per share from continuing operations |
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|
0.12 |
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|
0.11 |
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(d) Valuation of Goodwill and Intangible Assets
In accordance with Statement of Financial Accounting Standards 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 market value using a
discounted cash flow methodology for each entity. Should this be the case, the value of its
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 provisions of SFAS 142. In addition, acquired intangible assets
are recognized and amortized over their useful lives if the benefit of the asset is based on
contractual or legal rights.
During the three months ended March 31, 2008, we recorded approximately $3.5 million of
goodwill and other intangible assets in connection with acquisitions we have made, of which $2.8
million is related to earn-out obligations.
During the three months ended December 31, 2007, we recorded $26.4 million of goodwill and other intangible
assets in connection with the acquisition of the remaining 51% interest in our equity method
investment, and we wrote-off $0.4 million in goodwill in connection with our decision to sell all
of our Canadian net assets.
(e) Insurance Reserves
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 $2 million for its
automobile liability policy. We have excess
umbrella coverage 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 employee deductibles of
$350,000.
7
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
We actuarially determine
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 appropriateness of the related liability is
reviewed and updated quarterly. Our 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 March 31, 2008 and December 31, 2007, such letters of credit amounted to
$70.0 million and $64.8 million, respectively, and cash collateral posted amounted to $3.3 million
as of the end of both periods, which is included in other assets.
(f) Stock Based Compensation
We have granted to employees and others restricted stock and options to purchase our common
stock. Total non-cash stock compensation expense for the three months ended March 31, 2008 and
2007 was $0.8 million and $2.0 million, respectively, which is included in general and
administrative expense in the condensed unaudited consolidated statements of operations.
During the three months ended March 31, 2008 and 2007, there were no stock options granted.
We use the Black-Scholes valuation model to estimate the fair value of options to purchase our
common stock and use the ratable method (an accelerated method of expense recognition under SFAS
No. 123R) to amortize compensation expense over the vesting period of the option grant.
The fair value of each option granted was estimated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Expected life employees |
|
4.2 - 7 years |
|
4.3 - 7 years |
Expected life executives |
|
5.9 - 7.9 years |
|
5.7 - 9.7 years |
Volatility percentage |
|
|
50% - 65% |
|
|
|
40% - 55% |
|
Interest rate |
|
|
1.5% - 3.7% |
|
|
|
4.5% - 4.8% |
|
Dividends |
|
None |
|
None |
Forfeiture rate |
|
|
7.5% |
|
|
|
7.3% |
|
We also sometimes grant restricted stock, which is valued based on the market price of our
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 condensed unaudited consolidated balance sheets. Through March 31, 2008, we have issued 850,608
shares of restricted stock valued at approximately $8.3 million which is being expensed over
various vesting periods (12 months to 5 years). Restricted shares of 330,251 and 30,000 were granted in the three months ended March 31, 2008 and 2007, respectively. Total unearned compensation related to restricted
stock grants as of March 31, 2008 is approximately $3.7 million. Restricted stock expense for the
three months ended March 31, 2008 and 2007 was approximately $0.3 million and $0.5 million,
respectively. These costs are included in general and administrative expenses in the condensed
unaudited consolidated statements of operations.
8
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
(g) Reclassifications
Certain reclassifications were made to the prior period financial statements in order to
conform to the current period presentation. Also, auction rate securities previously classified as
Cash and cash equivalents have been reclassified to Securities available for sale in the
condensed unaudited consolidated balance sheets and statements of cash flows for all periods
presented.
(h) Cash and cash equivalents
All short-term investments with original maturities of three months or less 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.
(i) Fair value of financial instruments
Effective January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with
accounting principles generally accepted in the United States, and expands disclosure requirements
about fair value measurements. In accordance with FASB Staff Position FAS 157-2, Effective Date of
FASB Statement No. 157 (FSP 157-2), we will defer the adoption of SFAS 157 for our nonfinancial
assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an
annual or more frequent recurring basis, until January 1, 2009. The adoption of SFAS 157 did not
have a material impact on our fair value measurements.
We estimate the fair market value of financial instruments through the use of public market
prices, quotes from financial institutions and other available information. Judgment is required in
interpreting data to develop estimates of market value and, accordingly, amounts are not
necessarily indicative of the amounts that we could realize in a current market exchange.
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, equaled their
carrying values. At March 31, 2008 and December 31, 2007, the fair value of our outstanding senior
notes was approximately $131 million and $142 million, respectively.
(j) 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 FASB Statement of Position 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.
The Companys securities available for sale consist of auction-rate securities which represent
interests in corporate debt obligations, student loans guaranteed by the U.S. government and
taxable municipal bonds. 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 record
auction-rate securities as securities available for sale at fair market value and unrealized gains
and losses are included in accumulated other comprehensive income (loss) as a separate component of
shareholders equity. Fair market value of auction rate securities is based primarily upon market
transactions and bids on identical or similar securities in this
inactive market (Level 2 inputs in accordance with SFAS 157). See Note 4 in Notes to the
Condensed Unaudited Consolidated Financial Statements.
9
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
(k) Income taxes
We record income taxes using the asset and liability method of accounting. 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, depreciation of fixed assets
and non-cash compensation expense 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 foreseeable
future, or 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 recent history of operating losses, we have recorded valuation allowances
aggregating $47.5 million and $47.9 million as of March 31, 2008 and December 31, 2007,
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 based on continuing operations and feasible tax planning
strategies that are available to us.
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. 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.
Note 4 Securities Available For Sale
The Companys securities available for sale consist of auction rate securities that represent
interest in pools of corporate debt obligations, student loans guaranteed by the U.S. government
and taxable municipal bonds. In the current period, due to disruptions in the
credit markets, these auctions have not had sufficient bidders to allow investors to complete a
sale, indicating that immediate liquidity at par is unavailable. These investments are of a high credit quality and the ratings of
these securities and issuers has not changed. We have the intent and
believe we have the ability to
hold these securities until they can be sold at par value. We are uncertain at this time as to when
the liquidity issues associated with these investments will improve. These securities are classified as
current assets in the condensed consolidated balance sheets based on the Companys current expectations regarding the liquidity of these securities. We are uncertain at this time as to
when we will be able to exit these investments at their par value or whether we will incur
additional temporary or other than temporary impairment related to these investments in the future.
We continue to monitor market conditions and any future failed auctions will be evaluated based on
the most relevant and timely information available to us.
During the three months ended March 31, 2008, we sold $13.5 million of our auction rate
securities at par value. As of March 31, 2008, the fair market value of our remaining securities
available for sale totaled $28.1 million. These securities were subject to the auction process and
failed to generate sufficient bidders. We have reviewed the fair value of these securities as
determined based on bids and market transactions for identical and similar securities in this
inactive market and accordingly, during the three months ended March 31, 2008, we recorded an
unrealized loss of $2.8 million in Other Comprehensive Income in addition to the $4.8 million in
unrealized losses recorded for these securities during the year ended December 31, 2007. See Part
II. Other Information Item 1A. Risk Factors.
10
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
The cost basis, gross unrealized gains and losses and fair value for these securities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Cost |
|
|
Unrealized |
|
|
Fair |
|
|
Cost |
|
|
Unrealized |
|
|
Fair |
|
|
|
Basis |
|
|
Losses |
|
|
Value |
|
|
Basis |
|
|
Losses |
|
|
Value |
|
Auction rate securities |
|
$ |
35,700 |
|
|
$ |
(7,584 |
) |
|
$ |
28,116 |
|
|
$ |
49,150 |
|
|
$ |
(4,790 |
) |
|
$ |
44,360 |
|
The contractual maturity of the auction rate securities available for sale at March 31, 2008
is greater than ten years.
Note 5 Other Assets and Liabilities
Prepaid expenses and other current assets as of March 31, 2008 and December 31, 2007 consist
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Deferred tax assets |
|
$ |
20,666 |
|
|
$ |
26,467 |
|
Notes receivable |
|
|
107 |
|
|
|
113 |
|
Non-trade receivables |
|
|
11,951 |
|
|
|
17,081 |
|
Other investments |
|
|
3,163 |
|
|
|
2,738 |
|
Prepaid expenses and deposits |
|
|
10,825 |
|
|
|
5,708 |
|
Other |
|
|
3,564 |
|
|
|
4,058 |
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets |
|
$ |
50,276 |
|
|
$ |
56,165 |
|
|
|
|
|
|
|
|
Other non-current assets consist of the following as of March 31, 2008 and December 31, 2007
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Investment in real estate |
|
$ |
1,683 |
|
|
$ |
1,683 |
|
Equity investment |
|
|
100 |
|
|
|
100 |
|
Long-term portion of deferred financing costs, net |
|
|
5,114 |
|
|
|
5,380 |
|
Cash surrender value of insurance policies |
|
|
9,223 |
|
|
|
8,939 |
|
Receivable from insurance carrier |
|
|
2,071 |
|
|
|
2,071 |
|
Insurance escrow |
|
|
3,313 |
|
|
|
3,286 |
|
Other receivables |
|
|
1,500 |
|
|
|
1,500 |
|
Long-term portion of notes receivable |
|
|
200 |
|
|
|
200 |
|
Deferred project cost |
|
|
1,608 |
|
|
|
1,815 |
|
Other |
|
|
2,258 |
|
|
|
3,214 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
27,070 |
|
|
$ |
28,188 |
|
|
|
|
|
|
|
|
11
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
Other current and non-current liabilities consist of the following as of March 31, 2008 and
December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accrued compensation |
|
$ |
13,771 |
|
|
$ |
12,556 |
|
Accrued settlement charges |
|
|
22,857 |
|
|
|
21,269 |
|
Accrued insurance |
|
|
17,615 |
|
|
|
16,645 |
|
Billings in excess of costs |
|
|
4,189 |
|
|
|
6,142 |
|
Accrued amount due related to discontinued operations |
|
|
1,860 |
|
|
|
9,882 |
|
Accrued professional fees |
|
|
2,359 |
|
|
|
3,224 |
|
Accrued interest |
|
|
1,906 |
|
|
|
4,734 |
|
Obligations related to acquisitions |
|
|
3,359 |
|
|
|
5,919 |
|
Accrued losses on contracts |
|
|
554 |
|
|
|
364 |
|
Other |
|
|
9,258 |
|
|
|
6,819 |
|
|
|
|
|
|
|
|
Total other current liabilities |
|
$ |
77,728 |
|
|
$ |
87,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Accrued insurance |
|
$ |
27,421 |
|
|
$ |
27,572 |
|
Accrued
settlement charges |
|
|
4,350 |
|
|
|
4,350 |
|
Minority interest |
|
|
|
|
|
|
312 |
|
Other |
|
|
61 |
|
|
|
76 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
$ |
31,832 |
|
|
$ |
32,310 |
|
|
|
|
|
|
|
|
Note 6 Discontinued Operations
On April 10, 2007, we sold substantially all of the net assets of our Canadian operations.
Accordingly, the operations in Canada have been accounted for as discontinued operations for all
periods presented.
The following table summarizes the results of our Canadian operations considered to be
discontinued (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenue |
|
$ |
|
|
|
$ |
668 |
|
Cost of revenue |
|
|
|
|
|
|
(822 |
) |
Operating and other expenses |
|
|
(155 |
) |
|
|
(774 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(155 |
) |
|
$ |
(928 |
) |
|
|
|
|
|
|
|
On
February 14, 2007, we sold the state Department of Transportation related projects
and net assets.
The following table summarizes the results of operations for the three months ended March 31,
2007 for the state Department of Transportation related projects and assets that are considered to
be discontinued (in thousands). There were no material results for this discontinued operation in
2008.
|
|
|
|
|
|
|
March 31, |
|
|
|
2007 |
|
Revenue |
|
$ |
5,663 |
|
Cost of revenue |
|
|
(6,311 |
) |
Operating and other expenses |
|
|
(3,780 |
) |
|
|
|
|
Net loss |
|
$ |
(4,428 |
) |
|
|
|
|
12
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
Note 7 Commitments and Contingencies
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. Based on the members of the purported class that have opted
in the maximum amount to be
paid in connection with this settlement is $8.4 million. In
April 2008, the settlement was approved by the court.
We contracted to construct a natural gas pipeline for Coos County, Oregon in 2003.
Construction work on the pipeline ceased and 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.
In April 2008, we entered into a definitive settlement agreement to settle our dispute with
Coos County, which provides for a $4.35 million payment to Coos
County on June 1, 2008, included in other current liabilities, and a $4.35
million payment to Coos County on June 1, 2009 with 3% interest
accruing beginning June 1, 2008, included in other liabilities,
at March 31, 2008 and December 31, 2007.
The settlement agreement is subject to MasTec not being penalized greater than $1.5 million in the
Corps of Engineers matter described below. We cannot assure you that this condition 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 did not agree that the notices were appropriate or justified, we 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 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 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 were also seeking reimbursement of expenses incurred by us which we
believe are reimbursable by our excess insurance carrier. We believed the claims of the excess
insurance carrier were without merit and vigorously pursued this action. Although a district court
ruled in March 2007 that there is no coverage provided under the excess policy, we appealed. The
appellate court, however, affirmed the district courts ruling. We are now
vigorously pursuing claims against the insurance broker for any losses arising from the same issue
involving notice.
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.
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.
We provided telecommunication infrastructure services to Adesta Communications, Inc. in 2000
and 2001. Adesta filed for bankruptcy in 2001. At March 31, 2008, 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 condensed unaudited consolidated balance sheet at March 31, 2008 related to Adesta.
13
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
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 between the
parties effective as of January 24, 2008, which we refer to as the revised sale agreement.
Under the terms of the settlement agreement, we paid $6 million in cash, which was previously
accrued, 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 sale 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 Part II. Other Information Item IA. Risk Factors.
Accrued
aggregate liabilities related to the matters discussed above and
other litigation matters amounted to $27.2 million
at March 31, 2008 and $25.6 million at December 31,
2007. A charge of $1.6 million was recorded in the three months
ended March 31, 2008 related to these matters.
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 March 31, 2008, the cost to
complete projects for which $345.2 million in performance and payment bonds are outstanding was
$80.5 million.
Note 8 Concentrations of Risk
We provide services to our customers in the following industries: communications, utilities
and government.
Revenue for customers in these industries is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Communications |
|
$ |
183,784 |
|
|
$ |
178,483 |
|
Utilities |
|
|
64,622 |
|
|
|
51,114 |
|
Government |
|
|
13,586 |
|
|
|
11,399 |
|
|
|
|
|
|
|
|
|
|
$ |
261,992 |
|
|
$ |
240,996 |
|
|
|
|
|
|
|
|
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 with respect to these services rendered, 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 three months ended March 31, 2008, 55.6% of our
total revenue was attributed to two customers. Revenue from these two customers accounted for 46.8%
and 8.8%, respectively, of the total revenue for the three months ended March 31, 2008. During the
three months ended March 31, 2007, two customers accounted for 55.8% of our total revenue. Revenue
from these two customers accounted for 45.7% and 10.1%, respectively, of the total revenue for the
three months ended March 31, 2007.
We maintain an allowance for doubtful accounts of $15.7 million and $15.3 million as of March
31, 2008 and December 31, 2007, respectively, for both specific customers and as a reserve against
other uncollectible accounts receivable. As of March 31, 2008, we had remaining receivables from
customers undergoing bankruptcy reorganization totaling $1.6 million, of which $0.3 million is
specifically reserved. Should additional customers file for bankruptcy or experience financial
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.
14
MasTec, Inc.
Notes to the Condensed Unaudited Consolidated Financial Statements
Note 9 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 a portion of his Neff shares and resigned as its chief executive officer.
Juan Carlos Mas remains as chairman of the Neff board of directors. During the three months ending
March 31, 2008 and 2007, we paid Neff approximately $170,000 and $400,000, respectively.
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
$20,000 during the three month period ended March 31, 2008, and
$320,000 during the three month
period ended March 31, 2007.
During the three month period ended March 31, 2008 and 2007, we had an arrangement with a
customer whereby we leased employees to that customer and charged approximately $103,000 and
$60,000, respectively, to the customer. Jorge Mas, Chairman of our Board of Directors, and Jose
Mas, our President and Chief Executive Officer, are minority owners of this customer.
MasTec has entered into split dollar agreements with key executives and former executives, and
with the Chairman of our Board of Directors. During the three months ended March 31, 2008 and 2007,
we paid approximately $284,000 and $283,000, respectively, in premiums in connection with these
split dollar agreements.
During the first quarter of 2008 and 2007, we paid Irma Mas, the mother of Jorge Mas, our
Chairman and Jose Mas, our President and Chief Executive Officer, $12,000 and $40,000,
respectively, for the lease of certain property located in Florida.
We believe amounts paid in related party transactions are equivalent to the payments that
would have been made between unrelated parties for similar transactions acting on an arms-length
basis.
Note 10 Recent 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 March 19, 2008 the Financial Accounting Standards Board (FASB) Issued Statement of
Financial Accounting Standards (SFAS) No. 161, Disclosures About Derivative Instruments and
Hedging Activities. This statement is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures. This statement is effective
for financial statements issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The Company is currently evaluating the impact that SFAS
161 will have on the consolidated financial statements.
15
MasTec, Inc.
Notes to the Condensed Unaudited 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 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 portion of the instrument. SFAS 159 is effective as of the
beginning of the first fiscal year that begins after November 15, 2007. The adoption of SFAS 159
did not have a material impact 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. The adoption of SFAS 158 did not have a material effect on
our consolidated financial statements.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Securities Act of
1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are not historical facts but are the intent,
belief, or current expectations, of our business and industry, and the assumptions upon which these
statements are based. Words such as anticipates, expects, intends, will, could, would,
should, may, plans, believes, seeks, estimates and variations of these words and the
negatives thereof and similar expressions are intended to identify forward-looking statements.
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. These risks and uncertainties include those described in Managements Discussion and
Analysis of Financial Condition and Results of Operations, and elsewhere in this report and in the
Companys Annual Report on Form 10-K for the year ended December 31, 2007, including those
described under Risk Factors in the Form 10-K as updated by Item 1A Risk Factors in this report
and other of our SEC filings. Forward-looking statements that were true at the time made may
ultimately prove to be incorrect or false. Readers are cautioned to not place undue reliance on
forward-looking statements, which reflect our managements view only as of the date of this report.
We undertake no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future operating results.
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
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 approximately 7,700 employees as of March 31, 2008. 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 communications and utility companies in the United
States, including DIRECTV®, Verizon, AT&T, EMBARQ, Progress Energy, Florida Power & Light, TXU,
Qwest, XTO Energy, Dominion Virginia Power and American Electric Power. For the quarters ended
March 31, 2008 and 2007, 78% and 81%, 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.
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 (in thousands) and the percent of our total revenue
earned from such customers is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Communications |
|
$ |
183,784 |
|
|
|
70 |
% |
|
$ |
178,483 |
|
|
|
74 |
% |
Utilities |
|
|
64,622 |
|
|
|
25 |
% |
|
|
51,114 |
|
|
|
21 |
% |
Government |
|
|
13,586 |
|
|
|
5 |
% |
|
|
11,399 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
261,992 |
|
|
|
100 |
% |
|
$ |
240,996 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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 generated by work orders, each of which is performed for a fixed fee. The majority of
these services 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 may 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 projects 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 (in thousands) and the percent of our total revenue from such
contracts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Master service and other service agreements |
|
$ |
184,235 |
|
|
|
70 |
% |
|
$ |
181,304 |
|
|
|
75 |
% |
Installation/construction projects agreements |
|
|
77,757 |
|
|
|
30 |
% |
|
|
59,692 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
261,992 |
|
|
|
100 |
% |
|
$ |
240,996 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
leases and 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 immediately recognize the full amount of any estimated loss on fixed fee
projects if the estimated costs to complete the remaining units for the project exceed the revenue
to be received from such units.
Many of our customers supply materials such as cable, conduit and telephone equipment.
Customer furnished materials are not included in revenue and cost of sales because such materials
are purchased by the customer. The customer determines the specifications of the materials that are
to be utilized to perform installation and construction services. We are only responsible for the
performance of the installation and 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.
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
In March 2007, we declared our Canadian operations a discontinued operation due to our
decision to sell substantially all of the net assets of this operation. Accordingly, results of
operations of our Canadian operations have been classified as discontinued operations, and all
financial information for all periods presented reflects these operations as discontinued
operations. On April 10, 2007, we sold substantially all of our Canadian assets and liabilities.
In December of 2005, we declared our state Department of Transportation related projects as
discontinued. On February 14, 2007, we sold our state Department of Transportation related projects
and net assets.
18
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the amounts reported in our financial
statements and the accompanying notes. 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 experience and on various other assumptions that
we believe to be reasonable under the circumstances. As management estimates, by their nature,
involve judgment regarding future uncertainties, actual results may differ materially from these
estimates. Refer to Note 3 to our condensed unaudited consolidated financial statements of this
Quarterly Report on Form 10-Q and to our most recent Annual Report on Form 10-K for further
information regarding our critical accounting policies and estimates.
Litigation and Contingencies
Litigation and contingencies are reflected in our condensed unaudited consolidated financial
statements based on our assessments of the expected outcome. If the final outcome of any litigation
or contingencies differs significantly from our current expectations, a charge to earnings could
result. See Note 7 to our condensed unaudited consolidated financial statements in this Form 10-Q
for updates to our description of legal proceedings and commitments and contingencies.
Results of Operations
Comparison of Quarterly Results
The following table reflects our consolidated results of operations in dollar (in thousands)
and percentage of revenue terms for the periods indicated. All periods presented reflect our
Canadian and state Department of Transportation operations as discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenue |
|
$ |
261,992 |
|
|
|
100.0 |
% |
|
$ |
240,996 |
|
|
|
100.0 |
% |
Costs of revenue, excluding depreciation |
|
|
226,844 |
|
|
|
86.6 |
% |
|
|
210,591 |
|
|
|
87.4 |
% |
Depreciation |
|
|
4,788 |
|
|
|
1.8 |
% |
|
|
3,780 |
|
|
|
1.6 |
% |
General and administrative expenses |
|
|
20,046 |
|
|
|
7.7 |
% |
|
|
19,679 |
|
|
|
8.2 |
% |
Interest expense, net of interest income |
|
|
2,496 |
|
|
|
1.0 |
% |
|
|
2,795 |
|
|
|
1.2 |
% |
Other income, net |
|
|
151 |
|
|
|
0.1 |
% |
|
|
3,485 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before minority interest and income taxes |
|
|
7,969 |
|
|
|
3.0 |
% |
|
|
7,636 |
|
|
|
3.2 |
% |
Minority interest |
|
|
|
|
|
|
0.0 |
% |
|
|
(617 |
) |
|
|
(0.3 |
)% |
Income Taxes |
|
|
(33 |
) |
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
7,936 |
|
|
|
3.0 |
% |
|
|
7,019 |
|
|
|
2.9 |
% |
Loss from discontinued operations |
|
|
(155 |
) |
|
|
(0.1 |
)% |
|
|
(5,349 |
) |
|
|
(2.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,781 |
|
|
|
3.0 |
% |
|
$ |
1,670 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Revenue. Our revenue was $262.0 million for the three months ended March 31, 2008, compared
to $241.0 million for the same period in 2007, representing an increase of $21.0 million or 8.7%.
This increase was primarily related to higher revenue of approximately $12.3 million from
DIRECTV® due to the acquisition of the remainder of our equity
method investment, effective February 2007, as well as organic growth in this business. The
balance of the increase is attributable to higher revenue from utilities
customers as a result of our acquisitions in the last half of 2007
and managements focus on expanding this business.
19
Costs of Revenue. Our costs of revenue were $226.8 million or 86.6% of revenue for the three
months ended March 31, 2008, compared to $210.6 million or 87.4% of revenue for the corresponding
period in 2007. As a percentage of revenue, cost of revenue improved 80 basis points reflecting
our continued ability to sustain our operating margins as rising fuel
costs were more than offset by lower subcontractor, labor and equipment rental costs.
Depreciation. Depreciation was $4.8 million for the three months ended March 31, 2008,
compared to $3.8 million for the same period in 2007, representing an increase of $1.0 million or
26%. The increase was due primarily to capital expenditures and capital lease agreements executed
during 2007 and 2008 to finance machinery and equipment to support our growth.
General and administrative expenses. General and administrative expenses were $20.0 million or
7.7% of revenue for the three months ended March 31, 2008, compared to $19.7 million or 8.2% of
revenue for the same period in 2007, representing an increase of $0.3 million. The increase was
primarily due to a $1.6 million charge related to a legal settlement partially offset by a $1.1 million
decrease in non-cash stock compensation and lower professional legal
fees.
Interest expense, net. Interest expense, net of interest income was $2.5 million or 1.0% of
revenue for the three months ended March 31, 2008, compared to $2.8 million or 1.2% of revenue for
the same period in 2007, representing a decrease of approximately $0.3 million. This decrease is
primarily due to the net impact of reduced interest expense driven by
lower interest rates, partially offset by reduced
interest income due to reduced interest rates and lower cash balances.
Other income, net. Other income, net was $0.2 million for the three months ended March 31,
2008, compared to $3.5 million for the three months ended March 31, 2007, representing a decrease
of $3.3 primarily due to lower gains on sale of property and
equipment. We recognized gains on asset sales of
approximately $0.4 million during the three months ended March 31, 2008, compared to $3.2 million
for the three months ended March 31, 2007 including a non-recurring gain of $2.5 million on the sale of surplus property.
Minority interest. For the three months ended March 31, 2007, the minority interest expense
for GlobeTec was $0.6 million as we owned 51% of this entity. During the three months ended March
31, 2008, we owned 100% of this entity. As such there was no minority interest charge during this
period.
Discontinued operations. The loss on discontinued operations for the three months ended March
31, 2008 was $0.2 million compared to $5.3 million for the same period in 2007, as the first
quarter of 2007 included $4.4 million in losses related to our state Department of Transportation
projects and assets and $0.9 million in losses related to our Canadian operations, both of which
were disposed of during 2007.
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, proceeds from sales of assets and investments, and
our cash balances. 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
anticipate the remaining net proceeds from the senior note offering will be generally used for
working capital, acquisitions of assets and businesses and other general corporate purposes.
Our primary liquidity needs are for working capital, capital expenditures, insurance
collateral in the form of cash and letters of credit, earn out obligations and debt service. In
addition to ordinary course working capital requirements, we estimate we will spend between $30
million and $45 million per year on capital expenditures. We will 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 to new equipment, and we expect to generate 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.
20
We have made certain acquisitions and have agreed to pay certain of the sellers earn-out
payments generally based on the future performance of the investment or acquired business. During
the three months ended March 31, 2008, we paid $5.7 million related to such earn-out obligations.
We hold a variety of highly rated interest bearing auction rate securities that represent
interests in pools of either corporate debt obligations, student
loans, guaranteed by the U.S. government and taxable municipal
bonds. None of our holdings are mortgage backed securities. 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. In the current period, due to disruptions in the credit markets, these auctions
have not had sufficient bidders to allow investors to complete a sale, indicating that immediate
liquidity at par is unavailable. As of March 31, 2008, we hold $35.7 million in par value of these
auction rate securities, with a fair value and carrying value of $28.1 million, net of a $7.6
million unrealized loss. 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 believe 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 4, Securities Available for Sale in the notes to condensed unaudited
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, and some of our contracts allow our customers to retain a portion
(from 2% to 15%) of the contract amount until the job is completed according to the terms and
conditions therein. We maintain inventory to meet the material
requirements of certain of our
contracts. Certain 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 specified amounts.
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, the
remaining net proceeds from our
senior note offering completed in the first quarter of 2007, borrowings under our Credit Facility,
proceeds from sales of assets and investments, and our cash balances will be sufficient to meet our
working capital requirements, anticipated capital expenditures, insurance collateral requirements,
earn-out obligations, letters of credit and debt service obligations for at least the next twelve
months.
As
of March 31, 2008, we had $159.2 million in working capital
compared to $163.8 million as
of December 31, 2007. We define working capital as current assets less current liabilities. Cash
and cash equivalents, including approximately $18 million of
restricted cash, increased from $74.3
million at December 31, 2007 to $81.5 million at March 31, 2008 mainly due to net proceeds of $13.5
million from the sale of auction rate securities classified as securities available for sale in our
balance sheet, partially offset by $6.3 million paid for acquisitions and contingent considerations
during the first quarter of 2008.
Net cash provided by operating activities was $7.3 million for the three months ended March
31, 2008 and was primarily related to improved earnings, favorable business mix (including the
disposition of our state Department of Transportation business), inventory management and cash
collections from customers. Net cash provided by operating activities was $16.1 million during the
three months ended March 31, 2007 and was primarily related to the timing of cash payments to
vendors, improvement in earnings as well as the management of inventory and other assets.
21
Net cash provided by investing activities was $0.8 million for the three months ended March
31, 2008 and was primarily related to net proceeds of $14.9 million from the sale of securities and
assets offset by $6.3 million used in connection with acquisitions and contingent considerations,
net of cash acquired, and $7.4 million used for capital expenditures. Net cash used in investing
activities during the three months ended March 31, 2007 was $43.7 million and was primarily related
to $27.2 million in net purchases of securities available for sale, $11.2 million used in
connection with acquisitions made net of cash acquired, and $6.3 million used for capital
expenditures offset by $2.3 million in net proceeds from sale of assets.
Net cash used in financing activities was $0.9 million for the three months ended March 31,
2008 compared to $25.8 million net cash provided by financing activities for the three months ended
March 31, 2007. Net cash provided by financing activities in the three months ended March 31, 2008,
consisted primarily of payments under capital lease obligations and other borrowings. Net cash
provided by financing activities in the three months ended March 31, 2007, consisted primarily of
the proceeds from the issuance of $150.0 million 7.625% senior notes in January 2007, partially
offset by the redemption of $121.0 million 7.75% senior subordinated notes in March 2007 and $3.2
million in payments of financing costs.
We have a secured revolving Credit Facility for our operations which was amended and restated
on July 31, 2007 with an effective date of June 30, 2007. The Credit Facility has a maximum amount
of available borrowing of $150.0 million, subject to certain restrictions. If certain conditions
under the Credit Facility are met, we may request that the maximum amount of available borrowing
under the Credit Facility be increased from $150 million to $200 million. The costs related to this
amendment were $225,000 which are being amortized over the life of the Credit Facility. The Credit
Facility expires on May 10, 2012. These deferred financing costs are included in Prepaid expenses
and other current assets and Other assets in our condensed
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 March 31, 2008 and December 31, 2007, net availability under
the Credit Facility totaled $31.3 million and $44.0 million, respectively, which includes
outstanding standby letters of credit aggregating $91.6 million and $86.4 million in each period,
respectively. At March 31, 2008, $70.0 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 March 31, 2008 and December 31,
2007, 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 1.50%. 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 is under $15.0 million on any given day, we
are required to be in compliance with a minimum fixed charge coverage ratio measured on a monthly
basis and certain 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 paid to the sum of all interest expense plus current maturities of debt
for the period. The financial covenant was not applicable as of March 31, 2008, because at that
time net availability under the Credit Facility, as amended, exceeded $15.0 million.
Based upon the current availability under our Credit Facility, liquidity and projections for
2008, we believe we will be in compliance with the Credit Facilitys terms and conditions and the
minimum availability requirements for the remainder of 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 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 this may adversely affect our ability to remain in compliance with
the Credit Facilitys minimum net availability requirements and minimum fixed charge ratio in the
future.
Our variable rate Credit Facility exposes us to interest rate risk. However, we had no cash
borrowings outstanding under the Credit Facility at March 31, 2008.
As of March 31, 2008, $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: credit facilities (up to the greater of $200 million and our borrowing
base defined as 75% of unbonded accounts receivable plus 50% of net property and equipment plus 50%
of inventory), renewals to existing debt permitted under the indenture plus an additional $50
million of indebtedness, and 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.
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 March 31, 2008, the cost to complete on our $345.2 million performance and
payment bonds was approximately $80.5 million.
22
Seasonality
Our operations are historically seasonally slower in the first and fourth quarters of the
year. This seasonality is primarily the result of client budgetary constraints and preferences and
the effect of winter weather on network activities. Some of our clients, particularly the incumbent
local exchange carriers, tend to complete budgeted capital expenditures before the end of the year
and defer additional expenditures until the following budget year.
Impact of Inflation
The primary inflationary factor affecting our operations is increased labor costs. We are also
affected by changes in fuel costs which increased significantly in 2007 and 2008.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates. Our variable rate Credit
Facility exposes us to interest rate risk. However, we had no cash borrowings under the Credit
Facility at March 31, 2008.
Interest Rate Risk
Less than 1% of our outstanding debt at March 31, 2008 was subject to variable interest rates.
The remainder of our debt has fixed interest rates. Our fixed interest rate debt includes $150.0
million (face value) in senior notes. The fair market value of our debt at March 31, 2008 was $131
million. Based upon debt balances outstanding at March 31, 2008, a 100 basis point (i.e., 1%)
addition to our weighted average effective interest rate for variable rate debt would not have a
material impact on our consolidated results of operations.
Foreign Currency Risk
We had an investment in a subsidiary in Canada and sold our services into this foreign market.
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.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, 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). Based upon that evaluation, we concluded that as of March 31, 2008, our disclosure
controls and procedures are effective to ensure that information required to be disclosed in
reports that we file or submit under the Exchange Act are recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding
required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15
that occurred during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to Note 7 to our consolidated financial statements of this Quarterly Report on Form 10-Q
for a discussion of any recent material developments related to our legal proceedings since the
filing of our most recent Annual Report on Form 10-K as updated by our subsequent Quarterly Reports
on Form 10-Q.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to any of the risk factors
disclosed in our most recently filed Annual Report on Form 10-K.
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, the amount they pay or their ability to pay, for our
services could impair our financial performance.
In the three months ended March 31, 2008, we derived approximately 46.8% and 8.8% of our
revenue from DIRECTV® and Verizon, 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 from any of these customer reduces
significantly, which could result in reduced profitability and liquidity.
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 Note 7 in the condensed unaudited consolidated
financial statements, 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 sale 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 sale document, 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 from the buyer 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 sale agreement. At March 31, 2008, we estimate that the cost to complete
on the $161.8 million in performance and payment bonds related to these projects and assets was
$11.7 million.
We recorded an unrealized loss in 2007 and 2008 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
March 31, 2008, all of our securities available for sale, or
$35.7 million in par value of auction rate securities
had insufficient bidders at the scheduled rollover dates. As a result, we have recorded an
aggregate unrealized loss of $7.6 million as of March 31, 2008. 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
4 in Notes to Condensed Unaudited Consolidated Financial Statements.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
24
ITEM 6. EXHIBITS
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Exhibit No. |
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Description |
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31.1*
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Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2*
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Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1*
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Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 *
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Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* |
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Exhibits filed with this Form 10-Q. |
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MASTEC, INC.
Date: April 29, 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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/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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26
EX-31.1 Section 302 Certification of CEO
Exhibit 31.1
CERTIFICATIONS REQUIRED BY SECTION 302(A)
OF SARBANES-OXLEY ACT OF 2002
I, Jose R. Mas, certify that:
I have reviewed this quarterly report on Form 10-Q 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
quarterly report;
Based on my knowledge, the financial statements, and other financial information included in this
quarterly 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 quarterly
report;
The registrants other certifying officer 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(e) and
15d-15(e)) for the registrant and have:
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a) |
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Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under my 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 quarterly report
is being prepared; |
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b) |
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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; |
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c) |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this quarterly 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 |
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d) |
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Disclosed in this quarterly report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting. |
The registrants other certifying officer 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):
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a) |
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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 |
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b) |
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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: April 29, 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) |
|
EX-31.2 Section 302 Certification of CFO
Exhibit 31.2
CERTIFICATIONS REQUIRED BY SECTION 302(A)
OF SARBANES-OXLEY ACT OF 2002
I, C. Robert Campbell, certify that:
I have reviewed this quarterly report on Form 10-Q 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
quarterly report;
Based on my knowledge, the financial statements, and other financial information included in this
quarterly 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 quarterly
report;
The registrants other certifying officer 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(e) and
15d-15(e)) for the registrant and have:
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a) |
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Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under my 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 quarterly report is being prepared; |
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b) |
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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; |
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c) |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this quarterly 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 |
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d) |
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Disclosed in this quarterly report any change in the registrants internal
control over financial reporting that occurred during the registrants most recent
fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrants internal control over financial reporting. |
The registrants other certifying officer 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):
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a) |
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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 |
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b) |
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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: April 29, 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 Quarterly Report of MasTec, Inc. (the Company) on Form 10-Q for the period
ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Jose R. Mas, President and Chief Executive Officer of MasTec, Inc., 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) |
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The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: April 29, 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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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 Quarterly Report on Form
10-Q for the period ended March 31, 2008, or as a separate disclosure documents of we 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 Quarterly Report of MasTec, Inc. (the Company) on Form 10-Q for the period
ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, C. Robert Campbell, Chief Financial Officer of MasTec, Inc., 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) |
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The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
|
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(2) |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: April 29, 2008
|
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/s/ C. Robert Campbell
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|
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C. Robert Campbell |
|
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Chief Financial Officer
(Principal Financial and Accounting
Officer) |
|
|
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 Quarterly Report on Form
10-Q for the period ended March 31, 2008, or as a separate disclosure documents of we or the
certifying officers.