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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File Number 001-08106
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3155 N.W. 77th Avenue, Miami, FL 33122-1205 (305) 599-1800
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. _X_
The number of shares of common stock outstanding as of March 25,
2002 was 47,914,099. The aggregate market value of the voting stock held
by non-affiliates of the registrant based on the $7.47 closing price for
the registrant's common stock on the New York Stock Exchange on March 25,
2002 was approximately $200,834,812. Directors, executive officers and
10% or greater shareholders are considered affiliates for purposes of
this calculation but should not necessarily be deemed affiliates for any
other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the 2002
Annual Meeting of Shareholders are incorporated by reference in Part III
of this Annual Report on Form 10-K.
TABLE OF CONTENTS
BUSINESS .......................................................... 3
PROPERTIES ........................................................ 7
LEGAL PROCEEDINGS ................................................. 7
EXECUTIVE OFFICERS ................................................ 8
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 8
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ......................................................... 8
SELECTED FINANCIAL DATA ........................................... 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................. 11
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........ 17
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................... 18
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .............................................. 36
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................ 36
EXECUTIVE COMPENSATION ............................................ 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .... 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 36
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ... 37
Except for historical information, the matters discussed below may
contain forward-looking statements, such as statements regarding our
future growth and profitability, growth strategy and anticipated trends
in the industries and economies in which we operate. These forward-
looking statements are based on our current expectations and are subject
to a number of risks, uncertainties, and assumptions, including that our
revenue or profit may differ from that projected, that we may be further
impacted by slowdowns in our clients' businesses or deterioration in our
clients' financial condition, that our reserves may be inadequate or our
equity investments may be impaired, that the outcome of pending litigation
may be adverse to us, and that we may experience increased costs associated
with realigning our business or may be unsuccessful in those efforts.
Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may differ
significantly from results expressed or implied in any forward-looking
statements made by us. These and other risks are detailed in this annual
report and in other documents filed by us with the Securities and
Exchange Commission, including our registration statement on Form S-3
(No. 333-90027). We do not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
BUSINESS
General
We are a leading end-to-end communication, broadband and energy
infrastructure service provider for a broad range of clients in North
America and Brazil.
We design, build, install, maintain, upgrade and monitor internal
and external networks and other facilities for our clients. We are one
of the few national, multi-disciplinary infrastructure providers that
furnishes a comprehensive solution to our clients' infrastructure needs
ranging from basic installation and construction to sophisticated
engineering, design and integration. Our diverse and long-standing client
base, experienced management and integrated value added service offering
provide a stable base of repeat business and enable us to quickly and
efficiently meet client demands.
Our strategy is to use these competitive strengths to increase market
share in the fragmented network infrastructure industry by expanding
relationships across multiple service offerings with long-time clients and
selected new clients who have both financial liquidity and end-user
customers. We target predictable recurring maintenance and upgrade work
under exclusive, multiple year master service and other agreements. We
are also focused on leveraging our administrative base and achieving other
cost savings and efficiencies through better utilization of our equipment,
facilities and personnel and through economies of scale.
Clients
Our clients include some of the largest and most prominent companies
in the communications, broadband and energy fields, including:
- - incumbent local exchange carriers,
- - cable television operators,
- - long distance carriers,
- - wireless service providers,
- - government agencies such as departments of transportation,
- - public and private energy companies and
- - financial institutions and other corporate clients.
We have over 200 clients, none of which accounted for 10% or more of
our revenue in 2001. Our top 10 clients combined accounted for
approximately 40.3% of our revenue in 2001. Representative clients include:
Adelphia Communications Corporation
BellSouth Corporation
Carolina Power and Light Company
Charter Communications, Inc.
Comcast Corporation
Cox Communications, Inc.
DirecTV, Inc.
Florida Department of Transportation
Georgia Department of Transportation
SBC Communications, Inc.
Sprint Corp.
Texas Utilities Company
Time Warner, Inc.
Qwest Communications International, Inc. (US West)
Verizon Communications, Inc.
Wachovia Corp.
Services
We market our services individually and in combination to provide
the most efficient and effective solution to meet our clients' demands,
which increasingly require resources from multiple disciplines. Through
our unified "MasTec"(R) brand and an integrated organizational structure
designed to permit rapid deployment of labor, equipment and materials,
we are able quickly and efficiently to allocate resources to meet client
needs.
We design, build, install, maintain, upgrade and monitor the
physical facilities used to provide end-to-end voice, video and data
service from the provider's central office, switching center or cable
television head-end to the ultimate consumer's home or business.
We provide similar services to electrical and other utility providers.
We provide these services both externally on public or private rights-
of-ways or in our clients' premises. Our services include:
- - comprehensive project management, coordination, consulting and
administration,
- - designing, installing, testing and documenting switching and
transmission equipment and supporting components at point-of-
presence locations,
- - network route development, right of way and other site acquisition,
and permitting,
- - designing conduit networks and fiber rings,
- - placing and splicing fiber optic, coaxial and copper cable; excavating
trenches in which to place the cable; and furnishing and placing
related structures such as poles, anchors, conduits, manholes,
cabinets and closures,
- - overhead and underground installation and maintenance of electrical and
other utilities' transmission and distribution networks, substation
construction and maintenance, and right-of-way maintenance and
restoration,
- - placing drop lines from our clients' main distribution terminals to
their customer's home or business,
- - installing set-top boxes, satellite dishes and other connection devices
in homes and businesses,
- - erecting wireless communication towers, constructing related structures
and installing associated equipment,
- - designing and installing intelligent traffic networks,
- - engineering, furnishing and installing integrated voice, video and data
networks inside client premises,
- - systems integration, which includes selecting, configuring and
installing software, hardware and other computing and communications
equipment and cabling to provide an integrated computing and
communications system,
- - monitoring, maintaining and restoring clients' networks 24 hours a day,
seven days a week,
- - network device security and optimization,
- - procuring materials,
- - providing acceptance testing and as-built documentation, and
- - maintaining, upgrading, removing and replacing these systems.
Backlog
At December 31, 2001 and 2000, we had a backlog in our domestic
operations of approximately $1.4 billion and $1.5 billion, respectively.
Our backlog consists of the uncompleted portion of services we are to
perform under project-specific contracts as well as estimated work on
master service agreements. We expect to complete substantially all of
our backlog at December 31, 2001 during the next 18 months.
Sales and Marketing
We have developed a marketing plan emphasizing the "MasTec"(R)
registered service mark and an integrated service offering to position
ourselves as a seamless, end-to-end nationwide infrastructure services
solution, providing services ranging from basic installation to
sophisticated engineering, design and integration. We believe our
long-standing relationships with our clients and reputation for
reliability and efficiency facilitate our repeat business. Our
marketing efforts are principally carried out by the management of our
service offerings, most of whom have many years' experience in the
industries they serve, both at the service provider level and in some
cases with the clients we serve. Our service offering leadership markets
to existing and potential clients to negotiate new contracts or to be
placed on lists of vendors invited to submit proposals for master
service agreements and individual projects. Our executive management
supplements their efforts at the national level. We also market through
commissioned salespeople and our corporate marketing department.
Safety and Insurance
Performance of our services require the use of equipment and
exposure to conditions that can be dangerous. Although we are committed
to a policy of operating safely and prudently, we have been and will
continue to be subject to claims by team members, customers and third
parties for property damage and personal injuries resulting from the
performance of our services. We perform on-site services using team
members who have completed our applicable safety and training programs.
Our policies require that team members complete the prescribed training
and service program for which they work in addition to those required
by applicable law.
We are committed to ensuring that our team members perform their
work safely and strive to instill safe work habits in all of our team
members. We evaluate our team members not only on the basis of the
efficiency and quality of their work but also on their safety records
and the safety records of the team members they supervise. We also hold
regular training sessions and seminars with our team members devoted
to safe work practices. We have established a company-wide safety
committee to share best practices and to monitor and improve compliance
with safety regulations.
The primary claims we face in our operations are workers'
compensation, automobile liability and various general liabilities.
We maintain insurance policies with respect to these claims, but these
policies are subject to deductibles for workers' compensation, automobile
liability and general liability up to $250,000 per claim. We have
umbrella coverage up to a policy limit of $100 million and stop loss
coverage of $24.8 million for the 2001-2002 policy period. An
independent third party actuarially determines any liabilities for
unpaid claims and associated expenses, including incurred but not
reported losses, and we reflect those liabilities in our balance sheet
as an accrued liability. We continually review these claims and expenses
and the appropriateness of the accrued liability.
Suppliers and Materials
Our clients supply the majority of the raw materials and supplies
necessary to carry out our contracted work. We obtain materials and
supplies for our own account from independent third-party providers and
do not manufacture any significant amount of materials or supplies for
resale. We are not dependent on any one supplier for any materials or
supplies that we obtain for our own account. We have not experienced
any significant difficulty in obtaining an adequate supply of materials
and supplies.
We also use independent contractors to perform portions of our
services and to manage work flow. These independent contractors
typically are sole proprietorships or small business entities.
Independent contractors typically provide their own employees, vehicles,
tools and insurance coverage. We are not dependent on any single
independent contractor. Our contracts with our subcontractors typically
contain provisions limiting our obligation to pay the subcontractor if
our client has not paid us. These provisions may not be available to us
in certain cases.
Competition
There is no dominant provider in the network infrastructure services
industry. The industry is highly fragmented and we compete with other
companies in most of the markets in which we operate ranging from small
independent firms servicing local markets to larger firms servicing
regional and national markets. Despite the current trend toward
outsourcing, we also face competition from existing or prospective
clients who employ in-house personnel to perform some of the same types
of services we provide. Historically, there have been relatively few
significant barriers to entry into the markets in which we operate and,
as a result, any organization that had adequate financial resources and
access to technical expertise may become one of our competitors. We are,
however, one of the few providers with a nationwide comprehensive
services offering.
We believe our clients consider a number of factors in choosing a
service provider, including technical expertise and experience, financial
and operational resources, nationwide presence, industry reputation and
dependability. A significant portion of our revenue is currently derived
from unit price agreements and price historically has often been the
principal factor in determining whether the services provider is awarded
the work on smaller, less complex projects. Smaller competitors are
sometimes able to win bids for these projects based on price alone due to
their lower costs and financial return requirements. We believe our size,
nationwide presence, integrated value added service offering, financial
strength and reputation provide a competitive advantage in obtaining
larger, more complex infrastructure projects and gaining market share in
the fragmented infrastructure services industry. There can be no
assurance, however, that our competitors will not develop the expertise,
experience and resources to provide services that are superior in both
price and quality to our services or that we will be able to maintain or
enhance our competitive position.
Regulation
Our operations are subject to various federal, state and local laws,
including:
- - Contractor licensing requirements,
- - Building and electrical codes,
- - Permitting and inspection requirements, and
- - Regulations related to labor relations, worker safety, and
environmental protection.
We believe we have all material licenses and permits required to
conduct our operations and that we are in substantial compliance with all
applicable regulatory requirements.
Employees
As of December 31, 2001, we had approximately 8,200 team members in
North American operations and approximately 2,200 in Brazil. Approximately
300 of our team members are represented by labor unions, principally the
Communication Workers of America or the International Brotherhood of
Electrical Workers. We believe that our employee relations are good.
Recruiting. Our primary hiring sources for our team members include
promotion from within, team member referrals, print and Internet
advertising and direct recruiting. We attract and retain team members
by offering technical training opportunities, bonus opportunities, stock
ownership, competitive salaries, and a comprehensive benefits package.
Our "MasTec"(R) brand and integrated service offering also has created a
unified corporate culture that we believe helps attract and retain team
members. Team members are exposed to numerous technologies being
deployed by our clients which serves as a recruitment tool. We attract
talent from numerous sources including higher learning institutions,
colleges, and industry.
Training and Career Development. We believe that our continuous
focus on training and career development helps us to retain our team
members. Team members participate in on-going educational programs,
many of which are internally developed, to enhance their technical and
management skills through classroom and field training. Manufacturers of
telecommunications equipment also sponsor training programs covering the
installation and maintenance of their equipment, which our team members
regularly attend. We also provide opportunities for promotion and
mobility within our integrated service organization that we believe
helps retain our team members.
We believe our corporate culture and organizational structure
creates a cooperative, entrepreneurial atmosphere and shared vision.
We are dedicated to maintaining an innovative, creative and empowering
corporate culture that provides our team members with personal and
professional growth opportunities.
Other
We are organized as a Florida corporation. Our predecessor company
was formed in 1969, and we have operated as "MasTec" since 1994.
PROPERTIES
Our corporate headquarters is located in a 60,000 square foot
building owned by us in Miami, Florida. Our principal operations are
conducted from approximately 200 service facilities, none of which we
believe is material to our operations because most of our services are
performed in the clients' premises or on public rights of way. In
addition, we believe that equally suitable alternative locations are
available in all areas where we currently conduct business.
We also own a substantial amount of machinery and equipment, which
at December 31, 2001 had a gross value of $290.6 million (see Note 5 to
Notes to Consolidated Financial Statements). This machinery and equipment
includes vans, trucks, tractors, trailers, bucket trucks, backhoes,
bulldozers, directional boring machines, digger derricks, cranes and
testing equipment. We obtain our equipment from various third-party
vendors, none of which we depend upon, and have not experienced any
difficulties in obtaining desired equipment.
LEGAL PROCEEDINGS
We have two lawsuits pending in the U.S. District Court for
the Southern District of Florida against Sintel International Corp., a
subsidiary of Artcom Technologies, Inc., to recover more than $5.0
million due under a promissory note and for breach of contract. We are
also pursuing other claims in Spain against Artcom affiliates totaling
approximately $4.0 million. In February 2002, we tentatively settled the
breach of contract lawsuit against Sintel International for $180,000
payable to us. On January 29, 2001, subsequent to the filing of our
lawsuit against Sintel International under the promisory note, Artcom
sued us in the U.S. District Court for the Southern District of
Florida, alleging fraud, negligent misrepresentation, breach of
fiduciary duty, unjust enrichment, conspiracy and violation of the
federal and Florida Racketeer Influenced and Corrupt Oragnizations Act.
The suit seeks to recover approximately $6.0 million (subject to
trebling) that we allegedly received as a result of certain allegedly
unauthorized transactions by two former employees of Artcom.
In a related matter, the labor union representing the workers of
Sistemas e Instalaciones de Telecomunicacion S.A. ("Sintel"), a sister
company of Sintel International, has instigated an investigative action
with a Spanish federal court commenced in July 2001 alleging that five
former members of the board of directors of Sintel, including Jorge Mas,
the Chairman of the Board of MasTec, and his brother Juan Carlos Mas, a
MasTec executive, approved a series of allegedly unlawful transactions
that led to the bankruptcy of Sintel. We are also named as a potentially
liable party. The union alleges Sintel and its creditors were damaged in
the approximate amount of 13 billion pesetas ($69.5 million at December
31, 2001 exchange rates). The Spanish court is seeking a bond from the
subjects of the inquiry in this amount as well as security for the bond.
Neither we nor our executives have been served in the action.
In November 1997, we filed a suit against Miami-Dade County in
Florida state court in Miami alleging breach of contract and seeking
damages exceeding $3.0 million in connection with the county's refusal
to pay amounts due to us under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department, a
department of the county. The county has counterclaimed against us
seeking unspecified damages.
On January 9, 2002, Harry Schipper, a MasTec shareholder, filed a
shareholder derivative lawsuit in the U.S. District Court for the
Southern District of Florida against us as nominal defendant and against
certain current and former members of the Board of Directors and senior
management, including Jorge Mas, our Chairman of the Board, and Austin
Shanfelter, our President and Chief Executive Officer. The lawsuit
alleges mismanagement, misrepresentation and breach of fiduciary duty as
a result of a series of allegedly fraudulent and criminal transactions,
including the matters described above, the severance we paid our former
chief executive officer, and our investment in and financing of a client
that subsequently filed for bankruptcy protection, as well as certain
other matters. The lawsuit seeks damages and injunctive relief against
the individual defendants on MasTec's behalf. The Board of Directors
has formed a special committee, as contemplated by Florida law, to
investigate the allegations of the complaint and to determine whether
it is in the best interests of MasTec to pursue the lawsuit. An
unopposed motion to stay the action for six months to permit the
committee to complete its investigation is pending before the court.
We are vigorously pursuing and believe we have meritorious defenses
to the actions described above. We are also a party to other pending
legal proceedings arising in the normal course of business, none of
which we believe is material to our financial position or results of
operations.
EXECUTIVE OFFICERS
The following is a list of the names and ages of our executive
officers as of March 11, 2002, indicating all positions and offices
they hold with us. Our executive officers hold office for one year or
until their successors are elected by our Board of Directors.
Name Age Position
---------------------------------------------------------------------
Austin J. Shanfelter 44 President and Chief Executive Officer
Jose R. Mas 30 Executive Vice President-Business
Development
Donald P. Weinstein 37 Executive Vice President and Chief
Financial Officer
Jose Sariego 47 Senior Vice President and General
Counsel
Arlene Vargas 35 Vice President and Controller
Austin J. Shanfelter has been our Chief Executive Officer and President
since August 2001. From February until August 2001, Mr. Shanfelter was our
Chief Operating Officer. Prior to being named Chief Operating Officer, he
served as President of one of our service offerings from January 1997.
Mr. Shanfelter has been in the infrastructure industry since 1981.
Mr. Shanfelter has been a member of the Board of Directors of the Power and
Communications Contractors Association (PCCA), an industry trade group,
since 1993. He is also the Chairman of the Cable Television Contractors
Council of the PCCA. Mr. Shanfelter is also a member of the Society of
Cable Television Engineers since 1982 and the National Cable Television
Association since 1991.
Jose R. Mas has been our Executive Vice President-Business Development
since September 2001. Mr. Mas has served in a number of capacities at the
operating level with us since 1991, most recently as President of one of
our service offerings from May 1999 to August 2001.
Donald P. Weinstein has been our Executive Vice President and Chief
Financial Officer since January 2002. From November 1999 to April 2001,
Mr. Weinstein was Senior Vice President and Chief Financial Officer of
AGL Resources, Inc., a publicly traded energy services holding company,
as well as President of the company's telecommunications subsidiary,
AGL Networks. From August 1989 to November 1999, Mr. Weinstein was
employed by Citizens Communications Co., a telecommunications and
utility company, the last two years as Vice President - Planning and
Development.
Jose Sariego has been our Senior Vice President and General Counsel
since September 1995. Prior to joining us, Mr. Sariego was Senior Corporate
Counsel and Secretary of Telemundo Group, Inc., a Spanish language
television network, from August 1994 to August 1995. From January 1990 to
August 1994, Mr. Sariego was a partner in the Miami office of Kelley Drye
& Warren, an international law firm.
Arlene Vargas has been our Vice President and Controller since
September 1998. Prior to joining us, Ms. Vargas was a Senior Manager
from July 1997 to September 1998 and a Manager from July 1994 to July
1997 with PricewaterhouseCoopers LLP, a public accounting firm.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information. Our common stock currently is listed on the New
York Stock Exchange under the symbol "MTZ." The following table sets
forth, for the quarters indicated, the high and low sale prices of the
common stock, as reported by the New York Stock Exchange.
Year Ended December 31,
---------------------------------------------
2000 2001
High Low High Low
---------------------------------------------
First Quarter $ 57.52 $ 27.81 $ 24.75 $ 12.26
Second Quarter $ 58.96 $ 32.63 $ 19.45 $ 11.40
Third Quarter $ 43.19 $ 27.31 $ 15.42 $ 4.30
Fourth Quarter $ 34.16 $ 19.25 $ 6.95 $ 3.98
Holders. As of March 25, 2002, there were 3,259 shareholders of
record of the common stock.
Dividends. We have not declared cash dividends since our inception
and we do not anticipate paying any cash dividends, but intend instead to
retain any future earnings for reinvestment in our business. On February
28, 1997 and June 19, 2000 we effected three-for-two splits of our
outstanding shares of common stock by paying each of our shareholders a
stock dividend of one share of common stock for every two shares of common
stock held by the shareholder on the record date for each split. We paid
cash in lieu of fractional shares resulting from the stock splits based on
the last sale price as reported on the New York Stock Exchange on the
record date. All references in this Annual Report to shares of common
stock or share prices have been adjusted to give retroactive effect to
the stock splits.
Any future determination as to the payment of dividends will be made
at the discretion of our Board of Directors and will depend upon our
operating results, financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors
deem relevant. In addition, certain credit agreements to which we are a
party restrict us from paying cash dividends or making other distributions
on the common stock except in certain circumstances. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources."
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data, which
are derived from our audited consolidated financial statements. The
operating data for 1997 and 1998 includes the results of our Spanish
operations, 87% of which we sold effective December 31, 1998. You should
read the following selected financial data together with our consolidated
financial statements and their notes as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Historical results are not necessarily indicative of results to be
expected in the future.
Year Ended December 31,
-------------------------------------------------------
1997 (1) 1998 (2) 1999 2000 2001
-------------------------------------------------------
(dollars in thousands, except per share amounts)
Statement of Operations Data:
Revenue $ 659,439 $1,048,922 $1,059,022 $1,330,296 $1,222,580
Costs of revenue (2) 495,840 803,112 803,799 1,017,878 988,198
Depreciation 17,222 32,288 46,447 52,413 51,707
Amortization 6,633 11,025 9,701 11,042 10,810
General and administrative
expenses (2)(7) 82,261 140,472 91,898 98,521 290,040
Interest expense 11,541 29,580 26,673 18,283 20,426
Interest income 1,783 9,093 9,398 4,973 5,775
Other income (expense), net
(2)(3)(4)(5)(6)(7) 8,332 (38,920) (10,092) (25,756) (14,618)
--------- --------- -------- --------- ---------
Income (losses) before
(provision) benefit for
income taxes, equity in
earnings (losses) of
unconsolidated companies
and minority interest 56,057 2,618 79,810 111,376 (147,444)
(Provision) benefit for
income taxes (2) (20,944) (12,550) (33,266) (45,877) 54,858
Equity in earnings (losses)
of unconsolidated companies
and minority interest (449) (3,983) (1,818) (352) 232
--------- -------- -------- -------- ---------
Net income (loss) $ 34,664 $(13,915) $ 44,726 $ 65,147 $ (92,354)
========= ======== ======== ======== =========
Basic weighted average common
shares outstanding (8) 39,690 41,234 41,714 46,390 47,790
Basic earnings (loss)
per share $ 0.87 $ (0.34) $ 1.07 $ 1.40 $ (1.93)
Diluted weighted average
common shares
outstanding (8) 40,529 41,234 42,624 48,374 47,790
Diluted earnings (loss)
per share $ 0.86 $ (0.34) $ 1.05 $ 1.35 $ (1.93)
December 31,
-------------------------------------------------
Balance Sheet Data: 1997 (1) 1998 (2) 1999 2000 2001
-------------------------------------------------
(in thousands)
Working capital $124,088 $197,587 $169,619 $242,437 $248,062
Property and equipment, net 86,109 137,382 153,527 159,673 151,774
Total assets 630,224 732,221 728,409 956,345 851,372
Total debt 149,057 321,832 279,658 209,483 269,749
Total shareholders' equity 223,697 204,273 256,833 500,328 406,803
(1) Our Brazilian operations began August 1, 1997.
(2) Included in 1998 are severance charges relating to our Spanish
operations of $13.4 million, of which $1.9 million is reflected in
costs of revenue and $11.5 million in general and administrative
expenses, and a loss of $9.2 million related to the sale of our
Spanish subsidiary. Our effective tax rate for the year ended December
31, 1998 was mainly affected by a tax liability of approximately $7.8
million resulting from the sale of 87% of our Spanish subsidiary,
the non-deductibility of the amortization of intangibles and the
non-deductibility of other expenses. Because of the sale, the balance
sheet data as of December 31, 1998 does not include the financial
position of our Spanish operations.
(3) Included in 1998 is a charge for payments to operational management
of $33.8 million.
(4) Included in 1997 results of operations is a gain of $7.1 million from
the partial sale of our interest in an Ecuadorian cellular company.
(5) Included in 1999 is a write-down of $10.2 million related to non-core
international assets.
(6) Included in 2000 is a net write-down and other charges of $26.3
million related primarily to non-core assets.
(7) Included in 2001 is a $16.5 million charge in other expense and
$193.7 million in selling general and administrative expense for
bad debt expense related to clients who filed for bankruptcy
protection and for severance charges.
(8) Amounts have been adjusted to reflect the three-for-two stock splits
effected on February 28, 1997 and June 19, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
We are a leading end-to-end communication, broadband and energy
infrastructure service provider for a broad range of clients in North
America and Brazil.
We design, build, install, maintain, upgrade and monitor internal
and external networks and other facilities for our clients. We are one
of the few national, multi-disciplinary infrastructure providers that
furnishes a comprehensive solution to our clients' infrastructure needs
ranging from basic installation and construction to sophisticated
engineering, design and integration. Our diverse and long-standing client
base, experienced management and integrated value added service offering
provide a stable base of repeat business and enable us to quickly and
efficiently meet client demands.
Our primary types of contracts with our clients include:
- - master service agreements for all specified design, installation and
maintenance services within a defined geographic territory,
- - design and installation contracts for specific projects, and
- - turnkey agreements for comprehensive design, engineering,
installation, procurement and maintenance services.
The majority of our contracts provide that we will furnish a
specified unit of service for a price per unit. We recognize
revenue as the related work is performed. A portion of our work during
2001 was performed under percentage-of-completion contracts. Under
this method, revenue is recognized on a cost-to-cost method based on the
percentage of total cost incurred to date in proportion to total
estimated cost to complete the contract. We anticipate that percentage-
of-completion contracts will constitute a smaller percentage of our total
contracts in 2002 as compared to prior years. We also recognize revenue
for monitoring services and project management services ratably over
the term of the agreement. Clients are billed with varying
frequency-weekly, monthly or upon attaining specific milestones.
We perform a significant portion of our services under master
service agreements, which typically are exclusive service agreements to
provide all of the client's network requirements up to a specified dollar
amount per job within defined geographic areas. These contracts are
generally for two to three years but are typically subject to termination
at any time upon 90 to 180 days prior notice. Each master service agreement
consists of hundreds of individual projects generally valued at less than
$100,000 each. These master service agreements are frequently awarded on a
competitive bid basis, although clients are often willing to negotiate
contract extensions beyond their original terms without re-bidding.
Master service agreements are invoiced on a unit basis as work is
completed. In addition, we have a significant number of long-term
maintenance and upgrade contracts with our broadband clients that are
similar to master service agreements except they typically are not
exclusive. Taken together, our master service agreements and master
service-like agreements constitute a majority of our contracts by prior
years volume.
We derive a significant amount of our revenue from telecommunications
clients. During the latter part of 2000 and all of 2001, certain segments
of the telecommunications industry suffered a severe downturn that resulted
in a number of our clients filing for bankruptcy protection or experiencing
financial difficulties. As a result, we incurred a net loss of $92.4
million for the year ended December 31, 2001, primarily attributable to
increases in bad debt expense of $182.2 million during the year. The
downturn adversely affected capital expenditures for infrastructure
projects even among clients that did not experience financial difficulties.
Capital expenditures by telecommunications clients in 2002 are expected to
remain at low levels in comparison with prior years, and there can be no
assurance that additional clients will not file for bankruptcy protection
or otherwise experience financial difficulties in 2002. Although we
refocused our business on long-time, stable telecommunications and other
clients, there can be no assurance that these clients will continue to
fund capital expenditures for infrastructure projects at current levels
or that we will be able to increase our market share with these stronger
clients. Additional bankruptcies or further decreases in our client's
capital expenditures could reduce our cash flows and adversely impact our
liquidity.
Direct costs include:
- - operations payroll and benefits,
- - fuel,
- - subcontractor costs,
- - equipment rental,
- - materials not provided by our clients, and
- - insurance.
Our clients generally supply materials such as cable, conduit and
telephone equipment.
General and administrative costs include all costs of our management
personnel, severance, reserves for bad debts, rent, utilities, travel and
business development efforts and back office administration such as
financial services, insurance administration, professional costs and
clerical and administrative overhead.
Some of our contracts require performance and payment bonds. Bonding
capacity in the infrastructure industry has become increasingly difficult
to obtain, and bonding companies are denying or restricting coverage to
certain contractors. We are currently negotiating our bonding agreements
with our carriers. There can be no assurance that we will be able to
maintain the same level of bonding capacity in the future, which could
adversely impact our ability to seek work from certain clients.
Contracts often include retainage provisions under which 5% to 10%
of the contract price is withheld from us until the work has been
completed and accepted by the client. We typically agree to indemnify
our clients against adverse claims and warrant the workmanship of our
services for specified time periods, usually one year.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results
of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to revenue
recognition, allowance for doubtful accounts, intangible assets, income
taxes, and litigation and contingencies. We base our estimates on
historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the
basis of making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements.
We recognize revenue and profits as work progresses on long-term,
fixed price contracts using the percentage-of-completion method, which
relies on estimates of total expected contract revenue and costs. We
follow this method since reasonably dependable estimates of the revenue
and costs applicable to various stages of a contract can be made.
Recognized revenues and profits are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to
income in the period in which the facts that give rise to the revision
become known. If we do not accurately estimate costs, the profitability
of such contracts can be affected adversely.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments.
Our management must make estimates of the uncollectability of our
accounts receivables. Management specifically analyzes accounts
receivable and analyzes historical bad debts, client concentrations,
client credit-worthiness and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. If the financial
condition of our clients were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
Prior to 2001, provisioning for bad debts have averaged approximately
$3.0 to $6.0 million annually, as we have not incurred significant bad
debts or experienced significant client bankruptcies. However, during
2001, we recorded a bad debt reserve of $182.2 million primarily due to
clients that filed for bankruptcy protection.
Intangibles, long-lived assets and goodwill are recorded at
estimated fair value and then amortized on a straight-line basis over
periods of between five and 40 years. We assess the impairment of
identifiable intangibles, long-lived assets and related goodwill
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Some of these events or
changes include:
- - significant underperformance relative to expected historical or
projected future operating results,
- - significant changes in the manner of our use of the acquired assets
or the strategy for our overall business,
- - significant decline in our stock price for a sustained period, and
- - our market capitalization relative to net book value.
When we determine that the carrying value of intangibles, long-lived
assets and related goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we
measure any impairment based on projected undiscounted cash flows.
In 2002, Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS No. 142"), became effective and as
a result, we will cease to amortize goodwill. In lieu of amortization,
we are required to perform an initial impairment review of our goodwill
in 2002 and an annual impairment review thereafter. We are currently
evaluating the impact that SFAS No. 142 will have on our financial
position or results of operations. However, with the recent decline
in our market capitalization and other factors affecting our industry,
the application of the methodology within SFAS No. 142 may result in
the write-down of a portion of our goodwill.
As part of the process of preparing our consolidated financial
statements we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items, such as deferred revenue, for
tax and accounting purposes. These differences result in deferred tax
assets and liabilities, which are included within our consolidated balance
sheet. We may not be able to realize all or part of our deferred tax
assets in the future and an adjustment would be charged to income in the
period such determination was made.
Litigation and contingencies are reflected in our consolidated
financial statements based on managements' assessment, along with legal
counsel, of the expected outcome from such litigation. If the final
outcome of such litigation and contingencies differs adversely from that
currently expected, it would result in a charge to earnings when
determined.
Results of Operations
The following tables state for the periods indicated our consolidated
operations in dollar and percentage of revenue terms for 1999, 2000 and
2001 (dollars in thousands):
Year Ended December 31,
1999 2000 2001
-------------------------------------------
Revenue $1,059,022 $1,330,296 $1,222,580
Costs of revenue 803,799 1,017,878 988,198
Depreciation 46,447 52,413 51,707
Amortization 9,701 11,042 10,810
General and administrative
expenses 91,898 98,521 290,040
Interest expense, net of
interest income 17,275 13,310 14,651
Other expense, net (10,092) (25,756) (14,618)
---------- --------- ---------
Income (loss) before (provision)
benefit for income taxes
and minority interest 79,810 111,376 (147,444)
(Provision) benefit for
income taxes (33,266) (45,877) 54,858
Minority interest (1,818) (352) 232
---------- --------- ---------
Net income (loss) $ 44,726 $ 65,147 $ (92,354)
========== ========= =========
Year Ended December 31,
1999 2000 2001
------ ------ ------
Revenue 100.0% 100.0% 100.0%
Costs of revenue 75.9 76.5 80.8
Depreciation 4.4 4.0 4.2
Amortization 0.9 0.8 0.9
General and administrative
expenses 8.7 7.4 23.7
Interest expense, net of
interest income 1.6 1.0 1.2
Other expense, net (1.0) (1.9) (1.3)
------ ------ ------
Income (loss) before (provision)
benefit for income taxes,
and minority interest 7.5 8.4 (12.1)
(Provision) benefit for
income taxes (3.1) (3.4) 4.4
Minority interest (0.2) (0.1) 0.1
------ ------ ------
Net income (loss) 4.2% 4.9% (7.6)%
====== ====== ======
Our revenue was $1.2 billion for the year ended December 31, 2001,
compared to $1.3 billion for the same period in 2000, representing a
decrease of $107.7 million or 8.1%. The decline was primarily due to a
reduction in capital expenditures by telecommunications clients and a
downturn in the economy generally.
Our costs of revenue were $988.2 million or 80.8% of revenue for
the year ended December 31, 2001, compared to $1.0 billion or 76.5% of
revenue for the same period in 2000. In 2001, margins were impacted by
under-utilization of personnel, leased equipment and other properties;
losses related to our internal network service offerings; and demobilization
and redeployment costs, all related to reduced capital spending by
telecommunication carriers.
Depreciation was $51.7 million or 4.2% of revenue for the year ended
December 31, 2001, compared to $52.4 million or 4.0% of revenue for the
same period in 2000. The decrease in the amount of depreciation expense
in 2001 was due primarily to reduced capital expenditures.
Amortization of goodwill was $10.8 million or 0.9% of revenue for
the year ended December 31, 2001, compared to $11.0 million or 0.8% of
revenue for the same period in 2000. Beginning January 1, 2002, we will
no longer be amortizing goodwill as a result of the adoption of SFAS 142.
General and administrative expenses were $290.0 million or 23.7%
of revenue for the year ended December 31, 2001, compared to $98.5
million or 7.4% of revenue for the same period in 2000. Included in
general and administrative expense in 2001 is a reserve for bad debt of
$182.2 million related to receivables from clients that have filed for
bankruptcy protection or are experiencing financial difficulties and a
charge of $11.5 million primarily related to severance for our former
president and chief executive officer. Excluding these charges and
reserves, general and administrative expenses were $96.3 million or
7.9% of revenue, a reduction of $2.2 million from the prior year.
Interest expense, net of interest income, was $14.7 million or
1.2% of revenue for the year ended December 31, 2001, compared to $13.3
million or 1.0% of revenue for the same period in 2000. The increase
in net interest expense of $1.4 million was due primarily to higher
debt balances in 2001.
Other expense was $14.6 million or 1.3% of revenue for the year ended
December 31, 2001, compared to $25.8 million or 1.9% of revenue for the
same period in 2000. In 2001, we recorded an impairment charge of $6.5
million related to our equity investment in a client and a $10.0 million
write-down of non-core international assets. In 2000, we recognized a
net charge of $26.3 million primarily related to write-downs of non-core
international assets.
For the year ended December 31, 2001, our effective tax rate was
approximately 37.2%, compared to 41.2% in 2000. The decline in effective
rate was due to the nondeductibility of certain expenses which reduced
the overall tax benefit in 2001 proportionately more than increased the
tax provision in 2000 due to the greater amount of the loss in 2001
compared to the amount of income in 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Our revenue was $1.3 billion for the year ended December 31, 2000,
compared to $1.1 billion for the same period in 1999, representing an
increase of $271.3 million or 25.6% primarily from organic growth and
acquisitions. The increased growth resulted primarily from increased
demand for bandwidth by end-users which has spurred increased network
construction and upgrades by our clients. We also experienced growth in
services provided at central office facilities resulting from regulatory
co-location requirements to open central office facilities to new
competitors. Revenue generated by our energy service offering
decreased because we did not pursue certain less profitable work in an
effort to improve margins in the future.
Our costs of revenue were $1.0 billion or 76.5% of revenue for the
year ended December 31, 2000, compared to $803.8 million or 75.9% of
revenue for the same period in 1999. In 2000, margins were impacted by
adverse weather conditions.
Depreciation was $52.4 million or 4.0% of revenue for the year
ended December 31, 2000, compared to $46.4 million or 4.4% of revenue
for the same period in 1999. The decline in depreciation as a percentage
of revenue in 2000 was due to our ability to more efficiently utilize
our equipment.
Amortization was $11.0 million or 0.8% of revenue for the year
ended December 31, 2000, compared to $9.7 million or 0.9% of revenue
for the same period in 1999.
General and administrative expenses were $98.5 million or 7.4% of
revenue for the year ended December 31, 2000, compared to $91.9 million
or 8.7% of revenue for the same period in 1999. The decline in general
and administrative expenses as a percentage of revenue in 2000 was due
primarily to our ability to support higher revenue with a comparatively
lower administrative base.
Interest expense, net of interest income, was $13.3 million or
1.0% of revenue for the year ended December 31, 2000, compared to $17.3
million or 1.6% of revenue for the same period in 1999. The decrease in
net interest expense of $4.0 million was due primarily to the repayment
of debt under our revolving credit facility with a portion of the $126.0
million in net proceeds from our offering of 3.75 million shares in
February 2000.
Other expense in 2000 included net write-downs of $26.3 million of
international non-core assets. Reflected in other expense, net for the
year ended December 31, 1999, are charges related to non-core assets of
approximately $13.8 million due to disposal or write-down to net
realizable value. We also reserved $1.0 million for a 1994 lawsuit from
a predecessor company following a $1.1 million judgment awarded in
October 1999. Offsetting these amounts were fees of $4.8 million
collected from a telecommunications client related to extensions to
the maturity date of a client financing arrangement.
For the year ended December 31, 2000, our effective tax rate was
approximately 41.2%, compared to 41.7% in 1999.
Financial Condition, Liquidity and Capital Resources
Our primary liquidity needs are for working capital, capital
expenditures, acquisitions (including the payment of contingent
consideration related to prior acquisitions) and debt service.
Our primary sources of liquidity are cash flows from operations
and borrowings under our revolving credit facility.
Net cash provided by operating activities was $54.8 million for
the year ended December 31, 2001, compared to $11.9 million used in
2000. The net cash provided by operating activities in 2001 changed
in part due to collection of receivables and changes in working
capital. In February 2002, we received a $42.9 million income tax
refund resulting from losses incurred in 2001.
We completed a new credit facility in February 2002 that provides
for borrowings up to an aggregate of $125.0 million, based on a
percentage of eligible accounts receivable and work in process as well
as a fixed amount of equipment. Although the credit facility provides
for borrowings of up to $125.0 million, the amount that can actually be
borrowed at any given time is based upon a formula that takes into
account, among other things, our eligible accounts receivable, which
can result in borrowing availability of less than the full amount of the
facility. Amounts outstanding under the revolving credit facility mature
on January 22, 2007. The credit facility is collateralized by a first
priority security interest on substantially all of our assets and a
pledge of the stock of our operating subsidiaries. Interest under the
facility accrues at rates based, at our option, on the agent bank's base
rate plus a margin of between 0.50% and 1.50% depending on certain
financial covenants or its LIBOR rate (as defined in the credit facility)
plus a margin of between 2.0% and 3.0%, depending on certain financial
covenants. The facility includes an unused facility fee of 0.50%, which
may be adjusted to as low as 0.375% or as high as 0.625% depending on
the achievement of certain financial thresholds.
The credit facility contains customary events of default (including
cross-default) provisions and covenants related to our North American
operations that prohibit, among other things, making investments and
acquisitions in excess of a specified amount, incurring additional
indebtedness in excess of a specified amount, paying cash dividends,
making other distributions in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated
notes, and engaging in certain mergers or combinations without the prior
written consent of the lenders. The credit facility also contains
financial covenants that require us to maintain (a) tangible net worth on
or after March 31, 2002 of $180.0 million plus an amount equal to 50% of
net income from North American operations after January 1, 2002 and (b) a
fixed charge coverageratio of at least 2:1 (all as defined in the credit
facility) for the successive periods of three, four, five, six, seven,
eight, nine, ten and eleven consecutive calendar months beginning January
1, 2002 and each period of 12 consecutive calendar months ending on or
after December 31, 2002. Failure to achieve certain results could cause
us not to meet these covenants. There can be no assurance that we will
meet these covenant tests. If we violate one or more of these covenants
in the future, and we are unable to cure or obtain waivers from our
lenders or amend or otherwise restructure the credit facility, we could
be in default under the facility and we may be required to sell assets
for less than their carrying value to repay this indebtedness. As a
result of these covenants, our ability to respond to changing business
and economic conditions and to secure additional financing, if needed,
may be restricted significantly, and we may be prevented from engaging
in transactions that might otherwise be considered beneficial to us.
Further, to the extent additional financing is needed, there can be no
assurance that such financing would be available at all or on terms
favorable to us. In addition, a deterioration in the quality of
our receivables or work in process will reduce availability under our
credit facility.
Our North American operations typically are seasonally slower in the
first quarter of the year primarily as the result of client budgetary
constraints and preferences and the effect of winter weather on external
network activities. Because our new credit facility measures the fixed
charge coverage ratio described above for the first time during the
seasonally slower first quarter of 2002, a delay or reduction in our
client's capital expenditures in the first quarter of 2002 from those
projected could affect our ability to meet the required coverage ratio.
We also have $200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually, of which $195.8 million
is outstanding. The notes also contain default (including cross-default)
provisions and covenants restricting many of the same transactions as
under our credit facility.
During the year ended December 31, 2001, we invested $35.4 million
primarily in our fleet to replace or upgrade equipment, $8.5 in
technology enhancement and $11.5 million primarily to acquire an
additional 36.5% interest in our Brazilian operations. During 2001,
our financing activities primarily consisted of borrowings under our
credit facility to fund working capital needs.
The following table sets forth our contractual commitments as of
December 31, 2001 (in thousands):
Less than After 5
Contractual Obligations Total 1 year 1-3 years 4-5 years years
- ------------------------------------------------------------------------------
Long-term debt $195,832 $ - $ - $ - $195,832
Other obligations 3,070 1,746 1,324 - -
Obligations related to
acquisitions(1) 21,246 21,246 - - -
Obligations related to
severance(2) 7,250 7,250 - - -
Capital leases 847 596 251 - -
Operating leases 36,597 12,874 17,871 5,058 794
-------- ------- ------- ------ --------
Total $264,842 $43,712 $19,446 $5,058 $196,626
======== ======= ======= ====== ========
(1) Primarily related to contingent consideration for acquisitions.
(2) Severance for our former president and chief executive officer.
Total
Other Commercial Amounts Less than Over 5
Commitments Committed 1 year 1-3 years 4-5 years years
- ------------------------------------------------------------------------
Credit facility $70,000 $ - $ - $ - $70,000
Standby letters of
credit 7,024 7,024 - - -
------- ------ ------ ------ -------
Total $77,024 $7,024 $ - $ - $70,000
======= ====== ====== ====== =======
Seasonality
Our North America operations typically are seasonally slower in the
first and fourth quarters of the year. This seasonality is primarily the
result of client budgetary constraints and preferences and the effect of
winter weather on external network activities. Some of our clients,
particularly the incumbent local exchange carriers, tend to complete
budgeted capital expenditures before the end of the year and defer
additional expenditures until the following budget year. Revenue in
local currency from our Brazilian operations is not expected to fluctuate
seasonally.
Impact of Inflation
The primary inflationary factor affecting our operations is increased
labor costs. We have not experienced significant increases in labor costs
to date. Our Brazilian operations may be exposed to risks associated
with high inflation.
Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 141, Business Combinations. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001, be accounted for
using the purchase method. The FASB also issued SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 142 requires that goodwill be
assessed at least annually for impairment by applying a fair-value based
test. Goodwill will no longer be amortized over its estimated useful
life. In addition, acquired intangible assets are required to be
recognized and amortized over their useful lives if the benefit of the
asset is based on contractual or legal rights. While we will be subject
to most provisions of SFAS No. 142 beginning January 1, 2002, goodwill
and intangible assets acquired after June 30, 2001, became subject to the
statement immediately.
We are currently evaluating the impact that SFAS No. 142 will have
on our financial position or results of operations. However, with the
recent decline in our market capitalization and other factors affecting
our industry, the application of the methodology within SFAS No. 142 may
result in the write-down of a portion of our goodwill.
In October 2001, the FASB issued FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") and establishes a single
accounting model, based on the framework established in SFAS 121,
for long-lived assets to be disposed of by sale. We adopted SFAS 144
effective January 1, 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 1 and 6 of Notes to Consolidated Financial Statements
for disclosures about market risk.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Certified Public Accountants ............. 19
Consolidated Statements of Operations for the Three
Years Ended December 31, 2001 ................................ 20
Consolidated Balance Sheets as of December 31,
2000 and 2001 ................................................ 21
Consolidated Statements of Changes in Shareholders'
Equity for the Three Years Ended December 31, 2001 ........... 22
Consolidated Statements of Cash Flows for the Three
Years Ended December 31, 2001 ................................ 23
Notes to Consolidated Financial Statements ..................... 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of MasTec, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in shareholders'
equity and cash flows present fairly, in all material respects, the
financial position of MasTec, Inc. and its subsidiaries at December 31,
2000 and 2001, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
February 18, 2002
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Year Ended December 31,
1999 2000 2001
---------- ---------- ----------
Revenue $1,059,022 $1,330,296 $1,222,580
Costs of revenue 803,799 1,017,878 988,198
Depreciation 46,447 52,413 51,707
Amortization 9,701 11,042 10,810
General and administrative expenses 91,898 98,521 290,040
Interest expense 26,673 18,283 20,426
Interest income 9,398 4,973 5,775
Other expense, net (10,092) (25,756) (14,618)
---------- --------- ----------
Income (loss) before (provision)
benefit for income taxes and
minority interest 79,810 111,376 (147,444)
(Provision) benefit for income taxes (33,266) (45,877) 54,858
Minority interest (1,818) (352) 232
---------- --------- ----------
Net income (loss) $ 44,726 $ 65,147 $ (92,354)
========== ========= ==========
Basic weighted average common
shares outstanding 41,714 46,390 47,790
Basic earnings (loss) per share $ 1.07 $ 1.40 $ (1.93)
Diluted weighted average common
shares outstanding 42,624 48,374 47,790
Diluted earnings (loss) per share $ 1.05 $ 1.35 $ (1.93)
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
-----------------------
2000 2001
---------- ---------
Assets
Current assets:
Cash and cash equivalents $ 18,457 $ 48,478
Accounts receivable, unbilled revenue and
retainage, net 392,585 251,715
Inventories 19,643 25,697
Income tax refund receivable - 44,904
Other current assets 23,079 23,078
--------- ---------
Total current assets 453,764 393,872
Property and equipment, net 159,673 151,774
Intangibles, net 262,398 264,826
Other assets 80,510 40,900
--------- ---------
Total assets $ 956,345 $ 851,372
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt $ 3,323 $ 1,892
Accounts payable 85,797 75,508
Other current liabilities 122,207 68,410
--------- ---------
Total current liabilities 211,327 145,810
--------- ---------
Other liabilities 38,530 30,902
--------- ---------
Long-term debt 206,160 267,857
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock 4,770 4,791
Capital surplus 346,099 348,022
Retained earnings 166,350 73,996
Foreign currency translation adjustments (16,891) (20,006)
--------- ---------
Total shareholders' equity 500,328 406,803
--------- ---------
Total liabilities and shareholders' equity $956,345 $851,372
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Common Stock Foreign Accumulated
-------------- Currency Other
Capital Retained Translation Comprehensive
Shares Amount Surplus Earnings Adjustments Total Income
------ ------ -------- -------- ----------- -------- -----------
Balance December 31, 1998 41,073 $4,107 $148,110 $ 56,477 $ (4,421) $204,273 $ 52,056
Net income - - - 44,726 - 44,726 44,726
Foreign currency translation
adjustment - - - - (11,571) (11,571) (11,571)
Stock issued, primarily for
acquisitions and stock
options exercised 1,277 128 17,344 - - 17,472 -
Tax benefit resulting from
stock option plan - - 1,933 - - 1,933 -
------- ------ -------- -------- --------- -------- --------
Balance December 31, 1999 42,350 $4,235 $167,387 $101,203 $(15,992) $256,833 $ 85,211
Net income - - - 65,147 - 65,147 65,147
Foreign currency translation
adjustment - - - - (899) (899) (899)
Stock issued, primarily for
acquisitions and stock
options exercised 5,352 535 173,804 - - 174,339 -
Tax benefit resulting from
stock option plan - - 4,908 - - 4,908 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 2000 47,702 $4,770 $346,099 $166,350 $(16,891) $500,328 $149,459
Net loss - - - (92,354) - (92,354) (92,354)
Foreign currency translation
adjustment - - - - (3,115) (3,115) (3,115)
Stock issued, primarily for
acquisitions and stock
options exercised 203 21 1,923 - - 1,944 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 2001 47,905 $4,791 $348,022 $ 73,996 $(20,006) $406,803 $ 53,990
====== ====== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------
1999 2000 2001
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 44,726 $ 65,147 $(92,354)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization 56,148 63,455 62,517
Minority interest 1,818 352 (232)
Gain on sale of assets - (450) (863)
Bad debts related to bankrupt clients - - 182,200
Write-down of assets 9,798 23,024 16,500
Changes in assets and liabilities net
of effect of acquisitions:
Accounts receivable, unbilled revenue
and retainage, net 5,707 (109,470) (17,121)
Inventories 4,527 (4,347) (5,807)
Income tax refund receivable - - (44,904)
Other assets, current and non-current
portion (5,909) (56,665) (525)
Accounts payable (2,858) (1,433) (3,701)
Other liabilities, current and
non-current portion 6,178 8,516 (40,898)
-------- -------- --------
Net cash provided by (used in)
operating activities 120,135 (11,871) 54,812
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (69,507) (52,638) (43,915)
Cash paid for acquisitions and
contingent consideration,
net of cash acquired (18,706) (55,303) (30,313)
Investments in unconsolidated companies and
distribution to joint venture partner (25,528) (4,900) (11,450)
Repayment of notes receivable 15,667 1,100 -
Net proceeds from sale of assets 27,791 54,065 2,336
-------- -------- --------
Net cash used in investing activities (70,283) (57,676) (83,342)
-------- -------- --------
Cash flows from financing activities:
Proceeds (repayments) from revolving
credit facilities, net (45,384) (71,538) 58,645
Proceeds from issuance of common stock 6,593 133,695 1,146
-------- -------- --------
Net cash (used in) provided by financing
activities (38,791) 62,157 59,791
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 11,061 (7,390) 31,261
Net effect of translation on cash (3,290) (1,788) (1,240)
Cash and cash equivalents--beginning
of period 19,864 27,635 18,457
-------- -------- --------
Cash and cash equivalents--end of period $ 27,635 $ 18,457 $ 48,478
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 25,510 $ 18,042 $ 20,115
======== ======== ========
Income taxes $ 9,726 $ 44,618 $ 10,016
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
During the year ended December 31, 1999, we completed certain
acquisitions which have been accounted for as purchases. The fair value
of the net assets acquired excluding goodwill totaled $3.75 million and
was comprised primarily of $7.0 million of accounts receivable, $2.4
million of property and equipment, $0.68 million of other assets and
$0.27 million in cash, offset by $6.6 million of assumed liabilities.
The excess of the purchase price over the fair value of net assets
acquired was $7.4 million and was allocated to goodwill. The total
purchase price of $11.2 million was primarily paid in cash. We also
issued 0.53 million shares of common stock with a value of $11.3 million
related to the payment of contingent consideration from earlier
acquisitions. Of the $11.3 million, $2.3 million was recorded as a
reduction of other current liabilities and $9.0 million as additional
goodwill. Additionally, $7.8 million of contingent consideration was
paid in cash and was recorded as goodwill.
During the year ended December 31, 2000, we completed certain
acquisitions which have been accounted for as purchases. The fair value
of the net assets acquired excluding goodwill totaled $16.2 million and
was comprised primarily of $26.9 million of accounts receivable, $9.4
million of property and equipment, $1.1 million of other assets and $5.8
million in cash, offset by $27.0 million of assumed liabilities. The
excess of the purchase price over the net assets acquired was $73.4
million and was allocated to goodwill. The total purchase price of $89.6
million was paid by issuing $36.5 million of common stock (0.6 million
shares) and notes and $53.1 million in cash. We also issued 207,171
shares of common stock with a value of $15.8 million related to the
payment of contingent consideration from earlier acquisitions. Of the
$15.8 million, $0.2 million was recorded as a reduction of other current
liabilities and $15.6 million as additional goodwill. Additionally,
$8.0 million of contingent consideration was paid in cash and was
recorded as goodwill.
During the year ended December 31, 2001, we completed certain
acquisitions which have been accounted for as purchases. The fair
value of the net assets excluding goodwill acquired totaled $2.6 million
and was comprised primarily of $3.0 million of accounts receivable, $2.0
million of property and equipment, $0.5 million of other assets and $0.2
million in cash, offset by $3.1 million of assumed liabilities. The
excess of the purchase price over the fair value of net assets acquired
was $2.7 million and was allocated to goodwill. The total purchase price
of $5.3 million is comprised of $4.0 million in cash and the balance in
seller financing. We also paid approximately $25.9 million related to
contingent consideration from earlier acquisitions of which $0.6 million
was reflected as additional goodwill and $25.3 million reflected as a
reduction in other current liabilities.
The accompanying notes are an integral part of these consolidated
financial statements.
Note 1 - Nature of the Business and Summary of Significant Accounting
Policies
We are a leading end-to-end communication, broadband and energy
infrastructure service provider for a broad range of clients in North
America and Brazil.
We design, build, install, maintain, upgrade and monitor internal
and external networks and other facilities for our clients. We are one
of the few national, multi-disciplinary infrastructure providers that
furnishes a comprehensive solution to our clients' infrastructure needs
ranging from basic installation and construction to sophisticated
engineering, design and integration. Our diverse and long-standing client
base, experienced management and integrated value added service offering
provide a stable base of repeat business and enable us to quickly and
efficiently meet client demands.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is
presented below:
Management estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires us to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The more significant estimates
relate to our revenue recognition, allowance for doubtful accounts,
intangible assets, income taxes, and litigation and contingencies.
We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Principles of consolidation. The consolidated financial statements
include MasTec, Inc. and its subsidiaries. All material intercompany
accounts and transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to the current year presentation.
Comprehensive income (loss). As reflected in the consolidated
statements of changes in shareholders' equity, comprehensive income is a
measure of net income and all other changes in equity that result from
transactions other than with shareholders. Comprehensive income (loss)
consists of net income (loss) and foreign currency translation adjustments.
Foreign currency. We operate in Brazil, which is subject to greater
political, monetary, economic and regulatory risks than our domestic
operations. During January 1999, the Brazilian government allowed its
currency to trade freely against other currencies resulting in an
immediate devaluation of the Brazilian real. Assets and liabilities of
foreign subsidiaries and equity with a functional currency other than
U.S. dollars are translated into U.S. dollars at exchange rates in effect
at the end of the reporting period. Foreign entity revenue and expenses
are translated into U.S. dollars at the average rates that prevailed
during the period. The resulting net translation gains and losses are
reported as foreign currency translation adjustments in shareholders'
equity as a component of other accumulated comprehensive income.
Exchange gains and losses on transactions and equity investments
denominated in a currency other than their functional currency are
included in results of operations as incurred.
Revenue recognition. Revenue and related costs for short-term
construction projects (i.e., generally projects with a duration of less
than one month) are recognized as the services are rendered. Revenue
generated by certain long-term construction contracts are accounted for
by the percentage of completion method under which income is recognized
based on the ratio of estimated cost incurred to total estimated contract
cost. Monitoring service and support revenue is recognized ratably over
the term of the agreement. We also provide management, coordination,
consulting and administration services for network infrastructure
projects. Compensation for such services is recognized ratably over
the term of the service agreement.
Losses, if any, on contracts are provided for in full when they
become known. Billings in excess of costs and estimated earnings on
uncompleted contracts are classified as current liabilities. Any costs in
excess of billings are classified as current assets. Work in process on
contracts is based on work performed but not billed to clients as per
individual contract terms.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments.
Our management must make estimates of the uncollectability of our
accounts receivables. Management specifically analyzes accounts
receivable and analyzes historical bad debts, client concentrations,
client credit-worthiness and current economic trends when evaluating
the adequacy of the allowance for doubtful accounts.
Earnings per share. Basic earnings per common share is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding. Diluted earnings per common share
include the dilutive effect of stock options using the treasury stock
method. The difference between the weighted average common shares
outstanding used to calculate basic and diluted earnings per share
relates to stock options assumed exercised under the treasury method of
accounting of approximately 910,000 and 1,984,000 at December 31, 1999
and 2000, respectively. Included in the diluted earnings per share
computation are approximately 167,000 shares for the year ended December
31, 2000, to be issued in connection with an acquisition of a network
service provider. Potentially dilutive shares as of December 31, 2001
totaling 199,000 shares were not included in the diluted per share
calculation because their effect would be anti-dilutive as we incurred
a loss that year. Accordingly, for 2001 diluted net loss per common
share is the same as basic net loss per common share.
Cash and cash equivalents. We consider all short-term investments
with maturities of three months or less when purchased to be cash
equivalents. At December 31, 2000 and 2001, we had cash and cash
equivalents denominated in Brazilian reals that translate to
approximately $6.0 million and $4.0 million, respectively.
Inventories. Inventories (consisting principally of materials and
supplies) are carried at the lower of first-in, first-out cost or market.
Property and equipment. Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the term of the lease or
the estimated useful lives of the improvements. Expenditures for repairs
and maintenance are charged to expense as incurred. Expenditures for
betterments and major improvements are capitalized. The carrying amounts
of assets sold or retired and related accumulated depreciation are
eliminated in the year of disposal and the resulting gains and losses
are included in other income or expense.
Intangibles and other long lived assets. Assets and liabilities
acquired in connection with business combinations accounted for under the
purchase method are recorded at their respective estimated fair values.
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired, including the recognition of applicable
deferred taxes, and is amortized on a straight-line basis over a period
ranging from 5 to 40 years, with a weighted average amortization period
of 33 years. At December 31, 2000 and 2001, we had recorded intangibles
primarily consisting of goodwill of $262.4 million and $264.8 million,
respectively (net of accumulated amortization of $35.5 million in 2000 and
$46.3 million in 2001). As of December 31, 2001, we reflected in other
current liabilities additional consideration related to earnouts for
acquisitions completed in prior years of approximately $19.4 million, which
we expect will be paid primarily during the first six months of 2002.
We review long-lived assets, identifiable intangibles and goodwill and
record an impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of the assets to future undiscounted net cash flows
expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets or expected future cash flows on an undiscounted basis. Assets to
be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
Accrued insurance. We maintain insurance policies subject to
deductibles of $250,000 per occurrence for certain property and casualty
and worker's compensation claims and, accordingly, accrue the estimated
losses. As of December 31, 2001, we have an aggregate stop loss
coverage of $24.8 million and our insurance accrual is reflected in
current and non-current liabilities.
Income taxes. We record income taxes using the liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are recognized for the expected future tax
consequence of temporary differences between the financial statement
and income tax bases of our assets and liabilities. A valuation allowance
is established when it is more likely than not that any or all of the
deferred tax assets will not be realized.
Stock based compensation. We adopted the disclosure provision of
Statement of Financial Accounting Standard No. 123, Accounting for Stock
Based Compensation ("SFAS 123") and retained the intrinsic value method
of accounting for such stock based compensation (see Note 8).
Fair value of financial instruments. We estimate the fair market
value of financial instruments through the use of public market prices,
quotes from financial institutions and other available information.
Judgment is required in interpreting data to develop estimates of market
value and, accordingly, amounts are not necessarily indicative of
the amounts that we could realize in a current market exchange. Our
short-term financial instruments, including cash and cash equivalents,
accounts and notes receivable, accounts payable and other liabilities,
consist primarily of instruments without extended maturities, the fair
value of which, based on management's estimates, equaled their carrying
values. Long-term debt is carried at face value less unamortized
discount. The fair value of our 7.75% senior subordinated notes was
approximately $163.7 million at December 31, 2001. We use letters of
credit to back certain insurance policies. The letters of credit reflect
fair value as a condition of their underlying purpose and are subject
to fees competitively determined in the marketplace.
New pronouncements. In 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, became
subject to the statement immediately.
We are currently evaluating the impact that SFAS No. 142 will have
on our financial position or results of operations. However, with the
recent decline in our market capitalization and other factors affecting
our industry, the application of the methodology within SFAS No. 142 may
result in the write-down of a portion of our goodwill.
In October 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") and establishes a single
accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by sale. We adopted SFAS 144
effective January 1, 2002.
Stock split. On June 19, 2000, we effected a three-for-two split
of our common stock in the form of a stock dividend to shareholders of
record as of May 29, 2000. To reflect the split, common stock was
increased and capital surplus was decreased by $1.6 million. All
references in the consolidated financial statements to shares and
related prices, weighted average number of shares, per share amounts
and stock plan data have been adjusted to reflect the stock split on
a retroactive basis.
Investing Activities. Since January 1, 2000, we have completed
15 acquisitions and increased our ownership in our Brazilian operations
during 2001. These acquisitions have been accounted for under the
purchase method of accounting. Accordingly, the results of operations
of acquired companies have been included in our consolidated results
of operations from their respective acquisition dates. If the
acquisitions had been made at the beginning of 2000 or 2001, pro forma
results of operations would not have differed materially from actual
results based on historical performance prior to their acquisition by
us. The most significant adjustments to the balance sheet resulting
from these acquisitions are disclosed in the supplemental disclosure
of non-cash investing and financing activities in the accompanying
statement of cash flows. Common stock issued in acquisitions is valued
based upon the market price of the common stock around the date of
purchase or the date the purchase price is determined. Certain
agreements include provisions for contingent payments, depending on
future performance. If future performance thresholds are met, goodwill
is adjusted for the amount of such payments.
Note 2 - Liquidity
We derive a significant amount of our revenue from tele-
communications clients. During the latter part of 2000 and all of 2001,
certain segments of the telecommunications industry suffered a severe
downturn that resulted in a number of our clients filing for
bankruptcy protection or experiencing financial difficulties. As a
result, we incurred a net loss of $92.4 million for the year ended
December 31, 2001, primarily attributable to increases in bad debt
expense of $182.2 million during the year. The downturn adversely
affected capital expenditures for infrastructure projects even among
clients that did not experience financial difficulties. Capital
expenditures by telecommunications clients in 2002 are expected
to remain at low levels in comparison with prior years, and there can be
no assurance that additional clients will not file for bankruptcy
protection or otherwise experience financial difficulties in 2002.
Although we refocused our business on long-time, stable
telecommunications and other clients, there can be no assurance that
these clients will continue to fund capital expenditures for
infrastructure projects at current levels or that we will be able to
increase our market share with these stronger clients. Additional
bankruptcies or further decreases in our client's capital expenditures
could reduce our cash flows and adversely impact our liquidity.
Our primary liquidity needs are for working capital, capital
expenditures, acquisitions (including the payment of contingent
consideration related to prior acquisitions) and debt service.
Our primary sources of liquidity are cash flows from operations
and borrowings under our revolving credit facility.
As discussed in Note 6 to the Consolidated Financial Statements, we
completed a new five-year credit facility in February 2002 that provides
for borrowings up to an aggregate of $125.0 million, based on a percentage
of eligible accounts receivable and work in process as well as a fixed
amount of equipment. Although the credit facility provides for borrowings
of up to $125.0 million, the amount that can actually be borrowed at any
given time is based upon a formula that takes into account, among other
things, our eligible accounts receivable which can result in borrowing
availability of less than the full amount of the facility. Amounts
outstanding under the revolving credit facility mature on January 22,
2007. The credit facility is collaterized by a first priority security
interest on substantially all of our assets and a pledge of the stock of
our operating subsidiaries.
The credit facility contains financial covenants that require us
to maintain (a) tangible net worth on or after March 31, 2002 of $180.0
million plus an amount equal to 50% of net income from North American
operations generated after January 1, 2002 and (b) a fixed charge
coverage ratio of at least 2:1 (all as defined in the credit facility)
for the successive periods of three, four, five, six, seven, eight, nine,
ten and eleven consecutive calendar months beginning January 1, 2002 and
each period of 12 consecutive months ending on or after December 31, 2002.
Our North American operations typically are seasonally slower in the
first quarter of the year primarily as the result of client budgetary
constraints and preferences and the effect of winter weather on external
network activities. Because our new credit facility measures the fixed
charge coverage ratio described above for the first time during the
seasonally slower first quarter of 2002, a delay or reduction in our
client's capital expenditures in the first quarter of 2002 from those
projected could affect our ability to meet the required coverage ratio.
There can be no assurance that we will meet these covenant tests.
If we violate one or more of these covenants in the future, and we are
unable to cure or obtain waivers from our lenders or amend or otherwise
restructure or replace the credit facility, we could be in default under
the facility and could be required to seek alternative sources of
financing to conduct our business. There can be no assurances that such
financing would be available at all or on terms favorable to us.
Alternatively, we may be required to sell assets for less than their
carrying value to repay required obligations or meet our liquidity
requirements.
Note 3 - Other assets and liabilities
Other current assets as of December 31, 2000 and 2001 of $23.1
million for each year consists primarily of miscellaneous short-term
receivables, security deposits and prepaids.
Other non-current assets consists of the following as of
December 31, 2000 and 2001(in thousands):
2000 2001
------- -------
Long-term receivables, including retainage $45,822 $12,236
Non-core investments 19,589 10,132
Real estate held for sale 5,473 5,473
Deferred finance costs 3,131 2,616
Cash surrender value of insurance policies 1,594 1,774
Non-compete agreement 1,835 1,323
Other 3,066 7,346
------- -------
Total $80,510 $40,900
======= =======
Other current and non-current liabilities consists of the
following as of December 31, 2000 and 2001 (in thousands):
Current liabilities 2000 2001
- ----------------------------------- -------- -------
Obligations related to acquisitions $ 38,493 $21,246
Accrued compensation 33,461 20,727
Accrued insurance 9,434 10,448
Accrued severance - 7,250
Accrued interest 6,458 6,819
Other 34,361 1,920
-------- -------
Total $122,207 $68,410
======== =======
Non-current liabilities 2000 2001
- ----------------------------------- -------- -------
Accrued insurance $ 12,747 $15,626
Net deferred tax liability 9,039 10,011
Minority interest 16,150 2,170
Other 594 3,095
-------- -------
Total $ 38,530 $30,902
======== =======
Note 4 - Accounts Receivable
Accounts receivable is presented net of an allowance for doubtful
accounts of $9.7 million, $11.0 million, and $20.0 million at December
31, 1999, 2000 and 2001, respectively. We recorded a provision for
doubtful accounts of $4.7 million, $6.6 million and $185.5 million during
1999, 2000 and 2001, respectively. In addition, we recorded write-offs of
$2.3 million, $5.3 million and $176.8 million during 1999, 2000 and 2001,
respectively.
Accounts receivable includes retainage, which has been billed but
is not due until completion of performance and acceptance by clients,
and claims for additional work performed outside original contract terms.
Retainage aggregated $24.6 million and $18.2 million at December 31,
2000 and 2001, respectively. Retainage is expected to be collected within
one year. Any retainage expected to be collected beyond a year is recorded
in long-term other assets.
Included in accounts receivable is unbilled revenue of $98.8 million
and $66.4 million at December 31, 2000 and 2001, respectively. Such
unbilled amounts represent work performed but not billable to clients as
per individual contract terms, of which $23.2 million and $7.9 million at
December 31, 2000 and 2001, respectively, are related to our Brazilian
operations. Unbilled revenue is typically billed within one to two months.
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 we recognized bad debt expense of $182.2 million for these clients
for the year ended December 31, 2001. Should additional clients file for
bankruptcy or experience difficulties, or should other workout situations
fail to materialize, we could experience reduced cash flows and losses in
excess of current reserves.
Note 5 - Property and Equipment
Property and equipment is comprised of the following as of December
31, 2000 and 2001 (in thousands):
Estimated
Useful Lives
2000 2001 (In Years)
-------- --------
Land $ 6,892 $ 6,892
Buildings and improvements 12,624 12,953 5 -30
Machinery and equipment 268,969 290,606 3 -10
Office furniture and equipment 18,734 29,544 3 - 5
-------- --------
307,219 339,995
Less-accumulated depreciation (147,546) (188,221)
-------- --------
$159,673 $151,774
======== ========
Note 6 - Debt
Debt is comprised of the following at December 31, 2000 and 2001
(in thousands):
2000 2001
-------- --------
Revolving credit facility at LIBOR plus 1.0% for
2000 and 2.25% for 2001 (7.64% at December 31,
2000 and 4.18% at December 31, 2001) $ 7,000 $ 70,000
Notes payable for equipment, at interest rates
from 7.5% to 8.5% due in installments through
the year 2004 6,678 3,917
7.75% senior subordinated notes due February 2008 195,805 195,832
-------- --------
Total debt 209,483 269,749
Less current maturities (3,323) (1,892)
-------- --------
Long-term debt $206,160 $267,857
======== ========
We completed a new credit facility in February 2002 that provides
for borrowings up to an aggregate of $125.0 million, based on a
percentage of eligible accounts receivable and work in process as well
as a fixed amount of equipment. Although the credit facility provides
for borrowings of up to $125.0 million, the amount that can actually be
borrowed at any given time is based upon a formula that takes into
account, among other things, our eligible accounts receivable, and which
can result in borrowing availability of less than the full amount of the
facility. Amounts outstanding under the revolving credit facility mature
on January 22, 2007. The credit facility is collateralized by a first
priority security interest on substantially all of our assets and a
pledge of the stock of our operating subsidiaries. Interest under the
facility accrues at rates based, at our option, on the agent bank's base
rate plus a margin of between 0.50% and 1.50% depending on certain
financial covenants or its LIBOR rate (as defined in the credit facility)
plus a margin of between 2.0% and 3.0%, depending on certain financial
covenants. The facility includes an unused facility fee of 0.50%, which
may be adjusted to as low as 0.375% or as high as 0.625% depending on
the achievement of certain financial thresholds. As of December 31,
2001, we had outstanding $7.0 million in standby letters of credit.
The credit facility contains customary events of default (including
cross-default) provisions and covenants related to our North American
operations that prohibit, among other things, making investments and
acquisitions in excess of a specified amount, incurring additional
indebtedness in excess of a specified amount, paying cash dividends,
making other distributions in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated
notes, and engaging in certain mergers or combinations without the
prior written consent of the lenders. The credit facility also contains
financial covenants that require us to maintain (a) tangible net worth on
or after March 31, 2002 of $180.0 million plus an amount equal to 50% of
net income from North American operations after January 1, 2002 and (b) a
fixed charge coverageratio of at least 2:1 (all as defined in the credit
facility) for the successive periods of three, four, five, six, seven,
eight, nine, ten and eleven consecutive calendar months beginning January
1, 2002 and each period of 12 consecutive calendar months ending on or
after December 31, 2002. Failure to achieve certain results could cause
us not to meet these covenants. There can be no assurance that we will
continue to meet these covenant tests in future periods. If we violate
one or more of these covenants in the future, and we are unable to cure
or obtain waivers from our lenders or amend or otherwise restructure the
credit facility, we could be in default under the facility and we may be
required to sell assets for less than their carrying value to repay this
indebtedness. As a result of these covenants, our ability to respond to
changing business and economic conditions and to secure additional
financing, if needed, may be restricted significantly, and we may be
prevented from engaging in transactions that might otherwise be considered
beneficial to us. Further, to the extent additional financing is needed,
there can be no assurance that such financing would be available at all or
on terms favorable to us. In addition, a deterioration in the quality of
our receivables or work in process will reduce availability under our
credit facility.
We also have $200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually, of which $195.8 million
is outstanding. The notes also contain default (including cross-default)
provisions and covenants restricting many of the same transactions as
under our credit facility.
Note 7 - Lease Commitments
We have operating lease agreements for our premises and equipment
that expire on various dates. The operating lease agreements are subject
to escalation. Rent expense for the years ended December 31, 2000 and
2001 was approximately $14.4 million and $19.0 million, respectively.
Minimum future lease commitments under non-cancelable operating
leases in effect at December 31, 2001 were as follows(in thousands):
2002 ......................... $ 12,874
2003 ......................... 10,629
2004 ......................... 7,242
2005 ......................... 3,164
2006 ......................... 1,894
Thereafter ................... 794
--------
Total minimum lease payments.. $ 36,597
========
Note 8 - Retirement and Stock Option Plans
We have a 401(k) plan covering all eligible employees. Subject to
certain dollar limits, eligible employees may contribute up to 15% of their
pre-tax annual compensation to the plan. We currently match in stock 50%
of the employee contributions up to 2% of their gross salary and may make
discretionary contributions in amounts determined by the Board of
Directors. Our matching contributions charged to earnings were
approximately $547,000, $2,077,000 and $1,997,000 for the years ended
December 31, 1999, 2000 and 2001, respectively.
We have three stock option plans currently in effect: the 1994
Stock Incentive Plan (the "1994 Plan"), the 1994 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan") and the 1999 Non-Qualified
Employee Stock Option Plan (the "Non-Qualified Plan"). Typically,
options under these plans are granted at fair market value at the date of
grant, vest between three to five years and terminate no later than 10
years from the date of grant.
Under these plans there were a total of 1,030,055, 2,028,798 and
1,118,253 options available for grant at December 31, 1999, 2000 and
2001, respectively. In addition, there are 292,100 options outstanding
under individual option agreements with varying vesting schedules at
exercise prices ranging from $2.56 to $17.67 with terms up to 10 years.
We also have a non-qualified stock purchase plan under which eligible
employees may purchase common stock through payroll deductions or in a
lump sum at a 15% discount from fair market value.
The following is a summary of all stock option transactions:
Weighted Weighted Average
Stock Average Exercise Fair Value of
Options Price Options Granted
--------- -------------- ---------------
Outstanding December 31, 1998 3,943,656 $12.21
Granted 2,774,933 21.77 $10.69
Exercised (610,604) 10.81
Canceled (252,045) 14.84
--------- ------
Outstanding December 31, 1999 5,855,940 16.81
Granted 711,820 32.28 $20.39
Exercised (584,794) 10.98
Canceled (151,604) 20.44
--------- ------
Outstanding December 31, 2000 5,831,362 19.07
Granted 1,341,794 10.88 $ 7.79
Exercised (7,693) 11.26
Canceled (440,076) 23.15
--------- ------
Outstanding December 31, 2001 6,725,387 $17.18
========= ======
The following table summarizes information about stock options
outstanding at December 31, 2001:
Stock Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Number of Remaining Average Number of Average
Exercise Stock Stock Contractual Exercise Stock Exercise
Prices Options Life Price Options Price
- -------------- --------- -------- -------- --------- --------
$ 2.56 - 2.56 45,000 2.19 $ 2.56 45,000 $ 2.56
3.53 - 4.78 318,076 4.97 4.50 141,076 4.72
5.18 - 7.73 158,390 5.01 5.99 79,890 5.90
9.75 - 14.06 2,812,137 6.08 12.68 1,767,576 13.05
14.17 - 21.25 2,070,154 7.30 18.85 1,692,991 19.07
25.58 - 37.96 1,273,130 5.29 28.49 533,676 28.03
39.91 - 45.08 48,500 5.39 43.24 16,168 43.24
--------- -------- -------- --------- --------
$ 2.56 - 45.08 6,725,387 6.20 $ 17.18 4,276,377 $16.90
========= ======== ======== ========= ========
We have elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for our employees' stock options.
Pursuant to APB No. 25, no compensation cost has been recognized.
We have reflected below the 1999, 2000 and 2001 earnings as if
compensation expense relative to the fair value of the options granted
had been recorded under the provisions of SFAS No. 123 "Accounting for
Stock- Based Compensation." The fair value of each option grant was
estimated using the Black-Scholes option-pricing model with the
following assumptions used for grants in 1999, 2000 and 2001,
respectively: a six, five and five year expected life; volatility
factors of 41%, 60% and 79%; risk-free interest rates of 5.9%,
5.75% and 3.50%; and no dividend payments.
1999 2000 2001
------- ------- ---------
Net income (loss) (in thousands):
As reported $44,726 $65,147 $( 92,354)
======= ======= =========
Pro forma $32,980 $41,707 $(106,944)
======= ======= =========
Basic earnings (loss) per share:
As reported $ 1.07 $ 1.40 $ (1.93)
Pro forma 0.79 $ 0.90 $ (2.24)
Diluted earnings (loss) per share:
As reported $ 1.05 $ 1.35 $ (1.93)
Pro forma $ 0.77 $ 0.86 $ (2.24)
Note 9 - Income Taxes
The provision (benefit) for income taxes consists of the following
(in thousands):
1999 2000 2001
-------- -------- ---------
Current:
Federal $ 32,069 $ 36,669 $ (46,068)
Foreign 214 354 220
State and local 3,770 7,873 (9,729)
-------- -------- ---------
36,053 44,896 (55,577)
-------- -------- ---------
Deferred:
Federal (5,889) 727 508
Foreign 1,740 - -
State and local 1,362 254 211
-------- -------- ---------
(2,787) 981 719
-------- -------- ---------
Provision (benefit) for
income taxes $ 33,266 $ 45,877 $ (54,858)
======== ======== =========
The tax effects of significant items comprising our net deferred
tax liability as of December 31, 2000 and 2001 are as follows
(in thousands):
2000 2001
------- -------
Deferred tax assets:
Non-compete $ 6,661 $ 6,211
Bad debts 4,400 6,710
Accrued self insurance 6,526 7,484
Operating loss and tax credit
carry forward 766 974
All other 4,087 2,674
------- -------
Total deferred tax assets 22,440 24,053
------- -------
Deferred tax liabilities:
Accounts receivable retainage 12,092 10,187
Property and equipment 12,755 15,946
Basis differences in acquired
assets 1,968 2,027
All other 4,664 5,904
------- -------
Total deferred tax liabilities 31,479 34,064
------- -------
Net deferred tax liability $(9,039) $(10,011)
======= ========
The net deferred tax liability includes deferred items resulting
from acquisitions made during the period which are not reflected as part
of the deferred tax provision. Certain of the acquired entities were
S corporations for income tax purposes and, accordingly, any income
tax liabilities for the periods prior to the acquisitions are the
responsibility of the respective shareholders.
A reconciliation of U.S. statutory federal income tax expense on
the earnings from continuing operations is as follows:
1999 2000 2001
----- ----- ------
U.S. statutory federal rate
applied to pretax income 35% 35% (35)%
State and local income taxes 4 5 (4)
Amortization of intangibles 2 1 1
Non-deductible expenses 2 1 1
Other (1) (1) -
----- ----- ------
Provision (benefit) for
income taxes 42% 41% (37)%
===== ===== ======
The Internal Revenue Service ("IRS") examined our federal income
tax returns for the years ended December 31, 1995 and 1996. The IRS has
agreed not to audit the years ended December 31, 1997 and 1998. The IRS
is currently auditing the year ended December 31, 1999. Assessments made
for the years 1995 through 1996 are presently being negotiated at the
appellate level. We believe we have legal defenses to reduce the
proposed deficiency, although there can be no assurance in this regard.
We believe that the ultimate disposition of this matter will not have a
material adverse effect on our consolidated financial statements.
Note 10 - Capital Stock
We have authorized 100,000,000 shares of common stock, $0.10 par
value. At December 31, 2000 and 2001, approximately 47,702,000 shares
and 47,905,000 shares, respectively, of common stock were issued and
outstanding. At December 31, 2000 and 2001, we had 5,000,000 shares of
authorized but unissued preferred stock.
Note 11 - Operations by Geographic Areas and Segments
We operate in one reportable segment as a specialty contractor.
We provide engineering, placement and maintenance of aerial, underground,
and buried fiber-optic, coaxial and copper cable systems owned by local
and long distance communications carriers, and cable television multiple
system operators. Additionally, we provide similar services related to
the installation of integrated voice, data and video local and wide area
networks within office buildings and similar structures and also
provide underground locating services to various utilities and
provide construction and maintenance services to electrical and other
utilities. All of our operating units have been aggregated into one
reporting segment due to their similar customer bases, products and
production methods and distribution methods. We also operate in Brazil
through an 87.5% joint venture which we consolidate net of a 12.5%
minority interest after tax. Our Brazilian operations perform similar
services and for the year ended December 31, 1999, 2000 and 2001 had
revenue of $55.2 million, $55.3 million and $57.9 million, respectively.
Total assets for Brazil totaled as of December 31, 1999, 2000, and
2001, $52.6 million, $48.8 million and $33.9 million, respectively.
Note 12 - Commitments and Contingencies
We have two lawsuits pending in the U.S. District Court for
the Southern District of Florida against Sintel International Corp., a
subsidiary of Artcom Technologies, Inc., to recover more than $5.0
million due under a promissory note and for breach of contract. We are
also pursuing other claims in Spain against Artcom affiliates totaling
approximately $4.0 million. In February 2002, we tentatively settled the
breach of contract lawsuit against Sintel International for $180,000
payable to us. On January 29, 2001, subsequent to the filing of our
lawsuit against Sintel International under the promisory note, Artcom
sued us in the U.S. District Court for the Southern District of
Florida, alleging fraud, negligent misrepresentation, breach of
fiduciary duty, unjust enrichment, conspiracy and violation of the
federal and Florida Racketeer Influenced and Corrupt Oragnizations Act.
The suit seeks to recover approximately $6.0 million (subject to
trebling) that we allegedly received as a result of certain allegedly
unauthorized transactions by two former employees of Artcom.
In a related matter, the labor union representing the workers of
Sistemas e Instalaciones de Telecomunicacion S.A. ("Sintel"), a sister
company of Sintel International, has instigated an investigative action
with a Spanish federal court commenced in July 2001 alleging that five
former members of the board of directors of Sintel, including Jorge Mas,
the Chairman of the Board of MasTec, and his brother Juan Carlos Mas, a
MasTec executive, approved a series of allegedly unlawful transactions
that led to the bankruptcy of Sintel. We are also named as a potentially
liable party. The union alleges Sintel and its creditors were damaged in
the approximate amount of 13 billion pesetas ($69.5 million at December
31, 2001 exchange rates). The Spanish court is seeking a bond from the
subjects of the inquiry in this amount as well as security for the bond.
Neither we nor our executives have been served in the action.
In November 1997, we filed a suit against Miami-Dade County in
Florida state court in Miami alleging breach of contract and seeking
damages exceeding $3.0 million in connection with the county's refusal
to pay amounts due to us under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department, a
department of the county. The county has counterclaimed against us
seeking unspecified damages.
On January 9, 2002, Harry Schipper, a MasTec shareholder, filed a
shareholder derivative lawsuit in the U.S. District Court for the
Southern District of Florida against us as nominal defendant and against
certain current and former members of the Board of Directors and senior
management, including Jorge Mas, our Chairman of the Board, and Austin
Shanfelter, our President and Chief Executive Officer. The lawsuit
alleges mismanagement, misrepresentation and breach of fiduciary duty as
a result of a series of allegedly fraudulent and criminal transactions,
including the matters described above, the severance we paid our former
chief executive officer, and our investment in and financing of a client
that subsequently filed for bankruptcy protection, as well as certain
other matters. The lawsuit seeks damages and injunctive relief against
the individual defendants on MasTec's behalf. The Board of Directors
has formed a special committee, as contemplated by Florida law, to
investigate the allegations of the complaint and to determine whether
it is in the best interests of MasTec to pursue the lawsuit. An
unopposed motion to stay the action for six months to permit the
committee to complete its investigation is pending before the court.
We are vigorously pursuing and believe we have meritorious defenses
to the actions described above. We are also a party to other pending
legal proceedings arising in the normal course of business, none of
which we believe is material to our financial position or results of
operations.
Note 13 - Other Expense, net
For the year ended December 31, 1999, other expense, net is comprised
primarily of a write-down, based on the results of an analysis performed
by management on the carrying value of certain of our international non-
core assets, of $10.2 million, a $3.6 million loss on the sale of a
non-core business and parcels of non-core real estate, $1.0 million
litigation reserve for a 1994 lawsuit from a predecessor company offset
by other income of $4.8 million from a customer related to extensions to
the maturity date of a vendor financing agreement.
For the year ended December 31, 2000 other expense, net is comprised
primarily of a $26.3 million write-down of certain non-core international
assets resulting from management's review of the carrying value of such
assets.
For the year ended December 31, 2001 other expense, net is comprised
primarily of 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.
Note 14 - Quarterly Information (Unaudited)
The following table presents unaudited quarterly operating results
for the two years ended December 31, 2001. We believe that all necessary
adjustments have been included in the amounts stated below to present
fairly the quarterly results when read in conjunction with the
Consolidated Financial Statements and Notes thereto for the years ended
December 31, 2000 and 2001.
2000 2001
Quarter Ended Quarter Ended
-------------------------------------- -------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
-------- -------- -------- -------- -------- -------- -------- -------
(in thousands, except per share data)
Revenue $272,694 $297,697 $382,279 $377,626 $337,212 $330,220 $302,243 $252,905
Net income (loss) $ 11,477 $ 21,342 $ 25,088 $ 7,239 $ 3,297 $ (2,162) $(75,241) $(18,247)
Basic earnings
(loss) per share $ 0.26 $ 0.46 $ 0.53 $ 0.15 $ 0.07 $ (0.05) $ (1.57) $ (0.38)
Diluted earnings
(loss) per share $ 0.25 $ 0.44 $ 0.51 $ 0.15 $ 0.07 $ (0.05) $ (1.57) $ (0.38)
In the second quarter of 2000, we recorded a net gain of $2.5 million
from the sale of a non-core asset offset by write-downs related to other
non-core assets net of tax or $0.05 per share.
In the third quarter of 2000, we recorded a severance charge of $1.0
million net of tax or $0.02 per share.
In the fourth quarter of 2000, we recorded a $17.3 million charge
primarily to write-down certain non-core international assets net of
tax or $0.35 per share.
In the first quarter of 2001, we recorded a reserve of $13.1 million,
net of tax or $0.27 per share primarily due to clients filing for
bankruptcy protection.
In the second quarter of 2001, we recorded a reserve of $9.6 million,
net of tax or $0.20 per share primarily due to clients filing for
bankruptcy protection.
In the third quarter of 2001, we recorded charges of $81.0 million,
net of tax or $1.70 per share due to reserves relating to receivables,
a write-down of non-core international assets and severance expense.
In the fourth quarter of 2001, we recorded charges of $23.8 million,
net of tax or $0.50 per share due to reserves relating to receivables.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our executive officers is included in this
Annual Report under the caption "Executive Officers." Information
regarding our directors and nominees for directors will be contained
in our proxy statement relating to the 2002 Annual Meeting of
Shareholders to be filed with the Securities and Exchange
Commission on or before April 30, 2002 (the "Proxy Statement"), and is
incorporated in this Annual Report by reference.
EXECUTIVE COMPENSATION
Information regarding compensation of our executive officers will
be contained in the Proxy Statement and is incorporated in this Annual
Report by reference, except the Compensation Committee Report contained
in the Proxy Statement, which is not incorporated in this Annual Report
by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the ownership of our common stock will be
contained in the Proxy Statement and is incorporated in this Annual
Report by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be contained in the Proxy Statement and is incorporated in this
Annual Report by reference.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - The financial statements and the report
of our Certified Public Accountants are listed on pages 20
through 35.
2. Financial Statements Schedules - The financial statement schedule
information required by Item 14(a)(2) is included as part of
"Note 4 - Accounts Receivable" of the Notes to Consolidated
Financial Statements.
3. Exhibits including those incorporated by reference:
Exhibit
No. Description
- ------ ------------------------------------------------------------
3.1 Articles of Incorporation, filed as Appendix B to our definitive
Proxy Statement for our 1998 Annual Meeting of Stockholders dated
April 14, 1998 and filed with the Securities and Exchange
Commission on April 14, 1998, and incorporated by reference
herein.
3.2 By-laws, filed as Exhibit 3.2 to our Form 8-K dated May 29, 1998
and filed with the Commission on June 26, 1998, and incorporated
by reference herein.
4.1 7.75 % Senior Subordinated Notes Due 2008 Indenture dated as of
February 4, 1998, filed as Exhibit 4.2 to our Registration
Statement on Form S-4 (file no. 333-46361) and incorporated by
reference herein.
10.1 Stock Option Agreement dated March 11, 1994 between MasTec and
Arthur B. Laffer, filed as Exhibit 10.6 to our Form 10-K for the
year ended December 31, 1995 and incorporated by reference herein.
10.2* Revolving Credit and Security Agreement dated as of January 22,
2002 between MasTec, certain of its subsidiaries, and Fleet
Financial Corporation as agent.
10.3* Assumption and Amendment Agreement to Revolving Credit and
Security Agreement dated February 7, 2002.
10.4 1994 Stock Option Plan for Non-employee Directors filed as an
Appendix to our definitive Proxy Statement for our 1993 Annual
and Special Meeting of Stockholders, dated February 10, 1994 and
filed with the Commission on February 11, 1994 and incorporated
by reference herein.
10.5 Employment agreement with Austin Shanfelter dated as of January
1, 2001, filed as Exhibit 10.1 to our Form 10-Q for the quarter
ended March 31, 2001, and filed with the Commission on May 15,
2001 (the "March 31, 2001 10-Q") and incorporated by reference
herein.
10.6 Employment agreement with Jose Sariego dated as of January 1,
2001 filed as Exhibit 10.3 to the March 31, 2001 10-Q and
incorporated by reference herein.
21.1* Subsidiaries of MasTec.
23.1* Consent of Independent Certified Public Accountants.
24.1 Powers of Attorney (included on signature page).
- --------------------------------
* Exhibits filed with the Securities and Exchange Commission with
this Annual Report on Form 10-K.
The registrant agrees to provide these exhibits supplementally
upon request.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Miami, State of Florida, on March 27, 2002.
MASTEC, INC.
/s/ DONALD P. WEINSTEIN
------------------------------------
Donald P. Weinstein
Executive Vice President -
Chief Financial Officer
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
The undersigned directors and officers of MasTec, Inc. hereby
constitute and appoint Donald Weinstein and Jose Sariego and each of
them with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact
with full power to execute in our name and behalf in the capacities
indicated below this Annual Report on Form 10-K and any and all
amendments thereto and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratify and confirm all that such attorneys-in-fact,
or any of them, or their substitutes shall lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 27, 2002.
/s/ JORGE MAS /s/ JOSEPH P. KENNEDY II
- -------------------------------- ------------------------------
Jorge Mas, Chairman of the Board Joseph P. Kennedy II, Director
/s/ AUSTIN J. SHANFELTER /s/ WILLIAM N. SHIEBLER
- -------------------------------- ------------------------------
Austin J. Shanfelter, President William N. Shiebler, Director
and Chief
Executive Officer (Principal Executive Officer)
/s/ JOSE MAS /s/ JOSE S. SORZANO
- -------------------------------- ------------------------------
Jose Mas, Director Jose S. Sorzano, Director
/s/ ARTHUR B. LAFFER /s/ JULIA L. JOHNSON
- -------------------------------- ------------------------------
Arthur B. Laffer, Director Julia L. Johnson, Director
Exhibit 21.1
------------
Set forth below is a list of the significant subsidiaries of MasTec.
MasTec North America, Inc.
MasTec Brazil S/A
Exhibit 23.1
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-4 (No. 333-30645) and Form S-8
(Nos. 333-22465, 333-30647, 333-47003, 033-55327, 333-77823, 333-38932,
333-38940 and 333-64568) of MasTec, Inc. of our report dated February
18, 2002 relating to the financial statements, which appears in this
Form 10-K.
- ------------------------------
/s/ PricewaterhouseCoopers LLP
Miami, Florida
March 26, 2002