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, 1998
Commission file number 0-3797
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
Former name, former address and former fiscal year, if changed since lastreport:
Not Applicable
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class of Common Stock May 13, 1998
--------------------- ------------
$ 0.10 par value 27,809,805
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 .
MasTec, Inc.
Index
PART I FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Statements of Income
for the Three Month Period Ended March 31, 1998 and
March 31, 1997.............................................................................3
Condensed Consolidated Balance Sheets as of March 31, 1998
(Unaudited) and December 31, 1997..........................................................4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Month Period Ended March 31, 1998 and
March 31, 1997.............................................................................5
Notes to Condensed Consolidated
Financial Statements (Unaudited)...........................................................7
Item 2 - Management's Discussion and Analysis of Results of Operations
and Financial Condition...................................................................11
PART II OTHER INFORMATION.........................................................................15
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
Three Months Ended
March 31,
(Unaudited)
1998 1997
- ----------------------------------------------------------------------------------------------------------------
Revenue $ 186,095 $ 138,290
Costs of revenue 152,966 99,271
Depreciation and amortization 7,896 4,304
General and administrative expenses 38,499 19,011
-------- --------
Operating (loss) income (13,266) 15,704
Interest expense 5,056 2,933
Interest and dividend income 1,433 533
Other income, net 243 477
-------- --------
(Loss) income from continuing operations before equity in earnings of
unconsolidated companies, (benefit) provision for income taxes and
minority interest (16,646) 13,781
Equity in earnings of unconsolidated companies 422 737
(Benefit) provision for income taxes (1) (5,249) 5,057
Minority interest (853) (34)
-------- --------
Net (loss) income (11,828) 9,427
Basic (loss) earnings per share:
Weighted average common shares outstanding (2) 27,677 27,012
(Loss) earnings per share (1) (2): $ (0.43) $ 0.35
Diluted (loss) earnings per share:
Weighted average common shares outstanding (2) 27,677 27,439
(Loss) earnings per share (1) (2): $ (0.43) $ 0.34
(1) 1997 provision for income taxes and net income have been adjusted to
reflect a tax provision of $93 for companies which were previously S
corporations.
(2) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997 and shares issued in connection with two
acquisitions accounted for under the pooling of interest method.
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 103,794 $ 6,063
Accounts receivable-net and unbilled revenue 358,511 346,596
Inventories 13,080 8,746
Other current assets 41,163 32,791
------- -------
Total current assets 516,548 394,196
------- -------
Property and equipment-at cost 153,545 129,968
Accumulated depreciation (49,953) (43,859)
------- -------
Property and equipment-net 103,592 86,109
------- -------
Investments in unconsolidated companies 49,394 48,160
------- -------
Other assets 118,780 59,133
------- -------
TOTAL ASSETS $ 788,314 $ 587,598
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 76,209 $ 54,562
Accounts payable 161,754 166,843
Other current liabilities 67,089 49,043
------- -------
Total current liabilities 305,052 270,448
------- -------
Other liabilities 41,191 41,924
------- -------
Long-term debt 270,164 94,495
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock 2,805 2,805
Capital surplus 100,388 99,235
Retained earnings 75,093 86,921
Accumulated translation adjustments (3,078) (3,466)
Treasury stock (3,301) (4,764)
------- -------
Total stockholders' equity 171,907 180,731
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 788,314 $ 587,598
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
>
MASTEC, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
(Unaudited)
Cash flows from operating activities:
Net (loss) income $(11,828) $ 9,520
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Minority interest 855 34
Depreciation and amortization 7,896 4,304
Equity in earnings of unconsolidated companies (422) (737)
Loss on sale of assets 104 187
Changes in assets and liabilities net of effect of acquisitions and
divestitures:
Accounts receivable-net and unbilled revenue (761) 37,385
Inventories and other current assets (2,314) (973)
Other assets (6,681) (1,501)
Accounts payable and accrued expenses (4,700) (29,363)
Income taxes 6,662 (397)
Other current liabilities 2,038 710
Other liabilities (7,218) (294)
------- -------
Net cash (used in) provided by operating activities (16,369) 18,875
------- -------
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired (44,605) (3,934)
(Advances) repayment of notes receivable (3,322) 26
Capital expenditures (16,458) (2,291)
Investment in unconsolidated companies (1,346) (3,797)
Proceeds from sale of assets 487 6,619
------- -------
Net cash used in investing activities (65,244) (3,377)
------- -------
Cash flows from financing activities:
Proceeds from Revolver 78,786 19,280
Proceeds from Notes 199,724 0
Financing costs (4,993) 0
Debt repayments (95,722) (43,239)
Net proceeds from common stock issued 1,586 3,173
Distributions by pooled companies 0 (260)
------- -------
Net cash provided by (used in) financing activities 179,381 (21,046)
------- -------
Net increase (decrease) in cash and cash equivalents 97,768 (5,548)
Effect of translation on cash (37) (269)
Cash and cash equivalents - beginning of period 6,063 10,989
------- -------
Cash and cash equivalents - end of period $103,794 $ 5,172
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
(Unaudited)
Acquisitions:
Fair value of assets acquired:
Accounts receivable $ 15,980 $ 5,487
Inventories 2,175 193
Other current assets 1,905 77
Property 9,197 3,491
Other assets (1) 27,760 1,323
------ ------
Total non-cash assets 57,017 10,571
------ ------
Liabilities 18,378 3,626
Debt 6,954 3,246
------ ------
Total liabilities assumed 25,332 6,872
------ ------
Net non-cash assets acquired 31,685 3,699
Cash acquired 2,608 654
------ ------
Fair value of net assets acquired 34,293 4,353
Excess over fair value of assets acquired 21,549 6,174
------ ------
Purchase price $ 55,842 $ 10,527
====== ======
Note payable issued in acquisitions $ 8,629 $ 130
Cash paid and common stock issued for acquisitions 47,213 6,397
Contingent consideration 0 4,000
------ ------
Purchase price $ 55,842 $ 10,527
====== ======
Property acquired through financing arrangements $ 0 $ 413
====== ======
In 1997, the Company issued approximately 172,982 shares of Common Stock for
acquisitions. Common Stock was issued from treasury stock at a cost of
approximately $1.4 million.
(1) Includes net assets of two acquisitions made on March 31, 1998 totaling $26.5 million.
The accompanying notes are an integral part of these consolidated financial
statements.
1. CONSOLIDATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of MasTec, Inc. ("MasTec" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. They
do not include all information and notes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1997.
The year end condensed balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. The financial information furnished reflects all
adjustments, consisting only of normal recurring accruals which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The results of
operations are not necessarily indicative of future results of operations or
financial position of MasTec.
2. COMPREHENSIVE INCOME
The Company has adopted the Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in
general purpose financial statements for the year ended December 31, 1998. The
table below sets forth "comprehensive income" as defined by SFAS No. 130 for the
three month period ended March 31:
1998 1997 (1)
--------- ---------
Net (loss) income $ (11,828) $ 9,427
Other comprehensive income:
Unrealized translation gain (loss) 388 (1,061)
-------- ------
Comprehensive (loss) income $ (11,440) $ 8,366
======== ======
(1) Net income for 1997 includes a pro forma tax adjustment for companie
pooled in 1997 that were not subject to taxation.
3. ACQUISITIONS
During the quarter ended March 31, 1998, the Company completed certain
acquisitions which have been accounted for under the purchase method of
accounting and which results of operations have been included in the Company's
condensed consolidated financial statements from the respective acquisition
dates. If the acquisitions had been made at the beginning of 1998 or 1997, pro
forma results of operations would not have differed materially from actual
results. Acquisitions made in 1998 were M.E. Hunter, Inc. of Atlanta, Georgia, C
& S Directional Boring, Inc. of Purcell, Oklahoma, Office Communications
Systems, Inc. of Chino, California, and Phasecom Systems, Inc. of Toronto,
Canada, four telecommunications infrastructure and utility contractors with
operations primarily in the western and northern United States, as well as
Canada. Also, on March 31, 1998, the Company closed on two acquisitions which
are included in other assets pending the allocation of the purchase price of
$26.5 million. Additionally, CIDE Engenharia Ltda., a Brazilian
telecommunications infrastructure contractor, was purchased on March 31, 1998.
Subsequent to March 31, 1998, the Company completed two other acquisitions.
4. DEBT
Debt is comprised of the following (in thousands):
March 31, December 31,
1998 1997
---- ----
Revolving Credit Facility, at LIBOR plus 1.00% (6.68% at
March 31, 1998 and 6.96% at December 31, 1997) $ 58,500 $ 83,010
Revolving Credit Facility, at MIBOR plus 0.30% (5.17% at
March 31, 1998 and 5.60% at December 31, 1997
due on November 1, 1998) 15,486 10,894
Other bank facilities, denominated in Spanish pesetas,
at interest rates from 4.89% to 6.75% at March 31, 1998
and 5.65% - 6.75% at December 31, 1997 22,311 17,438
Other bank facility at LIBOR plus 1.25% (6.93 at March 31, 1998) 5,000 0
Notes payable for equipment, at interest rates from
7.5% to 8.5% due in installments through the year 2000 7,000 14,500
Notes payable for acquisitions, at interest rates from
7% to 8% due in installments through February 2000 38,347 23,215
Senior subordinated notes, 7.75% due 2008 199,729 0
------- -------
Total debt 346,373 149,057
Less current maturities 76,209 54,562
------- -------
Long term debt $ 270,164 $ 94,495
======= =======
The Company has a $125.0 million revolving credit facility (the "Credit
Facility") from a group of financial institutions led by BankBoston, N.A.
maturing on June 9, 2000. The Credit Facility is collateralized by the stock of
the Company's principal domestic subsidiaries and a portion of the stock of
Sintel, the Company's Spanish subsidiary.
Additionally, the Company has several credit facilities denominated in
Spanish Pesetas, one of which is a revolving credit facility with a wholly-owned
finance subsidiary of Telefonica de Espana, S.A. ("Telefonica"). Interest on
this facility accrues at MIBOR (Madrid interbank offered rate) plus .30%. At
March 31, 1998 and December 31, 1997, the Company had $59.4 million (9.1 billion
Pesetas) and $50.6 million (7.7 billion Pesetas), respectively of debt
denominated in Pesetas, including $21.6 million and $22.3 million, respectively,
remaining under the acquisition debt incurred pursuant to the Sintel
acquisition. The Company has paid a portion of the December 31, 1997 installment
in connection with the acquisition debt, with the remaining amount to be paid
pending resolution of the offsetting amounts between the Company and Telefonica.
On January 30, 1998, the Company sold $200.0 million, 7.75% senior
subordinated notes (the "Notes") due in 2008 with interest due semi-annually.
The net proceeds were used to repay amounts outstanding under the Credit
Facility and the remaining balance was used to purchase short-term investments.
The Credit Facility and Notes contain certain covenants which, among
other things, restrict the payment of dividends, limit the Company's ability to
incur additional debt, create liens, dispose of assets, merge or consolidate
with another entity or make other investments or acquisitions, and provide that
the Company must maintain minimum amounts of stockholders' equity and financial
ratio coverages, requiring, among other things, minimum ratios at the end of
each fiscal quarter of debt to earnings, earnings to interest expense and
accounts receivable to trade payables. At March 31, 1998, the Company had
violated one of the financial ratio covenants under the Credit Facility which
has been waived by the lenders.
5. OPERATIONS BY GEOGRAPHIC AREAS
The Company's principal source of revenue is the provision of
telecommunications infrastructure construction services in the United States,
Spain and Brazil.
1998 1997
---- ----
Revenue
North American $ 110,402 $ 82,581
Spain 45,943 55,709
Brazil 29,750 0
------- -------
Total $ 186,095 $ 138,290
======= =======
Operating (loss) income
North American $ (2,735) $ 10,343
Spain (12,578) 5,361
Brazil 2,047 0
------- -------
Total $ (13,266) $ 15,704
======= =======
As of March 31,
Identifiable assets
North American $ 275,803 $ 148,853
Spain 153,409 199,954
Brazil 106,204 0
Corporate 252,898 116,000
------- -------
Total $ 788,314 $ 464,807
======= =======
There are no transfers between geographic areas. Operating (loss)
income consists of revenue less operating expenses, and does not include
interest expense, interest and other income, equity in earnings of
unconsolidated companies, minority interest and income taxes. Domestic operating
(loss) income is net of corporate general and administrative expenses.
Identifiable assets of geographic areas are those assets used in the Company's
operations in each area. Corporate assets include cash and cash equivalents,
investments in unconsolidated companies, real estate held for sale and notes
receivable.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from the
provision of telecommunications infrastructure services to Telefonica,
Telecomunicacoes Brasileiras S.A. ("Telebras") and BellSouth Telecommunications
Corp. ("BellSouth"). For the quarter ended March 31, 1998, approximately 23%,
16% and 10% of the Company's revenue was derived from services performed for
Telefonica, BellSouth and Telebras, respectively. During the quarter ended March
31, 1997, the Company derived 36% and 12% of its revenue from Telefonica and
BellSouth. Although the Company's strategic plan envisions diversification of
its customer base, the Company anticipates that it will continue to derive a
significant portion of its revenue in the future from these customers.
7. COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors, and National Beverage
Corporation ("NBC"), the Company's then-largest stockholder. The complaint
alleges, among other things, that the Company's Board of Directors and NBC
breached their respective fiduciary duties in approving certain transactions.
In November 1993, Mr. Kahn filed a class action and derivative
complaint against the Company, the then members of its Board of Directors, and
Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal shareholders of the
Company. The 1993 lawsuit alleges, among other things, that the Company's Board
of Directors and NBC breached their respective fiduciary duties by approving the
terms of the acquisition of the Company by the Mas family, and that the Mas
family had knowledge of the fiduciary duties owed by NBC and the Company's Board
of Directors and knowingly and substantially participated in the breach of these
duties. The lawsuit also claims derivatively that each member of the Company's
Board of Directors engaged in mismanagement, waste and breach of fiduciary
duties in managing the Company's affairs prior to the acquisition by the Mas
Family.
There has been no activity in either of these lawsuits in more than a
year. The Company believes that the allegations in each of the lawsuits are
without merit and intends to defend these lawsuits vigorously.
In November 1997, Church & Tower filed a lawsuit against Miami-Dade
County (the "County") in Florida state court alleging breach of contract and
seeking damages exceeding $3.0 million in connection with the County's refusal
to pay amounts due to Church & Tower under a multi-year agreement to perform
road restoration work for the Miami-Dade Water and Sewer Department ("MWSD"), a
department of the County, and the County's wrongful termination of the
agreement. The County has refused to pay amounts due to Church & Tower under the
agreement until alleged overpayments under the agreement have been resolved, and
has counterclaimed against the Company seeking damages that the Company believes
will not exceed $2.1 million. The County also has refused to award a new road
restoration agreement for MWSD to Church & Tower, which was the low bidder for
the new agreement. The Company believes that any amounts due to the County under
the existing agreement are not material and may be recoverable in whole or in
part from Church & Tower subcontractors who actually performed the work and
whose bills were submitted directly to the County.
The Company is a party to other pending legal proceedings arising in
the normal course of business, none of which the Company believes is material to
the Company's financial position or results of operations.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Certain statements in this Quarterly Report are forward-looking, such
as statements regarding the Company's future growth and profitability. These
forward looking statements are based on the Company 's current expectations and
are subject to a number of risks and uncertainties that could cause actual
results in the future to significantly from results expressed or implied in any
forward-looking statements included in this Quarterly Report. These risks and
uncertainties include, but are not limited to, the Company's relationship with
key customers, implementation of the Company's growth strategy, and seasonality.
These and other risks are detailed in this Quarterly Report and in other
documents filed by the Company with the Securities and Exchange Commission.
Overview
MasTec is one of the world's largest contractors specializing in the
build-out of telecommunications and other utilities infrastructure. The
Company's business consists of the design, installation and maintenance of the
outside physical plant for telephone and cable television communications systems
and of integrated voice, data and video local and wide area networks inside
buildings, and the installation of central office telecommunications equipment.
The Company also provides infrastructure construction services to the electric
power industry and other public utilities.
During the quarter ended March 31, 1998, the Company's North American
operations were affected by severe weather conditions in numerous regions as a
result of the climatic condition known as El Nino. These weather conditions
resulted in numerous delays in completing scheduled work and required the
utilization of additional or more expensive crews and equipment to accomplish
the work. Because of the current labor shortage in many of the regions in which
the Company operates and to meet customer demand, the Company chose to continue
working as much as possible despite the bad weather and to retain idle or
underutilized employees rather than lay them off as is customary during slow
periods. This decision resulted in significantly reduced productivity in many of
the Company's domestic operations. The Company expects productivity to improve
in the second quarter.
In March 1998, Sintel entered into an agreement with its unions to
resolve its pending labor dispute. Under the agreement, the Company is entitled
to permanently reduce its workforce, beginning with the placement of 209
employees on temporary unemployment partly paid by the Spanish government for up
to six months. Additional voluntary terminations and the results of certain
agreed upon restructuring measures will allow the Company to quantify final
severance arrangements over that period. In addition, the agreement calls for
reductions in certain non-wage compensation and increases in productivity
benchmarks. The agreement also contemplates an increase in base wage rates for
remaining union workers. As a result of the agreement reached, the Company
recorded a severance charge related to operational personnel and administrative
personnel of $ 1.9 million and $11.5 million, respectively. The total charge of
$13.4 million negatively impacted the Company's operating margins in the first
quarter of 1998. While management anticipates a reduction in ongoing operating
costs to result from these measures, the Company recognizes that it services an
increasingly competitive telephony industry in the Spanish market and a
substantial portion of any savings may be offset by more competitive prices to
Telefonica and other communication service customers.
Results of Operations
Revenue is generated primarily from telecommunications and other
utilities infrastructure services. Infrastructure services are provided to
telephone companies, public utilities, cable television operators, other
telecommunications providers, governmental agencies and private businesses.
Costs of revenue includes subcontractor costs and expenses, materials not
supplied by the customer, fuel, equipment rental, insurance, operations payroll
and employee benefits. General and administrative expenses include management
salaries and benefits, rent, travel, telephone and utilities, professional fees
and clerical and administrative overhead.
Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the three months ended March 31,
1998 and 1997.
1998 1997
---- ----
Revenue 100.0% 100.0%
Costs of revenue 82.2% 71.8%
Depreciation and amortization 4.2% 3.1%
General and administrative expenses 20.7% 13.7%
Operating margin (7.1)% 11.4%
Interest expense 2.7% 2.1%
Interest and dividend income and other income, net,
equity in unconsolidated companies and minority
interest 0.7% 1.3%
(Loss) income from continuing operations before provision for income taxes (9.1)% 10.5%
Provision for income taxes (1) (2.8)% 3.6%
(Loss) income from continuing operations (1) (6.3)% 6.9%
(1) Provision for income taxes and income from continuing operations has
been adjusted to reflect a tax provision for companies that were S
corporations.
Revenue from North American operations increased $27.8 million, or
33.7%, to $110.4 million in 1998 as compared to $82.6 million in 1997. North
American revenue growth was primarily generated by acquisitions completed in the
latter part of 1997. Revenue generated by international operations increased
$20.0 million, or 35.9%, to $75.7 million in 1998 as compared to $55.7 million
in 1997 due primarily to the inclusion of the Company's Brazilian operations
which totaled $29.8 million in 1998 results. The Company's Spanish revenue was
negatively impacted in 1998 by a management decision to reduce the volume of
work pending the resolution of the labor dispute. See Overview.
Gross profit (revenue less cost of revenue), excluding depreciation and
amortization, decreased $5.9 million, or 15.1%, to $33.1 million, or 17.8% of
revenue in 1998 as compared to $39.0 million, or 28.2% of revenue in 1997. The
decrease in gross profit as a percentage of revenue was due primarily to lower
productivity generated by North American operations resulting from lower
productivity due to severe weather conditions experienced in numerous regions
coupled with a $1.9 million severance charge recorded by the Spanish operations
as a result of the agreement reached with the union in March 1998. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Overview. North American gross margins (gross profit as a percentage
of revenue) decreased to 18.3% in 1998 from 27.9% in 1997 primarily due to
inefficiencies resulting from severe weather conditions and the performance of
certain higher margin domestic jobs during 1997. International gross margins
decreased to 17.0% in 1998 as compared to 28.8% in 1997 primarily due to the
severance charge recorded by Spanish operation coupled with lower margins from
the Company's newly formed Brazilian operations (16.0%).
Depreciation and amortization increased $3.6 million, or 83.7%, to $7.9
million in 1998 from $4.3 million in 1997. The increase in depreciation and
amortization was a result of increased capital expenditures in the latter part
of 1997 and the first quarter of 1998, as well as depreciation and amortization
associated with acquisitions. As a percentage of revenue, depreciation and
amortization was 4.2% and 3.1% of revenue for 1998 and 1997, respectively.
General and administrative expenses increased $19.5 million, or 102.6%,
to $38.5 million, or 20.7% of revenue for 1998 from $19.0 million, or 13.7% of
revenue for 1997. The increase is primarily due to the severance charge recorded
by the Company's Spanish operations and charges related to the realignment of
the Company's North American operations into product lines. North American
general and administrative expenses were $16.0 million, or 14.5% of domestic
revenue in 1998, compared to $9.1 million, or 11.0% of domestic revenue for
1997. The increase in dollar amount of domestic general and administrative
expenses is due primarily to acquisitions and charges related to the integration
of the acquisitions, system conversions and consolidation of operating units
into product lines. The decline as a percentage of domestic revenue is due
primarily to the higher revenue volume. International general and administrative
expenses increased $12.6 million, or 127.3%, to $22.5 million, or 30.0% of
international revenue in 1998 from $9.9 million, or 17.9% of international
revenue for 1997. The increase in international general and administrative
expenses was primarily due to a severance charge of $11.5 million recorded by
the Company's Spanish operations as a result of the agreement reached with the
union to reduce administrative personnel in excess of 200 people. Also affecting
the level of international general and administrative expenses were expenses
incurred by the Company's Brazilian operation of approximately $2.4 million. The
Company did not operate in Brazil until August 1997.
The Company experienced an operating loss for the three months ended
March 31, 1998 of $13.3 million. Absent the severance charges and other charges
incurred by its North American operations as a result of its realignment into
product lines and integration of acquisitions, the Company would have generated
$4.3 million of operating profit or 2.3% of revenue for 1998 compared to $15.7
million or 11.4% of revenue for 1997. Favorably impacting 1997 operating income
were short-term projects with attractive pricing and terms.
Interest expense increased $ 2.2 million or 75.9%, to $5.1 million for
1998 from $2.9 in 1997 primarily due to the Company's $200.0 million bond
offering completed in February 1998. Offsetting the increase was lower interest
rates on Spanish borrowings. See -"Financial Condition, Liquidity and Capital
Resources."
Interest income and other income, net equity in unconsolidated
companies and minority interest remained basically unchanged in the aggregate
when compared to the 1997 period, however interest income increased
significantly due to temporary short-term investments offset by an increase in
minority interest attributable to the Company's Brazilian operations.
Benefit from income taxes was $5.3 million, or 31.3% of income from
continuing operations before equity in earnings of unconsolidated companies,
taxes and minority interests in 1998, compared to a pro forma provision of $5.1
million, or 37.0% of income from continuing operations before equity in earnings
of unconsolidated companies, taxes and minority interests in 1997. The decline
in the effective tax rate was primarily due to the severance charge recorded by
the Spanish operations which have a lower effective tax rate.
Financial Condition, Liquidity and Capital Resources
The Company's primary liquidity needs are for working capital, to
finance acquisitions and capital expenditures and to service the Company's
indebtedness. The Company's primary sources of liquidity have been cash flow
from operations, borrowings under revolving lines of credit and the proceeds
from the sale of investments and non-core assets.
Net cash used in operating activities for the 1998 period was $16.4
million, compared to cash provided of $18.9 million in the 1997 period. This
decrease was due to a breakeven result for 1998 absent charges previously
discussed, fluctuations in working capital, particularly a reduction of accounts
payable balances companywide and an increase in accounts receivable and unbilled
revenue from Brazilian operations.
The Company invested cash, net of cash acquired, in acquisitions and
investments in unconsolidated companies totaling $44.6 million during 1998
compared to $3.9 million in 1997. During 1998, the Company made capital
expenditures of $16.5 million, primarily for machinery and equipment used in the
production of revenue, compared to $2.3 million in 1997.
As of March 31, 1998, working capital totaled $211.5 million, compared
to working capital of $123.7 million at December 31, 1997. Included in working
capital at March 31, 1998 were temporary investments of approximately $72.0
million.
The Company continues to pursue a strategy of growth through
acquisitions and internal expansion. Late in the first quarter of 1998, the
Company completed seven acquisitions for $47.2 million in cash and seller
financing of $8.6 million. The Company believes that cash generated from
operations, borrowings under its $125.0 million revolving credit facility with a
syndicate of banks led by BankBoston, N.A. (the "Credit Facility"), and proceeds
from the sale of investments and non-core assets will be sufficient to finance
these payments, as well as the Company's working capital needs, capital
expenditures and debt service obligations for the foreseeable future. Future
acquisitions are expected to be financed from these sources, as well as other
external financing sources to the extent necessary, including the additional
borrowings.
In February 1998, the Company issued $200.0 million principal amount of
7.75% Senior Subordinated Notes (the "Notes") due 2008 with interest due
semi-annually. The Credit Facility and the Notes contain certain covenants
which, among other things, restrict the payment of dividends, limit the
Company's ability to incur additional debt, create liens, dispose of assets,
merge or consolidate with another entity or make other investments or
acquisitions, and provide that the Company must maintain minimum amounts of
stockholders' equity and financial ratio coverages, requiring, among other
things, minimum ratios at the end of each fiscal quarter of debt to earnings,
earnings to interest expense and accounts receivable to trade payables. See Note
4 of Notes to Consolidated Financial Statements.
The Company conducts business in several foreign currencies that are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
Company does not enter into foreign exchange contracts. It is the Company's
intent to utilize foreign earnings in the foreign operations for an indefinite
period of time. In addition, the Company's results of operations from foreign
activities are translated into U.S. dollars at the average prevailing rates of
exchange during the period reported, which average rates may differ from the
actual rates of exchange in effect at the time of the actual conversion into
U.S. dollars.
The Company's current and future operations and investments in certain
foreign countries are generally subject to the risks of political, economic or
social instability, including the possibility of expropriation, confiscatory
taxation, hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment income, capital
and other assets. The Company cannot predict whether any of such factors will
occur in the future or the extent to which such factors would have a material
adverse effect on the Company's international operations.
Year 2000
Management continues to assess the impact of the year 2000 on the
Company's operations and is working with the appropriate application vendors and
consultants to formulate and implement the most cost-effective approach to
resolving this issue.
PART II - OTHER INFORMATION
MARCH 31, 1998
Item 1. Legal Proceedings.
See Note 7 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 Article 5 - Financial Data Schedules.
(b) On January 20, 1998, the Company filed a Form 8-K
Current Report with the Securities and Exchange
Commission reporting information under Item 5
thereof regarding the appointment of Henry N.Adorno
as the Company's Executive Vice President and
special Counsel; Juan Antonio Casanova as Chief
Executive of Sintel; Joel-Tomas Citron as a new
member of the Board of Directors and the election
by members of the Board of Directors of Jorge Mas,
President and Chief Executive Officer, to the
position of Chairman of the Board. The Company also
announced the relocation of Ubiratan Rezende,
Senior Vice President of International Operations,
to Brazil to spearhead corporate development for the
Company in the region. Additionally, the Company
announced the acquisition of Weeks Construction
Company and M.E. Hunter, as well as its intent to
issue $150 million in senior subordinated notes due
in 2008.
(c) On February 2, 1998, the Company filed a
Form 8-K Current Report with the Securities and
Exchange Commission reporting information under Item
5 thereof regarding the agreement reached with the
unions representing its Spanish workforce.
(d) On February 20, 1998, the Company filed a
Form 8-K Current Report with the Securities and
Exchange Commission reporting information under Item
5 thereof regarding the sale of $200 million in
senior subordinated notes due in 2008 with a coupon
rate of 7 3/4 percent. In addition, the
Company announced the acquisition of
Phasecom Systems, Inc. of Toronto, Canada.
(e) On April 27, 1998, the Company filed a Form 8-K
Current Report with the Securities and Exchange
Commission reporting information under Item 5
thereof announcing it had obtained a license in
Paraguay to construct and operate a personal
communication system (PCS) with national
coverage. The Company also announced approval by
the Board of Directors of a stock repurchase
program. Additionally, the Company announced the
appointment of Julio G. Rebull, Jr. to the newly
created position of Senior Vice President of
Marketing and Corporate Communications.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: May 15, 1998 /s/ Edwin D. Johnson
--------------------
Edwin D. Johnson
Senior Vice President-
Chief Financial Officer
(Principal Financial and
Accounting Officer)
5
0000015615
MasTec, Inc.
1,000
US
3-MOS
DEC-31-1998
JAN-1-1998
MAR-31-1998
1.00
103,794
0
358,511
0
13,080
516,548
153,545
49,953
788,314
305,052
200,000
0
0
2,805
169,102
788,314
186,095
186,095
152,966
160,862
0
0
5,056
(16,646)
(5,249)
(11,828)
0
0
0
(11,828)
(.43)
(.43)
