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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 September 30, 2001
Commission File Number 001-08106
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
(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
last report: Not Applicable
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 ____.
As of November 6, 2001 MasTec, Inc. had 47,859,992 shares of common stock,
$0.10 par value, outstanding.
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MASTEC, INC.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Statements of Operations for
the Three and Nine Months Ended September 30, 2001 and 2000 . . 3
Consolidated Balance Sheets as of September 30, 2001 (Unaudited)
and December 31, 2000 . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statement of Changes in
Shareholders' Equity for the Nine Months
Ended September 30, 2001. . . . . . . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2001 and 2000. . . . . 6
Notes to Consolidated Financial Statements (Unaudited). . . . . 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . . . 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------
2001 2000 2001 2000
----------------------- ---------------------
Revenue
North America $ 286,583 $ 365,460 $ 926,646 $914,250
International 15,660 16,819 43,029 38,420
--------- --------- --------- --------
302,243 382,279 969,675 952,670
Costs of revenue 247,394 293,351 785,502 727,213
Depreciation 12,262 13,506 39,144 40,167
Amortization 2,377 2,467 8,025 8,643
General and administrative
expenses 142,422 27,542 226,500 72,584
Interest expense 5,346 4,516 15,211 14,375
Interest income 315 1,630 5,518 3,897
Other (loss) income, net (10,223) (9) (15,829) 5,244
-------- --------- --------- --------
(Loss) income before benefit
(provision) for income taxes
and minority interest (117,466) 42,518 (115,018) 98,829
Benefit (provision) for
income taxes 41,970 (17,382) 40,786 (40,880)
Minority interest 255 (48) 125 (41)
-------- --------- --------- --------
Net (loss) income $ (75,241) $ 25,088 $ (74,107)$ 57,908
======== ========= ========= ========
Basic weighted average
common shares outstanding 47,787 47,300 47,761 45,976
Basic earnings per share $ (1.57) $ 0.53 $ (1.55) $ 1.26
Diluted weighted average
common shares outstanding 47,787 48,999 47,761 47,963
Diluted earnings per share$ (1.57) $ 0.51 $ (1.55) $ 1.21
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 22,035 $ 18,457
Accounts receivable, unbilled revenue and
retainage, net 335,608 392,585
Inventories 23,955 19,643
Income tax refund receivable 41,436 -
Other current assets 18,878 23,079
--------- ---------
Total current assets 441,912 453,764
Property and equipment, net 151,649 159,673
Intangibles, net 257,217 262,398
Other assets 45,528 80,510
--------- ---------
Total assets $ 896,306 $ 956,345
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt $ 77,258 $ 3,323
Accounts payable 91,955 85,797
Other current liabilities 75,342 122,207
--------- ---------
Total current liabilities 244,555 211,327
--------- ---------
Other liabilities 29,019 38,530
--------- ---------
Long-term debt 199,118 206,160
--------- ---------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock 4,786 4,770
Capital surplus 347,777 346,099
Retained earnings 92,243 166,350
Foreign currency translation adjustments (21,192) (16,891)
--------- ---------
Total shareholders' equity 423,614 500,328
--------- ---------
Total liabilities and shareholders' equity $ 896,306 $ 956,345
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Foreign
Common Stock Currency
-------------- Capital Retained Translation
Shares Amount Surplus Earnings Adjustments Total
------ ------ -------- -------- -------- --------
Balance December 31,
2000 47,702 $4,770 $346,099 $166,350 $(16,891) $500,328
Net loss (74,107) (74,107)
Foreign currency
translation
adjustments (4,301) (4,301)
Stock issued 155 16 1,678 1,694
------ ------ -------- -------- -------- --------
Balance September 30,
2001 47,857 $4,786 $347,777 $ 92,243 $(21,192) $423,614
====== ====== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net (loss) income $ (74,107) $ 57,908
Adjustments to reconcile net (loss)
income to net cash provided
by operating activities:
Depreciation and amortization 47,169 48,810
Minority interest (125) 41
Gain on sale of assets (611) (4,764)
Write-down of assets 161,200 -
Changes in assets and liabilities
net of effect of acquisitions:
Accounts receivables, unbilled
revenue and retainage, net (41,125) (82,779)
Inventories (4,146) (1,853)
Income tax refund receivable (41,436) -
Other assets, current and
non-current portion (19,486) (32,311)
Accounts payable 7,250 11,595
Other current liabilities (32,266) 10,145
--------- ---------
Net cash provided by operating activities 2,317 6,792
--------- ---------
Cash flows from investing activities:
Capital expenditures (32,526) (40,734)
Cash paid for acquisitions
(net of cash acquired) and
contingent consideration (26,737) (50,352)
Repayment of notes receivable, net - 1,100
Investment in companies and distribution
to joint venture partner (6,450) (4,900)
Proceeds from sale of assets 3,294 53,613
--------- ---------
Net cash used in investing activities (62,419) (41,273)
--------- ---------
Cash flows from financing activities:
Borrowings (repayments) on revolving
credit facilities, net 65,272 (74,663)
Net proceeds from common stock issued 896 136,004
--------- ---------
Net cash provided by financing activities 66,168 61,341
--------- ---------
Net increase in cash and cash equivalents 6,066 26,860
Effect of translation on cash (2,488) (1,173)
Cash and cash equivalents -
beginning of period 18,457 27,635
--------- ---------
Cash and cash equivalents -
end of period $ 22,035 $ 53,322
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental disclosure of non-cash investing and financing activities:
During the nine months ended September 30, 2001, we completed certain
acquisitions which have been accounted for as purchases. The fair value
of the net assets excluding goodwill acquired totaled $2.7 million and
was comprised primarily of $3.0 million of accounts receivable, $2.0
million of property and equipment, $0.5 million of other assets and $0.2
million in cash, offset by $3.0 million of assumed liabilities. The
excess of the purchase price over the fair value of net assets acquired
was $2.7 million and was allocated to goodwill. The total purchase price
of $5.4 million is comprised of $4.5 million in cash and the balance in
seller financing. We also paid approximately $22.3 million related to
contingent consideration from earlier acquisitions of which $0.6 million
was reflected as additional goodwill and $21.7 million reflected as a
reduction in other current liabilities.
During the nine months ended September 30, 2000, we completed certain
acquisitions which have been accounted for as purchases. The fair value
of the net assets excluding goodwill acquired totaled $18.0 million and
was comprised primarily of $26.9 million of accounts receivable, $8.9
million of property and equipment, $1.0 million of other assets and
$5.8 million in cash, offset by $24.6 million of assumed liabilities.
The excess of the purchase price over the fair value of net assets
acquired was $67.3 million and was allocated to goodwill. The total
purchase price of $85.3 million was comprised of $48.7 million in cash,
$24.0 million in stock and $12.6 million in seller financing. We also
issued 207,171 shares of common stock with a value of $15.8 million and
paid approximately $7.6 million in cash related to contingent
consideration for earlier acquisitions of which $21.5 million was
reflected as additional goodwill and $1.9 million reflected as a
reduction in other current liabilities.
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis for Presentation of Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of MasTec,
Inc. 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 together
with the audited financial statements and notes thereto included in our
annual report on Form 10-K for the year ended December 31, 2000. The
balance sheet data as of December 31, 2000 was derived from audited
financial statements but does not include all disclosures required by
generally accepted accounting principles. Certain reclassifications
have been made to conform to the 2001 presentation. 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, results
of operations and cash flows for the quarterly periods presented.
The results of operations for the periods presented are not necessarily
indicative of our future results of operations for the entire year.
Our comprehensive (loss) income for the nine months ended September 30,
2001 and 2000 was $(78.4) million and $57.3 million, respectively. The
components of comprehensive (loss) income are net (loss) income and
foreign currency translation adjustments.
In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, Business Combinations. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001, be accounted
for using the purchase method. The FASB also issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 142 requires that
goodwill be assessed at least annually for impairment by applying a
fair-value based test. Goodwill will no longer be amortized over
its estimated useful life. In addition, acquired intangible assets
are required to be recognized and amortized over their useful lives
if the benefit of the asset is based on contractual or legal rights.
While we will be subject to most provisions of SFAS No. 142 beginning
January 1, 2002, goodwill and intangible assets acquired after June
30, 2001, will be subject immediately to the statement.
We are currently evaluating what additional impact these new accounting
standards may have on the Company's financial position or results of
operations. However, with the recent decline in the Company's market
capitalization, the adoption of SFAS No. 142 may result in the
write-off or write-down of the Company's goodwill.
In October 2001, the FASB issued FAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes FAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121") and establishes a single accounting model,
based on the framework established in FAS 121, for long-lived assets
to be disposed of by sale. We are required to adopt FAS 144 no later
than January 1, 2002. We are currently evaluating the potential impact,
if any, the adoption of FAS 144 will have on our financial position and
results of operations.
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Debt
Debt is comprised of the following (in thousands):
September 30, December 31,
2001 2000
------------ -----------
Revolving credit facility at LIBOR plus 1.0%
(3.59% at September 30, 2001
and 7.64% at December 31, 2000) $ 75,000 $ 7,000
Other bank facilities at LIBOR plus 1.5%
(4.13% at September 30, 2001 and
8.06% at December 31, 2000) 2,047 517
Notes payable for equipment, at interest
rates from 7.5% to 8.5% due in
installments through the year 2004 3,504 6,161
7.75% senior subordinated notes due
February 2008 195,825 195,805
-------- --------
Total debt 276,376 209,483
Less current maturities (77,258) (3,323)
-------- --------
Long-term debt $199,118 $206,160
======== ========
We have a credit facility that provides for borrowings up to an
aggregate of $100.0 million. Amounts outstanding under the revolving
credit facility mature on June 9, 2002. We have amended the facility
to modify certain terms and conditions including interest rates and
certain financial ratio coverages, which we currently meet. The credit
facility, as amended, is secured by a pledge of substantially all of
our assets. Interest under the facility accrues at rates based, at our
option, on the agent bank's base rate plus a margin of up to 0.50%
depending on certain financial covenants or 1.0% above the overnight
federal funds effective rate, whichever is higher, or its LIBOR Rate
(as defined in the credit facility) plus a margin of 2.25%. We have
received three proposals from current and prospective lenders for a
new long-term credit facility, which we are currently evaluating.
There can be no assurance that we will be able to secure a new
facility on comparable terms or at all prior to the expiration of
the current credit facility.
The credit facility contains customary events of default and covenants
which prohibit, among other things, making investments in excess of a
specified amount, incurring additional indebtedness in excess of a
specified amount, incurring a net loss in consecutive quarters,
paying dividends in excess of a specified amount, making capital
expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated
notes, exceeding certain levels of days' sales outstanding, and
engaging in certain mergers or combinations without the prior written
consent of the lenders. The credit facility also provides that we
must maintain financial ratio coverages at the end of each fiscal
quarter such as debt to earnings and earnings to interest expense.
Failure to achieve certain results could cause us not to meet these
covenants. There can be no assurance that we will continue to meet
these covenant tests in future periods. Although we do not believe
that these circumstances will occur, if we violate one or more
covenants in future periods, and we are unable to cure or obtain
waivers from our lenders or amend or otherwise restructure our
credit facility, we could be in default under the facility and
our senior subordinated notes, and we may be required to sell
assets for other than their carrying value to repay this indebtedness.
Note 3 - Operations by Segments and Geographic Areas
The following table sets forth, for the three months and nine months
ended September 30, 2001 and 2000, certain information about segment
results of operations and segment assets (in thousands):
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datacom Energy
Three Months Network Network International
2001 Services Services (1) Other(2) Consolidated
- --------------------------------------------------------------------------------
Revenue $247,486 $39,097 $ 15,660 $ - $ 302,243
Depreciation 10,069 1,880 - 313 12,262
Amortization 2,082 212 222 (139) 2,377
Income (loss) before benefit
(provision) for income taxes
and minority interest (32,867)(3) 1,954 (12,794) (73,759) (117,466)
Datacom Energy
Three Months Network Network International
2000 Services Services (1) Other(2) Consolidated
- --------------------------------------------------------------------------------
Revenue $331,578 $33,882 $ 16,819 $ - $ 382,279
Depreciation 11,039 2,027 - 440 13,506
Amortization 1,958 202 307 - 2,467
Income (loss) before
provision for income taxes
and minority interest 48,996 2,652 218 (9,348) 42,518
Datacom Energy
Nine Months Network Network International
2001 Services Services (1) Other(2) Consolidated
- --------------------------------------------------------------------------------
Revenue $811,805 $114,841 $ 43,029 $ - $ 969,675
Depreciation 32,709 5,474 - 961 39,144
Amortization 6,628 619 667 111 8,025
Income (loss) before benefit
(provision) for income taxes
and minority interest (15,533)(3) 9,039 (12,956) (95,568) (115,018)
Capital expenditures 23,559 2,319 280 6,368 32,526
Total assets 665,050 92,657 42,742 95,857 896,306
Datacom Energy
Nine Months Network Network International
2000 Services Services (1) Other(2) Consolidated
- --------------------------------------------------------------------------------
Revenue $806,114 $108,136 $ 38,420 $ - $952,670
Depreciation 31,557 7,376 - 1,234 40,167
Amortization 4,724 606 3,313 - 8,643
Income (loss) before
provision for income taxes
and minority interest 110,814 8,652 3,422 (24,059) 98,829
Capital expenditures 37,511 2,505 718 - 40,734
Total assets 681,471 77,993 86,826 91,068 937,358
(1) For the nine months ended September 30, 2001 and 2000, consists of
our Brazilian operations. As of September 30, 2001 and 2000, total
assets for Brazil consisted of $35.8 million and $49.4 million,
respectively, and the remainder relates to non-core international
assets. Included for the three months and nine months ended September
30, 2001, a $10.0 million write-down of non-core international assets,
a reserve charge of $1.0 million and a severance expense of $0.8
million. For the nine months ended September 30, 2000, includes a
$4.5 million net gain on sale of a non-core international asset.
(2) Consists of non-core and corporate operations, which includes interest
expense, net of interest income. For the three months ended September
30, 2001 and 2000, interest expense, net of interest income, was $5.0
million and $3.1 million, respectively, and $9.8 million and $11.3
million for the nine months ended September 30, 2001 and 2000,
respectively. The three and nine month results for the period ended
September 30, 2001, includes a write-down of assets and severance
costs totaling $63.3 million and $71.5 million, respectively.
(3) Includes for the three months and nine months ended September 30,
2001, a reserve of $51.4 million and $89.4 million, respectively.
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There are no significant transfers between geographic areas and segments.
Total assets are those assets used in our operations in each segment.
Corporate assets include domestic cash and cash equivalents, non-core
assets held for sale and notes receivable.
Note 4 - Commitments and Contingencies
We have lawsuits pending in Florida federal court against Sintel
International Corp., a subsidiary of Artcom Technologies, Inc., to
recover more than $5.0 million due under a promissory note and for
breach of contract. We are also pursuing other claims against Artcom
affiliates totaling approximately $4.0 million. Artcom has responded
by suing us in federal court in Florida to recover approximately $6.0
million (subject to trebling) it alleges we received as a result of
certain allegedly unauthorized transactions by two former employees
of Artcom.
In a related matter, the labor union representing the workers of
Sistemas e Instalaciones de Telecomunicacion S.A. ("Sintel"), a sister
company of Sintel International, has instigated an investigative action
with a Spanish federal court alleging that five former members of the
board of directors of Sintel, including Jorge Mas, the Chairman of the
Board of MasTec, and his brother Juan Carlos Mas, a MasTec executive,
approved a series of allegedly unlawful transactions that led to the
bankruptcy of Sintel. We are also named as a potentially liable party.
The union alleges Sintel and its creditors were damaged in the approximate
amount of 13 billion pesetas ($71.1 million at September 30, 2001 exchange
rates). Neither we nor our executives have yet been served in the action.
In November 1997, we filed a suit against Miami-Dade County in
Florida state court alleging breach of contract and seeking damages
exceeding $3.0 million in connection with the county's refusal to pay
amounts due to us under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department
("MWSD"), a department of the county. The county has counterclaimed
against us seeking unspecified damages.
We are vigorously litigating the actions described above. We are also a
party to other pending legal proceedings arising in the normal course of
business, none of which we believe is material to our financial position
or results of operations.
Our operations in Brazil are subject to the risks of political, economic
or social instability, including the possibility of expropriation,
confiscatory taxation, hyper-inflation or other adverse regulatory or
legislative developments, or limitations on the repatriation of investment
income, capital and other assets. We cannot predict whether any of such
factors will occur in the future or the extent to which such factors
would have a material adverse effect on our Brazilian operations.
Note 5 - Client Credit Risk
Certain of our clients, primarily competitive telecommunications carriers,
have filed for bankruptcy or have been experiencing financial difficulties.
We review all our clients on a regular basis, and as a result increased
our reserves by $106.7 million and $144.7 million during the three months
and nine months ended September 30, 2001, respectively, to reflect that
certain clients may be unable to meet their obligations to us in the
future. Should additional clients file for bankruptcy or experience
difficulties, or should anticipated recoveries in existing bankruptcy
and other workout situations fail to materialize, we could experience
reduced cash flows and losses in excess of current reserves.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Except for historical information, the matters discussed below may
contain forward-looking statements, such as statements regarding MasTec's
future plans and anticipated trends in the industries and economies in
which MasTec operates. These forward-looking statements are based on
MasTec's current expectations and are subject to a number of risks,
uncertainties, and assumptions, including that our revenue may differ
from that projected, that we may be further impacted by slowdowns in
our clients' businesses or deterioration in our clients' financial
condition, that our reserves may be inadequate or our equity investments
may be impaired, that we may experience increased costs associated with
realigning our business or may be unsuccessful in those efforts and that
we may not continue to be in compliance with our credit facility
covenants. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from results expressed or
implied in any forward-looking statements made by MasTec. These and
other risks are detailed in this quarterly report and in other documents
filed by MasTec with the Securities and Exchange Commission, including
our registration statement on Form S-3 (No. 333-90027). MasTec does
not undertake any obligation to revise these forward-looking statements
to reflect future events or circumstances.
General
We are a leading end-to-end voice, video, data and energy network
infrastructure solution for a broad range of communications, broadband,
government, energy and other corporate clients. We have a diverse client
base representing all the major segments of the industries we serve.
We design, build, install, maintain and monitor internal and external
networks and transmission facilities for communication, transportation,
computing and energy systems. We are a national services provider,
operating from more than 200 service locations in the United States,
Canada and Brazil.
Results of Operations
The following tables state for the periods indicated our consolidated
operations in dollar and percentage of revenue terms for 2001 and 2000
(dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenue $302,243 100.0% $382,279 100.0% $969,675 100.0% $952,670 100.0%
Costs of revenue 247,394 81.9 293,351 76.7 785,502 81.0 727,213 76.3
Depreciation 12,262 4.1 13,506 3.5 39,144 4.0 40,167 4.2
Amortization 2,377 0.8 2,467 0.6 8,025 0.8 8,643 1.0
General and administrative
expenses 142,422 47.1 27,542 7.2 226,500 23.4 72,584 7.6
Interest expense, net of
interest income 5,031 1.7 2,886 0.8 9,693 1.0 10,478 1.1
Other (loss) income, net (10,223) (3.3) (9) (0.1) (15,829) (1.7) 5,244 0.6
--------------- -------------- --------------- -------------
(Loss) income before
benefit (provision)
for income taxes
and minority interest (117,466)(38.9) 42,518 11.1 (115,018)(11.9) 98,829 10.4
Benefit (provision) for
income taxes 41,970 14.0 (17,382) (4.5) 40,786 4.3 (40,880) (4.3)
Minority interest 255 - (48) 125 - (41)
---------------- -------------- ---------------- -------------
Net (loss) income $(75,241)(24.9)% $ 25,088 6.6% $(74,107) (7.6)% $57,908 6.1%
================ ============== ================ =============
Three Months Ended September 30, 2001
Compared to Three Months Ended September 30, 2000
The following table sets forth the revenue and change in revenue by operating
segments, in dollar and percentage terms (in thousands):
Three Months Ended
September 30, Change
------------------ -----------------
2001 2000 $ %
-------- -------- --------- ------
Datacom network services $247,486 $331,578 $(84,092) (25.4)%
Energy network services 39,097 33,882 5,215 15.4
International 15,660 16,819 (1,159) (6.9)
-------- -------- --------- ------
$302,243 $382,279 $(80,036) (20.9)%
======== ======== =========
Our revenue was $302.2 million for the three months ended September 30,
2001, compared to $382.3 million for the same period in 2000, representing
a decrease of $80.0 million or 20.9% primarily due to a reduction in
capital expenditures by incumbent telecom clients and our decision to
reduce services to competitive telecommunications carriers.
Our costs of revenue were $247.4 million or 81.9% of revenue for the
three months ended September 30, 2001, compared to $293.4 million or
76.7% of revenue for the same period in 2000. In 2001, margins were
impacted by the following: under-utilization of personnel and equipment
related to certain energy client contracts; start-up costs for new
projects; losses related to two short-term network services projects
performed primarily during the quarter; and demobilization and
redeployment costs as we adjusted to reduced capital spending by
telecommunication carriers.
Depreciation was $12.3 million or 4.1% of revenue for the three months
ended September 30, 2001, compared to $13.5 million or 3.5% of revenue
for the same period in 2000. Depreciation expense in 2001 was lower
due to reduced capital expenditures throughout the year.
Amortization was $2.4 million or 0.8% of revenue for the three months
ended September 30, 2001, compared to $2.5 million or 0.6% of revenue
for the same period in 2000. Amortization of goodwill net of tax was
$1.4 million in 2001 and $1.8 million in 2000.
General and administrative expenses were $142.4 million or 47.1% of
revenue for the three months ended September 30, 2001, compared to $27.5
million or 7.2% of revenue for the same period in 2000. Included in
general and administrative expense in 2001 is a reserve for bad debt of
$106.7 million to provide for receivables from clients who have filed
for bankruptcy or are experiencing financial difficulties and a charge
of $9.8 million primarily related to severance payments to our former
president and chief executive officer. Excluding these charges and
reserves, general and administrative expenses were $25.9 million or
8.6% of revenue, a reduction of $1.6 million from the prior year.
Interest expense, net of interest income, was $5.0 million or 1.7% of
revenue for the three months ended September 30, 2001, compared to $2.9
million or 0.8% of revenue for the same period in 2000. The increase
in net interest expense of $2.1 million was due primarily to increased
borrowing to meet working capital needs.
Other (loss) income was $(10.2) million or (3.3)% of revenue for the
three months ended September 30, 2001, compared to $(0.01) million or
(0.1)% of revenue for the same period in 2000. Other loss for 2001
primarily consists of a $10.0 million write-down of non-core
international assets.
For the three months ended September 30, 2001, our effective tax rate
was approximately 36.0% for North American operations and 33.0% for
Brazilian operations, compared to 41.0% and 33.0% in 2000 for North
American and Brazilian operations, respectively.
Nine Months Ended September 30, 2001
Compared to Nine Months Ended September 30, 2000
The following table sets forth the revenue and change in revenue by
operating segments, in dollar and percentage terms (in thousands):
Nine Months Ended
September 30, Change
------------------ ---------------
2001 2000 $ %
-------- -------- -------- -----
Datacom network services $811,805 $806,114 $ 5,691 0.7%
Energy network services 114,841 108,136 6,705 6.2
International 43,029 38,420 4,609 12.0
-------- -------- -------- -----
$969,675 $952,670 $ 17,005 1.8%
Our revenue was $969.7 million for the nine months ended September 30,
2001, compared to $952.7 million for the same period in 2000,
representing an increase of $17.0 million or 1.8%. While we experienced
marginal growth during the first nine months of 2001, the growth rate
was lower than originally anticipated and revenue for the remainder of
2001 is expected to decrease from the year earlier period due to a
reduction in capital expenditures by telecommunications clients.
Our costs of revenue were $785.5 million or 81.0% of revenue for the
nine months ended September 30, 2001, compared to $727.2 million or
76.3% of revenue for the same period in 2000. In 2001, margins were
impacted by the following: under-utilization of personnel and equipment
related to certain energy client contracts; start-up costs for new
projects; losses related to two short-term network services projects
performed primarily during the third quarter; and demobilization and
redeployment costs as we adjusted to reduced capital spending by
telecommunication carriers.
Depreciation was $39.1 million or 4.0% of revenue for the nine months
ended September 30, 2001, compared to $40.2 million or 4.2% of revenue
for the same period in 2000. The slight reduction in depreciation
expense in 2001 was due to reduced capital expenditures.
Amortization was $8.0 million or 0.8% of revenue for the nine months
ended September 30, 2001, compared to $8.6 million or 1.0% of revenue
for the same period in 2000. Amortization of goodwill net of tax was
$4.8 million in 2001 and $6.3 million in 2000.
General and administrative expenses were $226.5 million or 23.4% of
revenue for the nine months ended September 30, 2001, compared to
$72.6 million or 7.6% of revenue for the same period in 2000. Included
in general and administrative expense in 2001 is a reserve for bad debt
of $144.7 million to provide for receivables from clients who have filed
for bankruptcy or are experiencing financial difficulties and a charge
of $11.5 million primarily related to severance for our former president
and chief executive officer. Excluding these charges and reserves,
general and administrative expenses were $70.3 million or 7.2% of
revenue, a reduction of $2.3 million from the prior year.
Interest expense, net of interest income, was $9.7 million or 1.0% of
revenue for the nine months ended September 30, 2001, compared to $10.5
million or 1.1% of revenue for the same period in 2000. The decrease
in net interest expense of $0.8 million was due primarily to reduced
interest income recognized from a client with extended payment terms.
Other (loss) income was $(15.8) million or (1.7)% of revenue for the
nine months ended September 30, 2001, compared to $5.2 million or 0.6%
of revenue for the same period in 2000. In 2001, the loss was primarily
due to an impairment charge of $6.5 million related to our equity
investment in a client and a $10.0 million write-down of non-core
international assets. In 2000, we recognized a net gain of $4.5
million related to the disposal of non-core international assets.
For the nine months ended September 30, 2001, our effective tax rate was
approximately 36.0% for North American operations and 33.0% for Brazilian
operations, compared to 41.0% and 33.0% in 2000 for North American and
Brazilian operations, respectively.
Financial Condition, Liquidity and Capital Resources
Our primary liquidity needs are for working capital, capital
expenditures, acquisitions and investments, and debt service. Our
primary sources of liquidity are cash flows from operations and
borrowings under revolving lines of credit. We currently have available
approximately $42.0 million in cash and credit under our credit
facility. We also anticipate receiving approximately $41.4 million
in income tax refunds in the first half of 2002 as a result of net
losses reflected through September 30, 2001.
Net cash provided by operating activities was $2.3 million for the
nine months ended September 30, 2001, compared to $6.8 million for the
same period in 2000. Net cash provided by operating activities in 2001
and 2000 was due principally to changes in working capital.
We have a credit facility that provides for borrowings up to an
aggregate of $100.0 million. Amounts outstanding under the revolving
credit facility mature on June 9, 2002. We have amended the facility
to modify certain terms and conditions including interest rates and
certain financial ratio coverages, which we currently meet. The credit
facility, as amended, is secured by a pledge of substantially all of
our assets. Interest under the facility accrues at rates based, at our
option, on the agent bank's base rate plus a margin of up to 0.50%
depending on certain financial covenants or 1.0% above the overnight
federal funds effective rate, whichever is higher, or its LIBOR Rate
(as defined in the credit facility) plus a margin of 2.25%. We have
received three proposals from current and prospective lenders for a
new long-term credit facility, which we are currently evaluating.
There can be no assurance that we will be able to secure a new
facility on comparable terms or at all prior to the expiration of
the current credit facility.
The credit facility contains customary events of default and covenants
which prohibit, among other things, making investments in excess of a
specified amount, incurring additional indebtedness in excess of a
specified amount, incurring a net loss in consecutive quarters,
paying dividends in excess of a specified amount, making capital
expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated
notes, exceeding certain levels of days' sales outstanding, and
engaging in certain mergers or combinations without the prior written
consent of the lenders. The credit facility also provides that we
must maintain financial ratio coverages at the end of each fiscal
quarter such as debt to earnings and earnings to interest expense.
Failure to achieve certain results could cause us not to meet these
covenants. There can be no assurance that we will continue to meet
these covenant tests in future periods. Although we do not believe
that these circumstances will occur, if we violate one or more
covenants in future periods, and we are unable to cure or obtain
waivers from our lenders or amend or otherwise restructure our
credit facility, we could be in default under the facility and
our senior subordinated notes, and we may be required to sell
assets for other than their carrying value to repay this indebtedness.
Certain of our clients, primarily competitive telecommunications
carriers, have filed for bankruptcy or have been experiencing financial
difficulties. We review all our clients on a regular basis, and as a
result increased our reserves by $106.7 million and $144.7 million
during the three months and nine months ended September 30, 2001,
respectively, to reflect the fact that certain clients may be unable
to meet their obligations to us in the future. Should additional
clients file for bankruptcy or experience difficulties, or should
anticipated recoveries in existing bankruptcy and other workout
situations fail to materialize, we could experience reduced cash
flows and losses in excess of current reserves.
We also have $200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually.
During the nine months of 2001, we invested $26.0 million primarily
in our fleet to replace or upgrade equipment, $6.5 in technology and
$26.7 million in acquisitions, investments and consolidated
subsidiaries. We have reflected in other current liabilities
additional consideration related to earnouts for acquisitions
completed in prior years of approximately $14.4 million,
approximately $7.6 million related to our former chief executive
officer's severance and $5.2 million payable for the remaining
portion of the minority interest purchased all that we expect
will be paid primarily during 2002.
Impact of Inflation
The primary inflationary factor affecting our operations is increased
labor costs. We have not experienced significant increases in labor
costs to date. Our Brazilian operations may, at times in the future,
be exposed to risk associated with high inflation or currency
devaluations.
Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, Business Combinations. SFAS No. 141 requires
that all businesscombinations initiated after June 30, 2001, be
accounted for using the purchase method. The FASB also issued SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires
that goodwill be assessed at least annually for impairment by
applying a fair-value based test. Goodwill will no longer be amortized
over its estimated useful life. In addition, acquired intangible
assets are required to be recognized and amortized over their useful
lives if the benefit of the asset is based on contractual or legal
rights. While we will be subject to most provisions of SFAS No. 142
beginning January 1, 2002, goodwill and intangible assets acquired
after June 30, 2001, will be subject immediately to the statement.
We are currently evaluating what additional impact these new accounting
standards may have on the Company's financial position or results of
operations. However, with the recent decline in the Company's market
capitalization, the adoption of SFAS No. 142 may result in the write-off
or write-down of the Company's goodwill.
In October 2001, the FASB issued FAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses
financial accounting and reporting for the impairment or disposal
of long-lived assets. This statement supersedes FAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("FAS 121") and establishes a single accounting model,
based on the framework established in FAS 121, for long-lived assets
to be disposed of by sale. We are required to adopt FAS 144 no later
than January 1, 2002. We are currently evaluating the potential impact,
if any, the adoption of FAS 144 will have on our financial position and
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Note 2 to Consolidated Financial Statements for disclosure
about market risk.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.1 Seventh Amendment to Revolving Credit Agreement.
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.
Date: November 8, 2001 /s/ CARMEN M. SABATER
---------------------------------
Carmen M. Sabater
Executive Vice President -
Chief Financial Officer
(Principal Financial Officer)
Date: November 8, 2001 /s/ ARLENE VARGAS
---------------------------------
Arlene Vargas
Vice President and Controller
(Principal Accounting Officer)
10.1 Seventh Amendment to Revolving Credit Agreement.
SEVENTH AMENDMENT TO REVOLVING
CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this
"Seventh Amendment") is made and entered into as of the __th day
of October, 2001, by and among MASTEC, INC., a Florida
corporation (the "Parent"), its Subsidiaries (other than Excluded
Subsidiaries and members of the MasTec International Group)
listed on Schedule 1 to the Credit Agreement defined below
(together with the Parent, collectively the "Borrowers"), FLEET
NATIONAL BANK (f/k/a BankBoston, N.A., "Fleet"), HYPO
VEREINSBANK (f/k/a Bank Austria Creditanstalt Corporate Finance,
Inc.), FIRST UNION NATIONAL BANK, COMERICA BANK, GENERAL ELECTRIC
CAPITAL CORPORATION and LASALLE BANK NATIONAL ASSOCIATION (f/k/a
LaSalle National Bank) (collectively, the "Banks") and Fleet as
agent (the "Agent") for the Banks.
WHEREAS, the Borrowers, the Banks and the Agent entered into
a Revolving Credit Agreement dated as of June 9, 1997, as amended
by a First Amendment to Revolving Credit Agreement dated as of
January 28, 1998, as further amended by a Second Amendment to
Revolving Credit Agreement dated as of July 31, 1998, as further
amended by a Third Amendment to Revolving Credit Agreement dated
as of September 11, 1998, as further amended by a Fourth
Amendment to Revolving Credit Agreement dated as of September 25,
1998, as further amended by a Fifth Amendment to Revolving Credit
Agreement dated as of December 29, 1998 and as further amended by
a Sixth Amendment to Revolving Credit Agreement dated as of
December 29, 1998 (as the same may be further amended and in
effect from time to time the "Credit Agreement"), pursuant to
which the Banks extended credit to the Borrowers on the terms set
forth therein; and
WHEREAS, the Parent has informed the Banks that it has
acquired all of the capital stock of Alert Electrical Contracting
Co., Inc., a New York corporation, Cruz-Cell, Inc., an Indiana
corporation, Dresser-Areia Construction, Inc., a California
corporation, Flaire, Inc., a Missouri corporation, GMR Telecom,
L.L.C., a Virginia limited liability company, MasTec FC, Inc., a
Florida corporation, MasTec TC, Inc., a Florida corporation,
Protel Industries, Inc., a Florida corporation, Renegade of
Idaho, Inc., a Florida corporation, and Upper Valley Utilities
Corp., an Idaho corporation (collectively, the "New
Subsidiaries"); and
WHEREAS, it is a condition to the Credit Agreement that the
New Subsidiaries become parties to the Credit Agreement; and
WHEREAS, the Parent has informed the Banks that C&S
Directional Boring, Inc., J.C. Enterprises, Inc., Martin
Telephone Contractors, Inc., Barkers CATV Construction, Inc., and
Fiber & Cable Works, Inc. have merged into MasTec North America,
Inc. (surviving as "MasTec North America, Inc.", the "Merged
Subsidiaries"); and
WHEREAS, the Parent has requested certain revisions to the
Credit Agreement and the parties desire to amend the Credit
Agreement on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree
to amend the Credit Agreement as follows:
1. Definitions. Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the
Credit Agreement.
2. Amendment of Sec1 of the Loan Agreement. Section 1 of the
Credit Agreement is hereby amended by (a) deleting the following
definitions in their entirety and replacing them with the
following new definitions, inserted in proper alphabetical order:
"Applicable Base Rate Margin. The Applicable Base
Rate Margin on Base Rate Loans shall be 0.50%.
Applicable Commitment Rate. The Applicable Commitment
Rate shall be 0.50%.
Applicable L/C Margin. The Applicable L/C Margin on
Letters of Credit shall be (a) 1.125% on documentary Letters
of Credit, and (b) 2.25% on non-documentary Letters of
Credit.
Applicable LIBOR Margin. The Applicable LIBOR Margin
on LIBOR Loans shall be 2.25%.
Collateral. All of the property, rights and interests
of the Borrower and its Subsidiaries that are or are
intended to be subject to the security interests created by
the Security Documents, other than real estate.
Consolidated Earnings Before Interest and Taxes or
EBIT. For any period, the Consolidated Net Income (or
Deficit) of the Borrowers determined in accordance with
GAAP, plus, without duplication, (a) interest expense,
(b) income taxes, to the extent that each was deducted in
determining Consolidated Net Income (or Deficit), (c) the
receivables reserve recorded in the quarter ended March 31,
2001 not to exceed $22,000,000 in the aggregate, (d) the
receivables reserve recorded in the quarter ended June 30,
2001 not to exceed $16,000,000 in the aggregate (the
"Second Quarter Charge"), and (e) any non-cash writedown
or reserve against the September Assets recorded in the
quarter ended September 30, 2001 not to exceed $93,700,000
in the aggregate (the "Third Quarter Charge").
Consolidated Net Income (or Deficit). The consolidated
net income (or deficit) of the Borrowers after deduction of
all expenses, taxes, and other proper charges, determined in
accordance with GAAP, but adding back to net income, (a)
solely for purposes of SubSec7.6 and Sec8.5, the amount of the
Third Quarter Charge minus the amount of any tax benefit
resulting from the Third Quarter Charge, and (b) solely for
purposes of Sec8.5, the amount of the Second Quarter Charge
minus the amount of any tax benefit resulting from the
Second Quarter Charge, but excluding for all purposes, (x)
extraordinary income and expenses, and (y) income or
expenses derived from non-Borrowers.
Investments. All expenditures made and all liabilities
incurred (contingently or otherwise) for the acquisition of
stock or indebtedness of, or for loans, advances, capital
contributions or transfers of property to, or in respect of
any Guarantees, or obligations of, any Person (which shall
include, without limitation, granting extended payment terms
of over sixty (60) days). In determining the aggregate
amount of Investments outstanding at any particular time:
(a) the amount of any Investment represented by a Guarantee
shall be taken at not less than the principal amount of the
obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with
respect to Funded Debt constituting an Investment unless and
until such interest is paid; (c) there shall be deducted in
respect of each such Investment any amount received as a
return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating
distribution); (d) there shall not be deducted in respect of
any Investment any amounts received as earnings on such
Investment, whether as dividends, interest or otherwise,
except that accrued interest included as provided in the
foregoing clause (b) may be deducted when paid; and (e)
there shall not be deducted from the aggregate amount of
Investments any decrease in the value thereof.
Loan Documents. This Agreement, the Notes, the Letter
of Credit Applications, the Letters of Credit, and the
Security Documents.
MasTec International Group. PhaseCom Systems, Inc. and
Integral Power & Telecommunications Inc.
Stock Pledge Agreements. The U.S. Stock Pledge
Agreement and the Canadian Stock Pledge Agreement."
and (b) adding the following new definitions, inserted in proper
alphabetical order:
"Balance Sheet Accounts Receivable. Accounts
receivable, net as reported on the Borrowers' consolidated
balance sheet, which consolidated balance sheet has been
prepared in accordance with GAAP.
Canadian Stock Pledge Agreement. The stock pledge
agreement among the Parent, MasTec North America, Inc. and
the Agent evidencing the pledge of 65% of the stock of
PhaseCom Systems, Inc. for the benefit or in the name of the
Banks to be entered into on or prior to the Delivery Date
and in form and substance satisfactory to the Agent.
Delivery Date. With respect to (a) the U.S. Stock
Pledge Agreement, the Delivery Date shall be June 9, 1997,
(b) the Canadian Stock Pledge Agreement, the Delivery Date
shall be November __, 2001, and (c) the Security Agreement,
the Delivery Date shall be November __, 2001.
DSOs. For any period, Balance Sheet Accounts
Receivable of the Borrowers as of the end of such fiscal
quarter, multiplied by the actual number of days in such
fiscal quarter divided by the Borrowers' revenue as reported
on the Borrowers' financial statements for such fiscal
quarter.
Second Quarter Charge. See definition of
"Consolidated Earnings Before Interest and Taxes or EBIT."
Security Agreement. The Security Agreement among the
Borrowers and the Agent to be entered into on or prior to
the Delivery Date and in form and substance satisfactory to
the Banks and the Agent.
Security Documents. The Security Agreement, the Stock
Pledge Agreements and all other instruments and documents,
including without limitation Uniform Commercial Code
financing statements, required to be executed or delivered
pursuant to any Security Document.
September Assets. The "September Assets" as further
described in that certain letter from the Parent to the
Agent and the Banks, dated as of October __, 2001.
Third Quarter Charge. See definition of "Consolidated
Earnings Before Interest and Taxes or EBIT."
3. Amendment to Sec4.13 of the Credit Agreement. Section
4.13 of the Credit Agreement is hereby amended by deleting Sec4.13
in its entirety and substituting in place thereof the following
new Sec4.13:
"Sec4.13. New Borrowers. Any existing or newly-created
or acquired U.S. Subsidiary of the Parent (other than members of
the MasTec International Group), which (a) has annual gross
revenues of at least $1,000,000 on an historical or annualized
basis, or (b) is the parent of any other Borrower, shall be
Borrowers hereunder, and all other U.S. Subsidiaries of the
Parent designated as such by the Parent shall be Excluded
Subsidiaries, provided that the Excluded Subsidiaries may not,
in the aggregate, have in excess of five percent (5%) of
consolidated total assets, consolidated total liabilities or
consolidated gross revenues of the Parent and its U.S.
Subsidiaries (other than members of the MasTec International
Group) at any time, in each case as determined in accordance
with GAAP. Any Subsidiary which is required to become a
Borrower pursuant to the terms of this Sec4.13 shall sign
Notes, shall enter into a joinder and affirmation to this
Agreement and the Security Documents in substantially the
form of Exhibit F attached hereto providing that such Subsidiary
shall become a Borrower hereunder, and shall provide such other
documentation as the Agent may reasonably request,
including, without limitation, documentation with respect to
conditions specified in Sec9 hereof. In such event, the Agent
is hereby authorized by the parties to amend Schedule 1
hereto to include such Subsidiary as a Borrower hereunder.
The Borrowers hereby agree to pledge (x) all of their stock
of the U.S. Subsidiaries other than the stock of Excluded
Subsidiaries, and (y) sixty-five percent (65%) of the stock
of PhaseCom Systems, Inc., to the Agent for the benefit of
the Banks pursuant to the terms of the Security Documents."
4. Amendment to Sec5 of the Credit Agreement. Sections 5.17
and 5.19 of the Credit Agreement are hereby amended by deleting
Secs5.17 and 5.19 in their entirety and substituting in place
thereof the following new Secs5.17 and 5.19:
"Sec5.17. Perfection of Security Interests. Except as
set forth on Schedule 5.17, the Collateral and the Agent's
rights with respect to the Collateral are not subject to any
setoff, claims, withholdings or other defenses. The
Borrowers are the owners of the Collateral free from any
lien, security interest, encumbrance and any other claim or
demand, other than liens in favor of the Agent for the
benefit of the Banks to secure the Obligations. As of the
Delivery Date, the Security Documents are effective to
create in favor of the Agent, for the benefit of the Banks,
a legal, valid and enforceable first priority security
interest in the Collateral, other than Permitted Liens
existing as of the Delivery Date.
Sec5.19. Subsidiaries. Schedule 1 sets forth a complete
and accurate list of the direct or indirect Subsidiaries of
the Parent, including the name of each Subsidiary and its
jurisdiction of incorporation, together with the number of
authorized and outstanding shares of each Subsidiary. All
of the stock of each U.S. Subsidiary (other than the
Excluded Subsidiaries) which is directly or indirectly owned
by the Parent and sixty-five percent (65%) of the stock of
PhaseCom Systems, Inc. has been or will be pledged to the
Agent on behalf of the Banks pursuant to the Stock Pledge
Agreements, and as of the Delivery Date all of the assets of
each U.S. Subsidiary (other than the Excluded Subsidiaries)
will have been pledged to the Agent on behalf of the Banks
pursuant to the Security Agreement. Each of the Borrowers
have good and marketable title to all of the Collateral it
purports to own, free and clear in each case of any lien,
other than Permitted Liens existing as of the Delivery Date.
All shares of stock have been duly issued and are fully paid
and non-assessable. Each Subsidiary of the Parent, other
than the Excluded Subsidiaries and the members of the MasTec
International Group, is a Borrower hereunder."
5. Amendment to Sec6.4 of the Credit Agreement. Section
6.4 of the Credit Agreement is hereby amended by deleting
Sec6.4(d) in its entirety and substituting in place thereof
the following new Sec6.4(d):
"(d) as soon as practicable, but in any event not later
than thirty (30) days after the end of each calendar month,
copies of the Accounts Receivable aging reports of the
Borrowers, all in reasonable detail and prepared in
accordance with GAAP, including a detailed break out of the
top twenty (20) accounts with receivables greater than
ninety (90) days from the invoice date, with a certification
by the CFO that these reports and calculation are prepared
in accordance with GAAP and fairly present the Accounts
Receivable of the Borrowers as at the close of business on
the date thereof;"
6. Amendment to Sec7.2 of the Credit Agreement. Section 7.2
of the Credit Agreement is hereby amended by deleting Sec7.2(i) in
its entirety and substituting in place thereof the following new
Sec7.2(i):
"(i) Liens granted pursuant to the Security Documents; and".
7. Amendment to Sec7.3 of the Credit Agreement. Section 7.3
of the Credit Agreement is hereby amended by deleting Sec7.3(e) in
its entirety and substituting in place thereof the following new
Sec7.3(e):
"(e) Investments (as defined in Sec1) by any Borrower in
any affiliate or Subsidiary of a Borrower which is not also
a Borrower (which may include the MasTec International Group
or other non-U.S. entities) or in any other Person funded
prior to or on October __, 2001 and listed on Schedule
7.3(e) (which Schedule shall include all extended pay
receivables outstanding as of such date)."
8. Amendment to Sec7.9 of the Credit Agreement. Section 7.9
of the Credit Agreement is hereby amended by deleting Sec7.9 in its
entirety and substituting in place thereof the following new
Sec7.9:
"Sec7.9. Subordinated Debt. The Borrowers will not
amend, supplement or otherwise modify the terms of any of
the Subordinated Debt or prepay, redeem or repurchase any of
the Subordinated Debt."
9. Amendment to Sec8.2 of the Credit Agreement. Section 8.2
of the Credit Agreement is hereby amended by deleting Sec8.2 in its
entirety and substituting in place thereof the following new
Sec8.2:
"Sec8.2. Capital Expenditures. In any fiscal quarter,
the Borrowers shall not make or commit to make Capital
Expenditures in excess of $12,000,000 in the aggregate for
such fiscal quarter."
10. Amendment to Sec8.3 of the Credit Agreement. Section 8.3
of the Credit Agreement is hereby amended by deleting the table
therein in its entirety and substituting in place thereof the
following new table:
Date Ratio
September 30, 2001 4.00:1
December 31, 2001 3.00:1
Thereafter 2.25:1
11. Amendment to Sec8.4 of the Credit Agreement. Section
8.4 of the Credit Agreement is hereby amended by deleting
Sec8.4 in its entirety and substituting in place thereof the
following new Sec8.4:
"Sec8.4. Liquidity. As of the end of any fiscal
quarter commencing with the quarter ended September 30,
2001, the Borrowers will not permit DSOs to exceed 110."
12. Amendment to Sec11 of the Credit Agreement. Section 11
of the Credit Agreement is hereby amended by deleting Sec11 in its
entirety and substituting in place thereof the following new Sec11:
"Sec11. COLLATERAL SECURITY. As of the Delivery Date,
the Obligations shall be secured by a perfected security
interest (having, with respect to each category of
Collateral, the respective rights and priorities set forth
herein and in the Security Documents) in all of the
Collateral, whether now owned or hereafter acquired,
pursuant to the terms of the Security Documents. The Agent
may from time to time, in its discretion, release
Collateral, provided that the aggregate value of such
released Collateral does not exceed five percent (5%) of the
consolidated net worth of the Borrowers determined in
accordance with GAAP."
13. Amendment to Schedule 1 of the Credit Agreement.
Schedule 1 of the Credit Agreement is hereby amended by deleting
Schedule 1 in its entirety and substituting in place thereof the
Schedule 1 attached hereto.
14. Amendment to Annex A of the U.S. Stock Pledge Agreement.
Schedule 1 of the U.S. Stock Pledge Agreement is hereby amended
by deleting Annex in its entirety and substituting in place
thereof the Annex A attached hereto.
15. Effectiveness. This Seventh Amendment shall become
effective as of the date hereof, subject to the satisfaction of
each of the following conditions:
(a) receipt by the Agent of this Seventh Amendment
duly and properly authorized, executed and delivered by the
respective parties hereto;
(b) payment of all fees due to Bingham Dana LLP; and
(c) payment of all amounts due to MHKB Consultants, LLC.
16. Post-Closing Conditions. The Borrowers hereby covenant
and agree to satisfy each of the following conditions:
(a) by October __, 2001 [5 days after Amendment] receipt by
the Agent of:
(i) perfection certificates for each of the Borrowers,
duly and properly authorized, executed and delivered by the
respective parties thereto;
(ii) The New Subsidiaries shall have executed and delivered
to the Agent allonges to the Notes reflecting their addition as
Borrowers;
(iii) The New Subsidiaries shall have delivered to
the Agent certified copies of corporate resolutions of each
of the New Subsidiaries satisfactory to the Agent
authorizing this Seventh Amendment and all related
documents;
(iv) Each of the Merged Subsidiaries shall have
delivered to the Agent copies of certificates and/or plans
of merger filed with its charter or other incorporation
documents, certified by the Secretary of State of each of
their jurisdictions of incorporation; and
(v) The Borrowers and the New Subsidiaries shall have
delivered any and all stock certificates representing shares
of stock in the New Subsidiaries to the Agent, together with
undated stock powers related thereto.
and (b) by the Delivery Date:
(i) receipt by the Agent of the Security Agreement and
UCC-1 financing statements, duly and properly authorized,
executed and delivered by the respective parties thereto;
(ii) receipt by the Agent of the Canadian Stock Pledge,
duly and properly authorized, executed and delivered by the
respective parties thereto, and any and all stock
certificates representing shares of stock in PhaseCom
Systems, Inc., together with undated stock powers related
thereto;
(iii) the Borrowers shall have delivered to the
Agent certified copies of corporate resolutions of each of
the Borrowers satisfactory to the Agent authorizing the
Security Agreement and the Canadian Stock Pledge, and all
related documents (including Uniform Commercial Code
financing statements);
(iv) counsel to the Borrowers shall have delivered to
the Agent an opinion with respect to the Security Documents
in form and substance satisfactory to the Agent; and
(v) all other documents and instruments reasonably
requested by the Agent.
17. Representations and Warranties. Each of the Borrowers
represents and warrants as follows:
(a) The execution, delivery and performance of each of
this Seventh Amendment and the transactions contemplated
hereby are within the corporate power and authority of such
Borrower and have been or will be authorized by proper
corporate proceedings, and do not (a) require any consent or
approval of the stockholders of such Borrower,
(b) contravene any provision of the charter documents or by-
laws of such Borrower or any law, rule or regulation
applicable to such Borrower, or (c) contravene any provision
of, or constitute an event of default or event which, but
for the requirement that time elapse or notice be given, or
both, would constitute an event of default under, any other
material agreement, instrument or undertaking binding on
such Borrower.
(b) This Seventh Amendment and the Credit Agreement,
as amended as of the date hereof, and all of the terms and
provisions hereof and thereof are the legal, valid and
binding obligations of such Borrower enforceable in
accordance with their respective terms except as limited by
bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the enforcement of creditors' rights
generally, and except as the remedy of specific performance
or of injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought.
(c) The execution, delivery and performance of this
Seventh Amendment and the transactions contemplated hereby
do not require any approval or consent of, or filing or
registration with, any governmental or other agency or
authority, or any other party, other than filing the Seventh
Amendment as an exhibit to the Parent's securities filings.
(d) The representations and warranties contained in Sec5
of the Credit Agreement are true and correct in all material
respects as of the date hereof as though made on and as of
the date hereof.
(e) Schedule 1 sets forth a complete and accurate list
of the direct or indirect Subsidiaries of the Parent,
including the name of each Subsidiary and its jurisdiction
of incorporation, together with the number of authorized and
outstanding shares of each Subsidiary.
(f) After giving effect to this Seventh Amendment, no
Default or Event of Default under the Credit Agreement has
occurred and is continuing.
18. Ratification, etc. Except as expressly amended hereby,
the Credit Agreement, the other Loan Documents and all documents,
instruments and agreements related thereto are hereby ratified
and confirmed in all respects and shall continue in full force
and effect. This Seventh Amendment and the Credit Agreement
shall hereafter be read and construed together as a single
document, and all references in the Credit Agreement or any
related agreement or instrument to the Credit Agreement shall
hereafter refer to the Credit Agreement as amended by this
Seventh Amendment.
19. GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A SEALED
INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
20. Release. In order to induce the Agent and the Banks to
enter into this Seventh Amendment, each of the Borrowers
acknowledges and agrees that: (a) none of the Borrowers has any
claim or cause of action against the Agent or any Bank (or any of
its respective directors, officers, employees or agents); (b)
none of the Borrowers has any offset right, counterclaim or
defense of any kind against any of their respective obligations,
indebtedness or liabilities to the Agent or any Bank; and (c)
each of the Agent and the Banks has heretofore properly performed
and satisfied in a timely manner all of its obligations to the
Borrowers. The Borrowers wish to eliminate any possibility that
any past conditions, acts, omissions, events, circumstances or
matters would impair or otherwise adversely affect any of the
Agent's and the Banks' rights, interests, contracts, collateral
security or remedies. Therefore, each of the Borrowers
unconditionally releases, waives and forever discharges (x) any
and all liabilities, obligations, duties, promises or
indebtedness of any kind of the Agent or any Bank to any of the
Borrowers, except the obligations to be performed by the Agent or
any Bank on or after the date hereof as expressly stated in this
Seventh Amendment, the Credit Agreement and the other Loan
Documents, and (y) all claims, offsets, causes of action, suits
or defenses of any kind whatsoever (if any), whether arising at
law or in equity, whether known or unknown, which the Borrowers
might otherwise have against the Agent, any Bank or any of its
directors, officers, employees or agents, in either case (x) or
(y), on account of any past or presently existing condition, act,
omission, event, contract, liability, obligation, indebtedness,
claim, cause of action, defense, circumstance or matter of any
kind.
21. Counterparts; Delivery by Facsimile. This Seventh
Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which
when so executed and delivered shall be an original, but all of
which counterparts taken together shall be deemed to constitute
one and the same instrument. This Seventh Amendment, to the
extent signed and delivered by means of a facsimile machine,
shall be treated in all manner and respects as an original
agreement or instrument and shall be considered to have the same
binding legal effect as if it were the original signed version
thereof delivered in person. At the request of any party hereto
or to any such agreement or instrument, each other party hereto
or thereto shall re-execute original forms thereof and deliver
them to all other parties. No party hereto or to any such
agreement or instrument shall raise the use of a facsimile
machine to deliver a signature or the fact that any signature or
agreement or instrument was transmitted or communicated through
the use of a facsimile machine as a defense to the formation of a
contract and each party forever waives such defense.
IN WITNESS WHEREOF, each of the undersigned have duly
executed this Seventh Amendment under seal as of the date first
set forth above.
The Borrowers:
MASTEC, INC.
By:________________________________
Name:
Title:
MASTEC NORTH CAROLINA, INC.
CHURCH & TOWER ENVIRONMENTAL, INC.
CHURCH & TOWER, INC.
CHURCH & TOWER OF FLORIDA, INC.
DESIGNED TRAFFIC INSTALLATION CO.
MASTEC NETWORK SERVICES, INC. (f/k/a AIDCO, INC.)
MASTEC INTEGRATION SYSTEMS, INC. (f/k/a AIDCO
SYSTEMS, INC.)
NORTHLAND CONTRACTING, INC.
WILDE OPTICAL SERVICE, INC.
MASTEC VIRGINIA, INC.
WILDE ACQUISITION CO., INC.
WILDE HOLDING CO., INC.
S.S.S. CONSTRUCTION, INC.
MASTEC NORTH AMERICA, INC.
MASTEC ITS, INC. (f/k/a M.E. HUNTER &
ASSOCIATES, INC.)
MASTEC NEW YORK, INC.
MASTEC TELCOM AND ELECTRICAL SERVICES (f/k/a
QUEENS NETWORK CABLE CORP.
MASTEC REAL ESTATE HOLDINGS, INC.
STACKHOUSE REAL ESTATE HOLDINGS, INC.
MASTEC OF TEXAS, INC.
PHASECOM AMERICA, INC.
By:________________________________
Name:
Title:
Each of the undersigned New Subsidiaries (a) duly executed this
Seventh Amendment under seal as of the date first set forth
above, and (b) agrees that it has the rights and obligations of a
Borrower under the Credit Agreement and shall be liable under the
Notes as a Borrower. As of the date hereof, each of the New
Subsidiaries consents to and agrees to be bound by the provisions
of Secs4.1, 6 and 7 of the U.S. Stock Pledge Agreement, the New
Subsidiaries hereby agreeing to cooperate fully and in good faith
with the Agent and the Pledgors in carrying out such provisions.
ALERT ELECTRICAL CONTRACTING CO., INC.
CRUZ-CELL, INC.
DRESSER-AREIA CONSTRUCTION, INC.
FLAIRE, INC.,
GMR TELECOM, L.L.C.
MASTEC FC, INC.
MASTEC TC, INC.
PROTEL INDUSTRIES, INC.
RENEGADE OF IDAHO, INC.
UPPER VALLEY UTILITIES CORP.
By:________________________________
Name:
Title:
[Signatures continued on following page.]
The Banks:
HYPO VEREINSBANK (f/k/a Bank Austria
Creditanstalt Corporate Finance, Inc.)
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:________________________________
Name:
Title:
LASALLE BANK NATIONAL ASSOCIATION
By:________________________________
Name:
Title:
COMERICA BANK
By:________________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:________________________________
Name:
Title:
FLEET NATIONAL BANK,
individually and as Agent
By:________________________________
Name:
Title: