AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1999.
REGISTRATION STATEMENT NO. 333-90027
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MASTEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0829355
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
JOSE SARIEGO, ESQ.
SENIOR VICE PRESIDENT--GENERAL COUNSEL
MASTEC, INC.
3155 N.W. 77TH AVENUE 3155 N.W. 77TH AVENUE
MIAMI, FLORIDA 33122-1205 MIAMI, FLORIDA 33122-1205
TELEPHONE (305) 599-1800 TELEPHONE (305) 406-1954
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
PLEASE SEND A COPY OF ALL COMMUNICATIONS TO:
STEVEN D. RUBIN, ESQ. JOEL S. KLAPERMAN, ESQ.
STEARNS WEAVER MILLER WEISSLER SHEARMAN & STERLING
ALHADEFF & SITTERSON, P.A. 599 LEXINGTON AVENUE
150 WEST FLAGLER STREET, SUITE 2200 NEW YORK, NEW YORK 10022
MIAMI, FLORIDA 33130
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box [ ].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering [ ].
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ].
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(1)
Common Stock, $.10 par value 1,875,000 shares $ 32.25 $60,468,750 $ 16,810.31(2)
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(1) Computed in accordance with Rule 457(c) under the Securities Act of 1933,
based on the average of the high and low price of the Common Stock on the
New York Stock Exchange on October 28, 1999.
(2) Previously paid with the initial filing of the Registration Statement on
November 1, 1999.
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
filed as part of this Registration Statement relates to the shares of Common
Stock registered hereby and to the remaining 1,000,000 unissued shares of
Common Stock previously registered by the Registrant under its Registration
Statement on Form S-3, filed on August 28, 1996, as amended December 12, 1996
(File No. 333-11013). This Registration Statement also constitutes
Post-Effective Amendment No. 2 to such prior Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering of MasTec, Inc.'s Common Stock, par value
$.10 per share, in the United States and Canada and one to be used in a
concurrent offering of MasTec, Inc.'s Common Stock outside the United States
and Canada. The prospectuses are identical except for the front cover page. The
U.S. prospectus is included in the Registration Statement and is followed by
the front cover page to be used in the international prospectus. The front
cover page for the international prospectus included in this Registration
Statement has been labeled "Alternate Page For International Prospectus." Final
forms of each prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b) of the General Rules and Regulations under the
Securities Act of 1933, as amended.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 2000
2,500,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
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MASTEC, INC. IS OFFERING 2,500,000 SHARES OF ITS COMMON STOCK.
---------------
MASTEC'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"MTZ." ON , 2000 THE REPORTED LAST SALE PRICE OF MASTEC'S COMMON STOCK ON
THE NEW YORK STOCK EXCHANGE WAS $ PER SHARE.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
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PRICE $ A SHARE
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS MASTEC
-------------- --------------- --------------
PER SHARE ......... $ $ $
TOTAL ............. $ $ $
A SELLING SHAREHOLDER HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO
AN ADDITIONAL 375,000 SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. WE WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THESE ADDITIONAL SHARES.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS
ON , 2000.
---------------
MORGAN STANLEY DEAN WITTER
JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
, 2000
(E-BUILDING)
E-IDEAS ARE JUST IDEAS UNTIL SOMEBODY BUILDS THEM.
MASTEC. BUILDING THE E-WORLD.
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary .................................................................... 4
Risk Factors .......................................................................... 9
Cautionary Note Regarding Forward-Looking Statements .................................. 15
Use of Proceeds ....................................................................... 16
Price Range of Common Stock and Dividend Policy ....................................... 16
Capitalization ........................................................................ 17
Selected Financial Data ............................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations . 20
Business .............................................................................. 34
Management ............................................................................ 41
Principal and Selling Shareholders .................................................... 43
Description of Our Capital Stock ...................................................... 44
Material United States Tax Consequences for Non-U.S. Investors ........................ 46
Underwriters .......................................................................... 49
Legal Matters ......................................................................... 52
Experts ............................................................................... 52
Where You Can Find More Information About Us .......................................... 53
Index to Financial Statements ......................................................... F-1
3
PROSPECTUS SUMMARY
THIS PROSPECTUS INCLUDES SPECIFIC INFORMATION REGARDING OUR BUSINESS AND
DETAILED FINANCIAL DATA. WE ENCOURAGE YOU TO READ THIS PROSPECTUS IN ITS
ENTIRETY. WE HAVE ADJUSTED ALL REFERENCES TO OUR COMMON STOCK IN THIS
PROSPECTUS TO GIVE EFFECT TO THE THREE-FOR-TWO STOCK SPLIT WHICH WE EFFECTED ON
FEBRUARY 28, 1997 BY MEANS OF A STOCK DIVIDEND OF ONE SHARE OF COMMON STOCK FOR
EVERY TWO SHARES OF COMMON STOCK OUTSTANDING.
MASTEC, INC.
We design, build, install and maintain internal and external networks
supporting the Internet, Internet-related applications, e-commerce and other
communications and energy facilities for leading telecommunications, cable
television, energy and other Fortune 500 companies. Based on revenue, we are
the largest end-to-end telecommunications and energy infrastructure service
provider in North America. We offer comprehensive network infrastructure
solutions to a diverse group of customers, enabling our customers to connect
with their customers.
Currently, we operate from approximately 160 locations throughout North
America, which accounted for 94% of our revenue for the nine months ended
September 30, 1999. Our operating income has grown significantly in the past
five years through both acquisitions and internal growth. Our consolidated
operating income increased 124% for the nine months ended September 30, 1999
over the comparable period of 1998. Our 1999 growth was achieved primarily
through internal growth.
We are organized into eight service lines centered around our customers,
which include some of the largest and most prominent companies in the
telecommunications and energy fields. Our customers include:
/bullet/ incumbent local exchange carriers,
/bullet/ competitive local exchange carriers,
/bullet/ long distance carriers,
/bullet/ cable television operators,
/bullet/ wireless phone companies,
/bullet/ telecommunications equipment vendors,
/bullet/ co-location facilities providers,
/bullet/ public and private energy companies and
/bullet/ financial institutions and other Fortune 500 companies.
4
Representative customers are:
BellSouth Telecommunications, Inc. Global Crossing, Ltd.
SBC Communications Williams Communications Group, Inc.
GTE Corporation AT&T
Sprint Corp. Charter Cable, Inc.
US West Time Warner, Inc.
Qwest Communications, Inc. Winstar
Telergy, Inc. NEC
Enron Carolina Power and Light Co.
Level 3 Communications First Union National Bank
OUR INDUSTRY
Our industry is experiencing a number of trends that we believe will lead
to a significant increase in the demand for our services over the next several
years.
/bullet/ INCREASED DEMAND FOR BANDWIDTH. Growth in telecommunications
voice, video and data traffic, electronic commerce and in the transmission
of high quality information, entertainment and other content over the
Internet has created the need for greater bandwidth. This requires
telecommunications providers and cable television system operators to
upgrade, expand and replace their facilities and infrastructure from the
central office to the home or business.
/bullet/ INCREASED OUTSOURCING OF INFRASTRUCTURE NEEDS. Consolidation and
deregulation in the telecommunications and energy industries have created
integrated, geographically diverse companies which are increasingly
focusing on their core competencies and outsourcing their infrastructure
needs to compete in the changing marketplace.
/bullet/ INCREASED DEMAND FOR COMPREHENSIVE SOLUTIONS. We believe that
companies in the industries we serve are seeking comprehensive end-to-end
solutions to their infrastructure needs and therefore require service
providers, such as MasTec, that can build out large and complex networks
quickly and with a high level of quality.
OUR COMPETITIVE STRENGTHS
We believe that our industry presents substantial growth opportunities for
companies, such as MasTec, with broad geographic coverage, comprehensive
technical expertise and reliable customer service. We have positioned ourselves
to take advantage of these opportunities by emphasizing the following
competitive strengths:
/bullet/ NATIONAL FOOTPRINT AND NAME RECOGNITION. We have significantly
broadened our geographic presence in recent years and believe we are
capable of servicing customers across the United States and Canada. We are
continuing to develop the brand name "MasTec" across all of our operating
units nationwide to further position ourselves as an integrated, national
company.
/bullet/ END-TO-END SOLUTIONS. We believe we are one of the few
infrastructure services providers capable of providing all of the design,
building, installation and maintenance services necessary for a complete
telecommunications network starting from a transmission point, such as a
telephone company central office or cable television head-end, and running
through aerial, underground and buried cables or through wireless
transmission to the ultimate end users' voice and data ports, computer
terminals, cable outlets or cellular stations.
/bullet/ TECHNICAL EXPERTISE AND RELIABLE CUSTOMER SERVICE. We believe
that we have established a
5
reputation for quality and reliability, technical expertise and operating
efficiency. We believe that our reputation among our customers should give
us an advantage in securing larger, more complex infrastructure projects,
a greater volume of business from our existing customers and new
customers.
/bullet/ DIVERSE AND LONG-STANDING CUSTOMER BASE. We have a diverse
customer base that allows us to capitalize on the wide range of
technological advances and other market developments that drive capital
spending by our customers. We have continually provided services to our
top ten customers for an average of over 15 years. We believe that our
diverse and long-standing customer base makes us less susceptible to
downturns in any particular geographic region or industry sector.
/bullet/ EXPERIENCED MANAGEMENT. We have a strong management team to
continue executing our growth strategy. Our management team has the
operational, business development and financial knowledge and experience
to anticipate trends in our industry and to consistently meet and exceed
our clients' expectations for comprehensive and reliable solutions.
OUR GROWTH STRATEGY
We intend to build upon our competitive strengths to capitalize on trends
in our industry and capture an increasing share of the higher-end portion of
our market in North America by:
/bullet/ EXPANDING OUR EXISTING CUSTOMER RELATIONSHIPS AND PURSUING NEW
CUSTOMERS. We actively market our services to our existing and potential
customers and focus on increasing the range of services we provide. We
also team with engineering firms, equipment suppliers and other vendors to
provide turnkey services to our customers.
/bullet/ CONTINUING TO ACHIEVE OPERATING EFFICIENCIES. We intend to
continue to improve our profitability by focusing on ways to achieve cost
savings, economies of scale and improved asset and personnel utilization.
/bullet/ PURSUING STRATEGIC ALLIANCES AND SELECTED ACQUISITIONS. Through
strategic alliances and selected acquisitions, we intend to continue to
add customers, enhance capabilities and expand our geographic coverage.
Most recently, we teamed with Skanska, USA, Inc. to provide project
management for RCN Corporation's announced construction of a $3 billion
fiber optic network. We have also announced an arrangement with Lucent
NetCare Professional Services to provide comprehensive broadband
infrastructure solutions to the cable television industry throughout the
United States.
We are incorporated under the laws of the State of Florida. Our principal
executive offices are located at 3155 N.W. 77th Avenue, Miami, Florida 33122.
Our telephone number is (305) 599-1800.
6
THE OFFERING
Common stock offered ...................................... 2,500,000 shares
Common stock offered in
United States offering ................................... 2,000,000 shares
International offering ................................... 500,000 shares
Common stock to be outstanding after the offering ......... 30,683,868 shares
Over-allotment option ..................................... 375,000 shares(1)
Use of proceeds ........................................... Net proceeds from this offering will be
about $ million, based on an
assumed offering price of $ per
share. We intend to use the net proceeds
to repay outstanding indebtedness under
our revolving credit facility, subject to
reborrowings, for general corporate
purposes, including acquisitions, and for
working capital needs and capital
expenditures.
New York Stock Exchange symbol ............................ MTZ
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(1) The selling shareholder has granted the underwriters the right to purchase
these shares solely to cover over-allotments. We will not receive any of
the proceeds from the sale of shares by the selling shareholder.
7
SUMMARY CONSOLIDATED FINANCIAL DATA
Below is a summary of our consolidated financial data for the periods and
as of the dates indicated. For informational purposes, the following summary
consolidated financial data includes, where necessary, the results of our
Spanish operations, 87% of which we sold effective December 31, 1998. You
should read the following information in conjunction with our consolidated
financial statements and their notes as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------------
1996(1) 1997(2) 1998(1) 1998(1) 1999
------------- ------------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
North American revenue ................................. $ 284,645 $ 377,046 $ 669,628 $474,379 $ 704,585
Brazilian revenue ...................................... -- 74,900 141,954 95,019 41,991
Spanish revenue ........................................ 188,155 207,493 237,340 151,409 --
--------- --------- ---------- -------- ---------
Total revenue ......................................... 472,800 659,439 1,048,922 720,807 746,576
Costs of revenue ........................................ 352,329 495,840 803,112 557,707 568,126
Depreciation and amortization ........................... 12,000 23,855 43,313 30,994 40,551
Compensation charge(3) .................................. -- -- 33,765 -- --
General and administrative expenses ..................... 58,529 82,261 140,472 99,406 64,493
--------- --------- ---------- -------- ---------
Operating income:
North American operating income ........................ 30,209 36,033 13,093 33,324 71,523
Brazilian operating income ............................. -- 9,629 15,301 5,534 1,883
Spanish operating income ............................... 19,733 11,821 (134) (6,158) --
--------- --------- ---------- -------- ---------
Total operating income ................................ 49,942 57,483 28,260 32,700 73,406
--------- --------- ---------- -------- ---------
Net income (loss) ....................................... $ 30,065 $ 34,664 $ (13,915) $ 10,706 $ 33,675
========= ========= ========== ======== =========
Basic weighted average common shares outstanding(4) ..... 24,703 26,460 27,489 27,640 27,693
Basic earnings (loss) per share ......................... $ 1.22 $ 1.31 $ (0.51) $ 0.39 $ 1.22
Diluted weighted average common shares
outstanding(4) ......................................... 25,128 27,019 27,489 28,010 28,214
Diluted earnings (loss) per share ....................... $ 1.20 $ 1.28 $ (0.51) $ 0.38 $ 1.19
SEPTEMBER 30, 1999
-----------------------------
ACTUAL AS ADJUSTED(5)
----------- ---------------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital(6) .................. $170,816 $170,816
Total current assets ................ 411,159 411,159
Property and equipment, net ......... 153,586 153,586
Total assets ........................ 741,539 741,539
Total debt .......................... 303,160
Total shareholders' equity .......... 239,662
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(1) Includes the results of operations of our Spanish subsidiary from May 1,
1996, which we sold effective December 31, 1998. For 1998, includes
severance charges related to 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.
(2) Our Brazilian operations began on August 1, 1997. Information for the year
ended December 31, 1997 includes the results of our Brazilian operations
from August 1, 1997.
(3) Reflects a non-recurring compensation charge for payments to operational
management at our external and internal network services segments.
(4) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997.
(5) As adjusted to give effect to our sale of 2,500,000 shares of common stock
in the offering and the application of the net proceeds.
(6) Working capital excludes $72.2 million of assets held for sale.
8
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. OUR MOST SIGNIFICANT RISKS ARE DESCRIBED BELOW; BUT THESE
RISKS ARE NOT THE ONLY ONES THAT WE FACE. OUR BUSINESS, OPERATING RESULTS OR
FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED BY THESE AND
OTHER RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO
REFER TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS.
RISKS RELATING TO OUR INDUSTRY AND THE INDUSTRIES WE SERVE
THE TELECOMMUNICATIONS AND ENERGY INDUSTRIES ARE SUBJECT TO RAPID TECHNOLOGICAL
AND REGULATORY CHANGES THAT COULD REDUCE THE DEMAND FOR THE SERVICES WE
PROVIDE.
We derive and anticipate that we will continue to derive a substantial
portion of our revenue from customers in the telecommunications industry. New
or developing technologies could displace the wireline systems used for the
transmission of voice, video and data, and improvements in existing technology
may allow telecommunications providers to significantly improve their networks
without physically upgrading them. Additionally, the telecommunications
industry has been characterized by a high level of consolidation that may
result in the loss of one or more customers. The energy industry is also
entering into a phase of deregulation and consolidation similar to the
telecommunications industry, which could lead to the same uncertainties as in
the telecommunications industry.
THE VOLUME OF WORK WE RECEIVE FROM OUR CUSTOMERS IS DEPENDENT ON THEIR
FINANCIAL RESOURCES AND ABILITY TO OBTAIN CAPITAL.
The volume of work awarded under contracts with certain of our
telecommunications and energy customers is subject to periodic appropriations
or rate increase approvals during each contract's term. If a customer of ours
fails to receive sufficient appropriations or rate increase approvals, that
customer could reduce the volume of work that it awards to us or delay its
payments to us. These outcomes could reduce the demand for the services we
provide.
In addition, a number of other factors, including financing conditions for
the industry, could adversely affect our customers and their ability or
willingness to fund capital expenditures in the future. These factors could
also reduce the demand for the services we provide.
THE TELECOMMUNICATIONS AND ENERGY INFRASTRUCTURE SERVICES INDUSTRIES ARE HIGHLY
COMPETITIVE AND POTENTIAL COMPETITORS FACE FEW BARRIERS TO ENTRY. OUR INABILITY
TO COMPETE SUCCESSFULLY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
The industries in which we operate are highly competitive and we compete
with other companies in most of the markets in which we operate. We may also
face competition from existing or prospective customers who employ in-house
personnel to perform some of the same types of services as we provide. There
are relatively few significant barriers to entry into the markets in which we
operate, and as a result, any organization that has adequate financial
resources and access to technical expertise may become one of our competitors.
MANY OF OUR CONTRACTS MAY BE CANCELED ON SHORT NOTICE, AND WE MAY BE
UNSUCCESSFUL IN REPLACING OUR CONTRACTS AS THEY ARE COMPLETED OR EXPIRE.
We could experience a material adverse effect on our revenue, net income
and liquidity if:
/bullet/ our customers cancel a significant number of contracts,
/bullet/ we fail to win a significant number of our existing contracts
upon re-bid or
/bullet/ we complete the required work under a significant number of our
non-recurring projects and cannot replace them with similar projects.
9
Many of our customers may cancel our long-term contracts with them on
short notice, typically 90 to 180 days, even if we are not in default under the
contract. As a result, these contracts do not give us the assurances that
long-term contracts typically provide. Many of our contracts, including our
master services contracts, are opened to public bid at the expiration of their
terms and price is often an important factor in the award of these agreements.
We cannot assure you that we will be the successful bidder on our existing
contracts that come up for bid. We also provide a significant portion of our
services on a non-recurring, project by project basis.
OUR EXTERNAL NETWORK SERVICES BUSINESS IS SEASONAL, EXPOSING US TO REDUCED
REVENUE IN THE FIRST AND FOURTH QUARTERS OF EACH YEAR.
We experience reduced revenue in the first and fourth quarters of each
year relative to other quarters. These variations are partly due to the fact
that the budgetary years of many of our external network services customers end
in December. As a result of the end of their budgetary years, our
telecommunications customers, and particularly our incumbent local exchange
customers, typically reduce their expenditures and work order requests towards
the end of the year. The onset of winter also affects our ability to render
external network services in certain regions of the United States.
WE EXPERIENCE VARIATIONS IN REVENUE AND NET INCOME AS WE COMMENCE OR COMPLETE
WORK.
Our contracts typically require significant start-up costs in one
quarterly period, but we typically do not realize the benefit of the
contractual revenue until subsequent periods. The completion of major contracts
may affect our quarterly results for similar reasons. In addition, the amount
and type of work that we perform at any given time and the general mix of
customers for which we perform work can vary significantly from quarter to
quarter, affecting our quarterly results.
OUR MASTER SERVICES CONTRACTS SUBJECT US TO UNCERTAIN REVENUE GROWTH.
We currently derive a significant portion of our revenue from our master
services contracts. A significant decline in the work our customers assign us
under our master services contracts could materially and adversely affect our
revenue and net income. Under our master services contracts, we may be one of
several companies that perform services for the customer, and our customers
have no obligations under our master services contracts to undertake any
infrastructure projects or other work with us.
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR BUSINESS IS LABOR INTENSIVE, AND IF WE CANNOT ATTRACT AND RETAIN QUALIFIED
EMPLOYEES WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.
Labor shortages or increased labor costs could have a material adverse
effect on our ability to implement our growth strategy and our operations. Our
business is labor intensive, and many of our operations experience a high rate
of employee turnover. The low unemployment rate in the United States has made
it more difficult for us to find qualified personnel at low cost in some areas
where we operate. As we offer new services and pursue new customer markets we
will also need to increase our executive and support personnel. We cannot
assure you that we will be able to continue to hire and retain a sufficient
skilled labor force necessary to operate efficiently and to support our growth
strategy or that our labor expenses will not increase as a result of a shortage
in the supply of skilled personnel.
IF WE ARE UNABLE TO EXPAND OUR INFRASTRUCTURE, WE WILL NOT BE SUCCESSFUL IN
MANAGING OUR RAPID GROWTH.
To manage our growth effectively, we will need to continuously enhance our
information systems and our operational and financial systems and controls.Our
anticipated growth could significantly strain our operational infrastructure
and financial resources. Our growth plan may be adversely affected if we are
unable to expand and continuously improve our operational infrastructure.
10
WE MAY HAVE DIFFICULTY IDENTIFYING AND FINANCING ACQUISITIONS, WHICH COULD
DISRUPT OUR GROWTH STRATEGY.
We have grown rapidly both through internal growth and by acquiring other
companies, and our growth strategy is dependent in part on additional
acquisitions. Increased competition for acquisition candidates has raised
prices for these targets and lengthened the time period required to recoup our
investment. Our acquisition strategy presents the risks inherent in:
/bullet/ assessing the value, strengths and weaknesses of growth
opportunities and
/bullet/ evaluating the costs and uncertain returns of expanding our
operations.
We cannot assure you that:
/bullet/ we will be able to continue to identify and acquire appropriate
businesses on favorable terms or at all,
/bullet/ we will be able to obtain financing for acquisitions on favorable
terms if at all or
/bullet/ the companies that we acquire will perform as we expect.
Our future acquisitions could also result in:
/bullet/ issuing additional shares of our capital stock, which could
dilute our existing shareholders,
/bullet/ increasing our debt to finance the acquisitions, which could
require us to agree to restrictive covenants and which might limit our
operational and financial flexibility,
/bullet/ using our cash, which would reduce the funds we have available
for other corporate purposes or
/bullet/ increased amortization expense from goodwill and other intangibles
related to acquisitions, which would decrease our operating income.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESSES THAT WE ACQUIRE, WHICH COULD
DECREASE OUR REVENUE AND NET INCOME.
Any difficulties we encounter in integrating the businesses we acquire
could reduce the earnings we generate from that business, which may have a
material adverse effect on our revenue and net income. As an example, the
integration process may require us to change the acquired businesses' operating
methods and strategies. The integration of an acquired business may also divert
the attention of its management of the acquired business from its day-to-day
responsibilities. We may also become responsible for liabilities of an acquired
business that we may not have discovered prior to an acquisition.
WE MAY NOT RECOVER THE VALUE OF OUR FOREIGN INVESTMENTS.
We currently have unconsolidated equity investments accounted for at cost,
totaling approximately $66.6 million, in the following non-core assets that are
held for sale:
/bullet/ a minority interest in an Argentine cable television operator,
/bullet/ a minority interest in an Ecuadorian cellular telephone company,
/bullet/ a minority interest in a Spanish telecommunications services
provider and
/bullet/ a non-operational personal communications system in Paraguay.
The companies in Argentina and Ecuador in which we have invested
approximately $34.0 million have defaulted on their third-party debt
obligations. We do not guarantee any of that defaulted indebtedness, and we are
monitoring those investments to determine their impact, if any, on our results
of operations, financial position and cash flows. We have determined that the
carrying values of these assets as of September 30, 1999 have not been
impaired. While we do not currently anticipate taking an
11
impairment charge on any of the assets, there can be no assurance that future
transactions or events will not result in a permanent impairment of these
assets.
We sold 87% of our Spanish operations effective December 31, 1998 for
$27.2 million in cash payable in four installments and $25.0 million of assumed
debt and have posted a $3.0 million letter of credit for the benefit of those
operations to be used for working capital. On the basis of that sale we have
valued our remaining 13% interest in our Spanish operations at approximately
$4.1 million. As of September 30, 1999, $12.5 million of the cash purchase
price plus accrued interest remains unpaid, however we received $1.8 million
subsequently (a portion of which is in escrow), which has reduced the
outstanding balance to $10.7 million. On December 2, 1999 we commenced
foreclosure proceedings against the collateral securing the unpaid portion of
the purchase price and are presently in negotiations regarding the payment of
the amounts owed to us. We expect to receive payment of the remaining amounts
owed to us, but cannot assure you when that balance will be paid, if at all.
We have invested approximately $28.4 million in our Paraguayan subsidiary
to develop a personal communications system in Paraguay, and we are obligated
to spend an additional $5.0 million to complete the system. In September 1999,
the Paraguayan telecommunications regulatory agency rescinded its previous
revocation of our license to develop the system, reaffirmed the grant of the
license to us and extended the deadline for us to complete the system. The
terms of our license now require us to complete the system by January 31, 2000.
We believe, based upon assurances from our equipment vendor, that the system
will be completed on a timely basis. If we are unable to complete the system,
however, we will seek a further extension of the deadline. The Paraguayan
agency could deny further extensions and we could lose our license to develop
the system. In this event, we would seek to sell our assets in Paraguay in
order to recover a portion of our investment. We cannot assure you that we will
be able to complete the system on time.
We are exploring methods to maximize the value of these assets. We cannot
assure you that we will be successful in achieving any proposed methods, and
even if we do achieve one or more proposed methods, it may result in a charge,
loss or tax liability to us.
OUR OPERATIONS IN BRAZIL ARE SUBJECT TO POLITICAL AND ECONOMIC INSTABILITY AND
FOREIGN CURRENCY FLUCTUATIONS THAT MAY ADVERSELY AFFECT THEIR ABILITY TO
GENERATE REVENUE.
We derived approximately 6% of our revenue during the nine months ended
September 30, 1999 from operations in Brazil that are subject to the risks of
political, economic or social instability, including:
/bullet/ the possibility of expropriation,
/bullet/ confiscatory taxation,
/bullet/ recessions,
/bullet/ hyper-inflation,
/bullet/ other adverse governmental or regulatory developments or
/bullet/ limitations on the repatriation of investment income, capital
stock and other assets.
We also conduct business in foreign currencies that are subject to
fluctuations in their exchange rates relative to the U.S. dollar. We monitor
our currency exchange risk but we do not currently hedge against that risk. We
cannot assure you that currency exchange fluctuations or other political,
economic or social factors will not adversely affect our financial condition or
results of operations.
Revenue from our Brazilian operations declined during 1999 due largely to
both the devaluation of the Brazilian reals and reductions in telephony
infrastructure spending resulting from deteriorating economic conditions.
12
BECAUSE WE ARE EFFECTIVELY SELF-INSURED AGAINST MANY POTENTIAL LIABILITIES WE
MAY INCUR SIGNIFICANT ADDITIONAL LIABILITIES IF WE EXPERIENCE INSURANCE CLAIMS
OR COSTS ABOVE OUR ACTUARIAL ESTIMATES.
We maintain insurance policies with respect to automobile, general
liability, workers' compensation and employee group health claims. However,
those policies are generally subject to high deductibles. Accordingly, we must
pay all valid insurance claims which do not exceed the amount of the applicable
deductible. We actuarially determine any liabilities for unpaid claims and
associated expenses, including incurred but not reported losses, and reflect
those liabilities in our balance sheet as an accrued liability. We continually
review the determination of those claims and expenses and the extent of the
accrued liability. If we were to experience insurance claims or costs above our
estimates and were unable to offset those increases with earnings, our net
income and cash flows could be materially and adversely affected.
OUR CREDIT FACILITY AND SENIOR NOTES COULD BE ACCELERATED IF WE DEFAULT AND
COULD ALSO PREVENT US FROM ENGAGING IN OTHERWISE BENEFICIAL TRANSACTIONS.
We have a credit facility with a group of financial institutions and have
outstanding our 7 3/4% Senior Subordinated Notes due 2008. The terms of our
indebtedness contain customary events of default and covenants. Events which
are beyond our control may affect our ability to comply with these provisions.
If we breach any of these covenants, we could be in default under the credit
facility or under the indenture relating to the senior notes. A default could
accelerate the indebtedness. In addition, these covenants may significantly
restrict our ability to respond to changing business and economic conditions or
to secure additional financing, if needed, and may prevent us from engaging in
transactions that might otherwise be considered beneficial to us. The
prohibited actions include, among other things:
/bullet/ making investments in excess of specified amounts,
/bullet/ incurring additional indebtedness in excess of a specified
amount,
/bullet/ paying dividends in excess of a specified amount,
/bullet/ making capital expenditures in excess of a specified amount,
/bullet/ creating liens on our assets,
/bullet/ prepaying our other indebtedness, including the senior notes,
/bullet/ engaging in mergers or combinations and
/bullet/ engaging in transactions which would result in a "change of
control."
Our credit facility also requires us to maintain financial ratio coverages at
the end of each fiscal quarter of debt to earnings and of earnings to interest
expense.
WE ARE CONTROLLED BY A SMALL NUMBER OF OUR EXISTING SHAREHOLDERS WHO CAN
EFFECTIVELY DICTATE OUR MANAGEMENT AND POLICIES AND WHO COULD LIMIT OR PREVENT
AN OTHERWISE BENEFICIAL TAKEOVER ATTEMPT.
Upon the completion of this offering, and assuming the underwriters do not
exercise their over-allotment option, Jorge Mas, our Chairman, and his family
members will own more than 45% of the outstanding shares of our common stock.
Accordingly, they will remain in a position to effectively:
/bullet/ control the vote of most matters submitted to our shareholders,
including any merger, consolidation or sale of all or substantially all of
our assets (even if that transaction might result in you receiving a
premium for your common stock),
13
/bullet/ elect all of the members of our Board of Directors,
/bullet/ prevent or cause a change in our control and
/bullet/ decide whether we will issue additional common stock or other
securities or declare dividends.
OUR CHARTER DOCUMENTS AND FLORIDA LAW CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY
MAKE IT MORE DIFFICULT TO EFFECT A CHANGE IN OUR CONTROL AND COULD ADVERSELY
IMPACT THE PRICE OF OUR COMMON STOCK.
Our articles of incorporation and bylaws and provisions of the Florida
Business Corporation Act may make it more difficult in some respects to effect
a change in our control and replace our incumbent management. These provisions
may:
/bullet/ have a negative impact on the price of our common stock,
/bullet/ discourage third party bidders from making a bid for us or
/bullet/ reduce any premiums paid to you for your common stock.
In addition, our Board of Directors has the authority to fix the rights and
preferences of, and to issue our preferred stock, and to take other actions
without the action of our shareholders that may have the effect of delaying or
preventing a change of our control.
THE YEAR 2000 ISSUE COULD MATERIALLY AND ADVERSELY AFFECT US.
Year 2000 problems might require us to incur unanticipated expenses or
experience interruptions of operations that could have an adverse effect on our
future revenues and profitability. Our vendors, suppliers and customers might
also experience Year 2000 problems which could impact our operations. You
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
14
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We are making this statement pursuant to the safe harbor provisions for
forward-looking statements described in the Private Securities Litigation
Reform Act of 1995. We make statements in this prospectus and in the documents
that we incorporate by reference into this prospectus that are forward-looking,
such as statements regarding:
/bullet/ our future growth and profitability,
/bullet/ our competitive strengths and business strategy and
/bullet/ the trends we anticipate in the industries and economies in which
we operate.
These forward-looking statements are based on our current expectations and
are subject to a number of risks, uncertainties and assumptions relating to:
/bullet/ our operations, financial condition and results of operations,
/bullet/ rapid technological and regulatory changes in the industries we
serve,
/bullet/ the financial resources of our customers,
/bullet/ our numerous competitors and the few barriers to entry for
potential competitors,
/bullet/ the short-term nature of many of our contracts,
/bullet/ the seasonality and quarterly variations we experience in our
revenue,
/bullet/ our uncertain revenue growth,
/bullet/ our ability to attract and retain qualified personnel,
/bullet/ our ability to expand our infrastructure and manage our growth,
/bullet/ our ability to identify, finance and integrate acquisitions,
/bullet/ our foreign operations and investments,
/bullet/ the restrictions imposed by our credit facility, and
/bullet/ our exposure to Year 2000 problems.
If any of these risks or uncertainties materialize, or if any of our
underlying assumptions are incorrect, our actual results may differ
significantly from the results that we express in or imply by any of our
forward-looking statements. These and other risks are detailed in this
prospectus, the documents that we incorporated by reference into this
prospectus and in other documents that we file with the Securities and Exchange
Commission. We do not undertake any obligation to revise these forward-looking
statements to reflect future events or circumstances.
15
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 2,500,000 shares of
common stock we are offering will be approximately $ million after
deducting estimated offering expenses, underwriting discounts and commissions.
For purposes of this calculation we have assumed a public offering price of
$ per share. We intend to use the net proceeds of the offering to repay
outstanding indebtedness under our credit facility, subject to reborrowings for
general corporate purposes, including acquisitions, and for working capital
needs and capital expenditures. We regularly evaluate potential acquisition
opportunities, but we are not currently negotiating any agreements to make any
material acquisitions.
As of September 30, 1999, the indebtedness that we intend to repay out of
the net proceeds bore interest at LIBOR (London Interbank Offered Rate) plus
1.25% (6.96% at September 30, 1999). We used the outstanding borrowings under
our credit facility for working capital purposes, for capital expenditures and
to fund acquisitions and investments.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange under the symbol
"MTZ." The following table states, for the quarters indicated, the high and low
sale prices of our common stock, as reported by the New York Stock Exchange.
The table has been adjusted to reflect the three-for-two stock split that we
effected in the form of a stock dividend and paid in February 1997.
HIGH LOW
----------- -----------
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter ................................ $46 11/32 $23
Second Quarter ............................... 48 5/8 25 1/8
Third Quarter ................................ 55 1/4 38 1/4
Fourth Quarter ............................... 45 1/2 20 3/8
FISCAL YEAR ENDED DECEMBER 31, 1998
First Quarter ................................ $34 3/16 $22 3/8
Second Quarter ............................... 34 19 13/16
Third Quarter ................................ 26 3/8 14 1/2
Fourth Quarter ............................... 28 3/4 12 3/8
FISCAL YEAR ENDING DECEMBER 31, 1999
First Quarter ................................ $30 3/8 $19 5/8
Second Quarter ............................... 30 21
Third Quarter ................................ 37 1/4 26 11/16
Fourth Quarter (through December 16) ......... 43 1/4 28 1/4
On December 16, 1999 the closing sale price of our common stock as
reported on the New York Stock Exchange was $42 1/16 per share. The number of
shareholders of record on December 9, 1999 was approximately 4,587.
We have not paid any cash dividends and do not anticipate paying any cash
dividends in the foreseeable future. Instead, we intend to retain any future
earnings for reinvestment.
Our Board of Directors will make any future determination as to the
payment of dividends at their discretion, and their determination will depend
upon our operating results, financial condition and capital requirements,
general business conditions and any other factors that the Board of Directors
considers relevant. In addition, some of our credit agreements prohibit us from
paying dividends or making other distributions on our common stock without the
prior written consent of the lenders. You should read "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
16
CAPITALIZATION
The following table states our capitalization on an actual basis as of
September 30, 1999 and on an as adjusted basis to reflect the sale of the
2,500,000 shares of common stock that we are offering, at an assumed public
offering price of $ per share, and the application of the estimated net
proceeds from the offering as described in "Use of Proceeds." You should read
the information in the following table in conjunction with our consolidated
financial statements and their notes.
AT SEPTEMBER 30, 1999
--------------------------
ACTUAL AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS)
Long term debt, including current portion ............................... $ 303,160 $
--------- ---------
Shareholders' equity:
Preferred stock, par value $1.00 per share; 5,000,000 shares authorized;
no shares issued and outstanding ..................................... -- --
Common stock, par value $0.10 per share; 100,000,000 shares
authorized; 28,166,434 shares issued and outstanding;
30,666,434 shares issued and outstanding as adjusted ................. 2,817 3,067
Capital surplus ........................................................ 164,054
Retained earnings ...................................................... 90,152 90,152
Foreign currency transaction adjustments ............................... (17,361) (17,361)
--------- ---------
Total shareholders' equity .............................................. 239,662
---------
Total capitalization .................................................... $ 542,822 $
========= =========
17
SELECTED FINANCIAL DATA
The following table states our selected financial data. The summary
consolidated data as of December 31, 1994, 1995, 1996, 1997 and 1998 and for
each of the years in the five-year period ended December 31, 1998 are derived
from our audited consolidated financial statements. The selected consolidated
financial data as of September 30, 1998 and 1999 and for the nine months ended
September 30, 1998 and 1999 are derived from our unaudited financial statements
included elsewhere in this prospectus and include all adjustments, consisting
only of normal recurring adjustments, which are necessary to fairly present our
results of operations and financial position for those periods. The results for
the nine months ended September 30, 1999 are not necessarily indicative of the
results to be expected for the full year.
The following summary consolidated financial data includes, where
necessary, 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."
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994(1) 1995 1996(2) 1997(3) 1998(2)
------------- ----------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
North American revenue .....................$111,294 $174,583 $284,645 $377,046 $669,628
Brazilian revenue .......................... -- -- -- 74,900 141,954
Spanish revenue ............................ -- -- 188,155 207,493 237,340
-------- -------- -------- -------- ---------
Total revenue ............................. 111,294 174,583 472,800 659,439 1,048,922
Costs of revenue ............................ 83,952 130,762 352,329 495,840 803,112
Depreciation and amortization ............... 4,439 6,913 12,000 23,855 43,313
Compensation charge(4) ...................... -- -- -- -- 33,765
General and administrative expenses ......... 13,022 19,081 58,529 82,261 140,472
-------- -------- -------- -------- ---------
Operating income:
North American operating income ............ 9,881 17,827 30,209 36,033 13,093
Brazilian operating income ................. -- -- -- 9,629 15,301
Spanish operating income ................... -- -- 19,733 11,821 (134)
-------- -------- -------- -------- ---------
Total operating income .................... 9,881 17,827 49,942 57,483 28,260
Interest expense ............................ 3,587 4,954 11,434 11,541 29,580
Interest income ............................. 1,469 3,349 3,246 1,783 9,093
Real estate and investment
write-downs(5) ............................. -- 23,086 -- -- --
Other income (expense), net(2)(6) ........... 2,386 4,424 769 8,332 (5,155)
-------- -------- -------- -------- ---------
Income (loss) before provision (benefit)
for income taxes, equity in earnings
(losses) of unconsolidated companies
and minority interest ...................... 10,149 (2,440) 42,523 56,057 2,618
Provision (benefit) for
income taxes(2) ............................ 2,877 (1,970) 15,591 20,944 12,550
Equity in earnings (losses) of
unconsolidated companies and
minority interest(3) ....................... 247 (139) 3,133 (449) (3,983)
-------- -------- -------- -------- ---------
Net income (loss) ........................... $ 7,519 $ (609) $30,065 $34,664 $(13,915)
======== ======== ======== ======== =========
Basic weighted average common shares
outstanding(7) ............................. 24,116 23,892 24,703 26,460 27,489
Basic earnings (loss) per share ............. $ 0.31 $ (0.03) $ 1.22 $ 1.31 $ (0.51)
Diluted weighted average common
shares outstanding(7) ...................... 24,116 23,892 25,128 27,019 27,489
Diluted earnings (loss) per share ........... $ 0.31 $ (0.03) $ 1.20 $ 1.28 $ (0.51)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998(2) 1999
----------- -----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
North American revenue .....................$474,379 $704,585
Brazilian revenue .......................... 95,019 41,991
Spanish revenue ............................ 151,409 --
-------- --------
Total revenue ............................. 720,807 746,576
Costs of revenue ............................ 557,707 568,126
Depreciation and amortization ............... 30,994 40,551
Compensation charge(4) ...................... -- --
General and administrative expenses ......... 99,406 64,493
-------- --------
Operating income:
North American operating income ............ 33,324 71,523
Brazilian operating income ................. 5,534 1,883
Spanish operating income ................... (6,158) --
-------- --------
Total operating income .................... 32,700 73,406
Interest expense ............................ 19,916 20,815
Interest income ............................. 6,010 8,495
Real estate and investment
write-downs(5) ............................. -- --
Other income (expense), net(2)(6) ........... 2,467 (57)
-------- --------
Income (loss) before provision (benefit)
for income taxes, equity in earnings
(losses) of unconsolidated companies
and minority interest ...................... 21,261 61,029
Provision (benefit) for
income taxes(2) ............................ 9,769 25,354
Equity in earnings (losses) of
unconsolidated companies and
minority interest(3) ....................... (786) (2,000)
-------- --------
Net income (loss) ........................... $10,706 $33,675
======== ========
Basic weighted average common shares
outstanding(7) ............................. 27,640 27,693
Basic earnings (loss) per share ............. $ 0.39 $ 1.22
Diluted weighted average common
shares outstanding(7) ...................... 28,010 28,214
Diluted earnings (loss) per share ........... $ 0.38 $ 1.19
18
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998(2) 1998 1999(8)
---------- ---------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital ..................... $22,284 $44,567 $151,780 $124,088 $250,019 $148,725 $170,816
Property and equipment, net ......... 40,102 44,571 59,602 86,109 137,382 145,632 153,586
Total assets ........................ 142,452 170,163 483,018 630,224 735,486 894,364 741,539
Total debt .......................... 44,185 72,089 155,192 149,057 321,832 358,796 303,160
Total shareholders' equity .......... 50,874 50,504 103,504 223,697 204,273 226,149 239,662
- ---------------
(1) Includes the results of operations of Burnup & Sims Inc., a predecessor
company, from March 11, 1994.
(2) Includes the results of operations of our Spanish subsidiary from May 1,
1996, 87% of which we sold effective December 31, 1998. 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
condition of our Spanish operations.
(3) Our Brazilian operations began August 1, 1997. Information for the year
ended December 31, 1997 includes the results of operations of our
Brazilian operations from August 1, 1997.
(4) Reflects a non-recurring compensation charge for payments to operational
management at our external and internal network services segments.
(5) As a result of the disposal of non-core real estate assets and other
investments, we recorded $23.1 million in charges in the year ended
December 31, 1995.
(6) 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.
(7) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997.
(8) Working capital excludes $72.2 million of assets held for sale.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We design, build, install and maintain internal and external networks
supporting the Internet, Internet-related applications, e-commerce and other
communications and energy facilities for leading telecommunications, cable
television, energy and other Fortune 500 companies. Based on revenue, we are
the largest end-to-end telecommunications and energy infrastructure service
provider in North America. We offer comprehensive network infrastructure
solutions to a diverse group of customers, enabling our customers to connect
with their customers.
Currently, we operate from approximately 160 locations throughout North
America, which accounted for 94% of our revenue for the nine months ended
September 30, 1999. Our operating income has grown significantly in the past
five years through both acquisitions and internal growth. Our 1999 growth was
achieved primarily through internal growth. We intend to continue to emphasize
internal growth, although we also intend to grow through selected acquisitions
following a disciplined model to take advantage of consolidation opportunities
in the fragmented infrastructure services industry in the United States. We
regularly evaluate potential acquisition opportunities, but we are not
currently engaged in any negotiations to make any material acquisitions.
For the nine months ended September 30, 1999, approximately 11% of our
domestic revenue was derived from services performed for BellSouth. Our top 10
customers combined account for less than 40% of our domestic revenue.
We report our operations in four segments:
/bullet/ External Telecommunications Networks,
/bullet/ External Energy Networks,
/bullet/ Internal Networks and
/bullet/ International.
External Telecommunications Networks represents our core business and is
divided into five service lines:
/bullet/ inter-exchange networks,
/bullet/ local exchange networks,
/bullet/ broadband networks,
/bullet/ wireless networks and
/bullet/ intelligent transportation systems.
Internal Networks includes:
/bullet/ switching and transmission services,
/bullet/ premise wiring services and
/bullet/ structured cabling services.
20
International operations are currently confined to Brazil where we operate
a 51% joint venture which we consolidate net of a 49% minority interest after
tax.
Our primary types of contracts with our customers include:
/bullet/ design and installation contracts for specific projects,
/bullet/ master service agreements for all specified design, installation
and maintenance services within a defined geographic territory and
/bullet/ turnkey agreements for comprehensive design, engineering,
installation, procurement and maintenance services.
The majority of our contracts, whether master service agreements or
contracts for specific projects, provide that we will furnish a specified unit
of service for a specified unit of price. For example, we contract to install
cable for a specified rate per foot. We recognize revenue as the related work
is performed. Turnkey agreements are invoiced on a unit basis. A portion of our
work is 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. Customers are billed with varying frequency--weekly, monthly or upon
milestones.
We perform the majority of our services under master services agreements,
which typically are exclusive service agreements to provide all of the
customer'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 to us. Each master services agreement contemplates hundreds of
individual projects generally valued at less than $100,000 each. These master
services agreements are typically awarded on a competitive bid basis, although
customers are sometimes willing to negotiate contract extensions beyond their
original terms without opening them up to bid. Master service agreements are
invoiced on a unit basis where invoices are submitted as work is completed. We
currently have 87 master service agreements across all segments.
Direct costs include
/bullet/ operations payroll and benefits,
/bullet/ subcontractor costs,
/bullet/ materials not provided by our customers,
/bullet/ fuel,
/bullet/ equipment rental and
/bullet/ insurance.
Our customers generally supply materials such as cable, conduit and
telephone equipment, although on some turnkey projects, we supply these
materials. General and administrative costs include all costs of our management
personnel, rent, utilities, travel and business development efforts and back
office administration such as financial services, insurance administration,
professional costs and clerical and administrative overhead.
Many of our contracts require performance and payment bonds. Contracts
generally include payment provisions under which 5% to 10% is withheld from
payment until the contract work has been completed. We typically agree to
indemnify our customers against adverse claims and warrant the quality of our
services for specified time periods, usually one year.
21
RESULTS OF OPERATIONS
NORTH AMERICA
The following tables state for the periods indicated our North American
operations in dollar and percentage of revenue terms (in thousands):
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1996 1997 1998(1) 1998 1999
----------- ----------- ------------ ----------- ------------
Revenue ..................................... $284,645 $377,046 $ 669,628 $474,379 $ 704,585
Costs of revenue ............................ 216,940 279,394 506,721 359,885 535,528
Depreciation and amortization ............... 9,942 20,452 37,284 26,494 38,170
General and administrative expenses ......... 27,554 41,167 112,530 54,676 59,364
-------- -------- --------- -------- ---------
Operating income .......................... $ 30,209 $ 36,033 $ 13,093 $ 33,324 $ 71,523
======== ======== ========= ======== =========
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998(1) 1998 1999
----------- ----------- ----------- ----------- -----------
Revenue ..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenue ............................ 76.2 74.1 75.7 75.9 76.0
Depreciation and amortization ............... 3.5 5.4 5.6 5.6 5.4
General and administrative expenses ......... 9.7 10.9 16.8 11.5 8.4
----- ----- ----- ----- -----
Operating income .......................... 10.6% 9.6% 1.9% 7.0% 10.2%
===== ===== ===== ===== =====
- ----------------
(1) General and administrative expenses include a non-recurring $33.8 million
compensation charge for payments to operational managers at our internal
and external network services segment.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
The following table states revenue and change in revenue by North American
operating segments, in dollar and percentage terms (in thousands):
NINE MONTHS ENDED
SEPTEMBER 30, CHANGE
------------------------- -------------------------
1998 1999 $ %
----------- ----------- ------------ ----------
External Telecommunications Networks ......... $318,939 $517,121 $ 198,182 62.1%
External Energy Networks ..................... 82,715 113,762 31,047 37.5
Internal Network Services .................... 65,205 72,280 7,075 10.9
Other ........................................ 7,520 1,422 (6,098) (81.1)
-------- -------- --------- -----
$474,379 $704,585 $ 230,206 48.5%
======== ======== =========
Our North American revenue was $704.6 million for the nine months ended
September 30, 1999, compared to $474.4 million for the same period in 1998,
representing an increase of $230.2 million or 48.5%. The fastest growing
operating segment is our external telecommunications networks segment primarily
due to the increased demand for bandwidth by end-users which has spurred
increased network construction and upgrades by our customers. The growth we are
experiencing in our internal networks services is primarily due to growth in
services provided at central office facilities resulting from regulatory
co-location requirements to open central office facilities to new competitors.
During the nine month period ended September 30, 1999, we completed a total of
three acquisitions, all in our external telecommunication networks segment.
This compares to a total of ten acquisitions for the nine months ended
September 30, 1998, of which six were in the external telecommunications
networks segment, two in our external energy networks segment and two in our
internal network services
22
segment during the nine months ended September 30, 1998. Internal growth in
revenue from our North American operations, as adjusted to exclude
acquisitions, approximated 40.1% for the nine months ended September 30, 1999,
and was primarily driven by growth in external telecommunications networks.
Our North American costs of revenue were $535.5 million or 76.0% of
revenue for the nine months ended September 30, 1999, compared to $359.9
million or 75.9% of revenue for the same period in 1998. In 1999, margins were
slightly lower due to increased revenue derived from the sale of materials on
turnkey projects, which carry a lower mark-up. Additionally, our external
energy networks experienced reduced productivity due to unusually poor weather
conditions in the mid-Atlantic states during the third quarter. Adverse weather
conditions impacted productivity during the first quarter of 1998.
Depreciation and amortization expense was $38.2 million or 5.4% of revenue
for the nine months ended September 30, 1999, compared to $26.5 million or 5.6%
of revenue for the same period in 1998. The increased depreciation and
amortization expense of $11.7 million resulted from our investment in our fleet
to support revenue growth and from intangibles related to acquisitions
completed in 1998 and 1999. The decline as a percentage of revenue was due to
increased revenue.
General and administrative expenses were $59.3 million or 8.4% of revenue
for the nine months ended September 30, 1999, compared to $54.7 million (which
included a $4.0 million provision for bad debts related to receivables at our
internal network services segment) or 11.5% of revenue (10.7% of revenue,
excluding bad debt) for the same period in 1998. We made this provision
following a quarterly review and analysis of an increase during the first
quarter of 1998 in significantly past due receivables at our internal network
services segment. The decline in general and administrative expenses as a
percent of revenue for the nine months ended September 30, 1999 was due
primarily to our ability to support higher revenue with a reduced
administrative base.
Operating income was $71.5 million or 10.2% of revenue for the nine months
ended September 30, 1999, compared to $33.3 million or 7.0% of revenue for the
same period in 1998. The following table states operating income and change in
operating income by North American operating segments, in dollar and percentage
terms (in thousands):
NINE MONTHS ENDED
SEPTEMBER 30, CHANGE
--------------------------- ------------------------
1998 1999 $ %
------------ ------------ ----------- ----------
External Telecommunications Networks ......... $ 41,631 $ 73,860 $ 32,229 77.4%
External Energy Networks ..................... 8,046 8,733 687 8.5
Internal Network Services .................... (3,949) 3,065 7,014 178.0
Other ........................................ (12,404) (14,135) (1,731) (13.9)
--------- --------- -------- -----
$ 33,324 $ 71,523 $ 38,199 114.6%
========= ========= ========
23
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following table states revenue and change in revenue by North American
operating segments, in dollar and percentage terms (in thousands):
YEAR ENDED
DECEMBER 31, CHANGE
------------------------- ---------------------------
1997 1998 $ %
----------- ----------- -------------- ----------
External Telecommunications Networks ......... $284,415 $455,798 $ 171.383 60.3%
External Energy Networks ..................... 19,693 120,218 100,525 510.5
Internal Network Services .................... 47,285 89,687 42,402 89.7
Other ........................................ 25,654 3,925 (21,729) (84.7)
-------- -------- ---------- -----
$377,047 $669,628 $ 292,581 77.6%
======== ======== ==========
Our North American revenue was $669.6 million for the year ended December
31, 1998, compared to $377.0 million for the same period in 1997, representing
an increase of $292.6 million or 77.6%. The increase in North American revenue
was due primarily to revenue generated from acquired companies, as well as
internally generated growth. Each operating segment experienced significant
growth, excluding our other operating segment, which decreased as a result of a
corporate decision to exit the non-network construction services business.
During 1998, we completed a total of 12 acquisitions in North America of which
eight were in our external telecommunications networks segment, two in the
external energy networks segment, and two in the internal network services
segment. These acquisitions generated revenue of approximately $255.1 million,
representing 87.2% of the total increase in revenue. In comparison, during 1997
we acquired 11 companies in North America (seven in external telecommunications
networks, two in external energy networks and two in internal network
services).
Our North American costs of revenue were $506.7 million or 75.7% of
revenue for the year ended December 31, 1998, compared to $279.4 million or
74.1% of revenue in 1997. The increase in costs of revenue as a percentage of
revenue was due primarily to numerous inefficiencies caused by severe weather
conditions in various regions as a result of the climatic condition known as
"El Nino," poor performance in internal network services due to improperly
managed growth and losses from a non-core external telecommunications network
contract.
Depreciation and amortization expense was $37.3 million or 5.6% of revenue
for the year ended December 31, 1998, compared to $20.5 million or 5.4% of
revenue in 1997. The increased depreciation and amortization expense resulted
from our investment in our fleet to support revenue growth.
General and administrative expenses were $112.5 million or 16.8% of
revenue for the year ended December 31, 1998, compared to $41.2 million or
10.9% of revenue in 1997. The increase in general and administrative expenses
was due primarily to a non-recurring $33.8 million compensation charge for
management at our internal and external network services segment, $1.4 million
for start-up costs and charges of $4.5 million related to our internal network
services for provisions for bad debts following a quarterly analysis of
significantly past-due receivables. Excluding the previously mentioned
expenses, general and administrative expenses were $72.8 million or 10.9% of
revenue in 1998.
24
Operating income was $13.1 million or 1.9% of revenue for 1998, compared
to $36.0 million or 9.6% of revenue in 1997. The following table states
operating income and change in operating income by North American segments, in
dollar and percentage terms (in thousands):
YEAR ENDED
DECEMBER 31, CHANGE
--------------------------- -----------------------------
1997 1998 $ %
------------ ------------ ------------- -------------
External Telecommunications Networks ......... $ 42,344 $ 58,974 $ 16,630 39.3%
External Energy Networks ..................... 607 10,910 10,303 1697.4
Internal Network Services .................... 3,565 (3,411) (6,976) (195.7)
Other ........................................ (10,483) (53,380) (42,897) (409.2)
--------- --------- --------- ------
$ 36,033 $ 13,093 $ (22,940) ( 63.7)%
========= ========= =========
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following table states revenue and change in revenue by North American
operating segments, in dollar and percentage terms (in thousands):
YEAR ENDED
DECEMBER 31, CHANGE
------------------------- ------------------------
1996 1997 $ %
----------- ----------- ----------- ----------
External Telecommunications Networks ......... $219,559 $284,415 $ 64,856 29.5%
External Energy Networks ..................... 3,773 19,693 15,920 421.9
Internal Network Services .................... 35,524 47,285 11,761 33.1
Other ........................................ 25,789 25,654 (135) ( 0.5)
-------- -------- -------- -----
$284,645 $377,047 $ 92,402 32.5%
======== ======== ========
Revenue from North American operations was $377.0 million for the year
ended December 31, 1997, compared to $284.6 million in 1996, representing an
increase of $92.4 million or 32.5%. The increase in North American revenue
across all segments was due primarily to revenue generated from acquired
companies. During 1997, we completed a total of 11 acquisitions of which seven
were in our external telecommunications networks segment, two were in our
external energy network segment and two in our internal network services
segment.
Our North American costs of revenue were $279.4 million or 74.1% of
revenue for the year ended December 31, 1997, compared to $216.9 million or
76.2% of revenue in 1996. The decrease in costs of revenue as a percentage of
revenue was due primarily to services that demanded higher prices in 1997 for
certain projects.
Depreciation and amortization expense was $20.5 million or 5.4% of revenue
for the year ended December 31, 1997, compared to $9.9 million or 3.5% of
revenue in 1996. The increase in depreciation and amortization was a result of
increased capital expenditures for both external telecommunications and
external energy segments ($19.7 million in 1997 compared to $7.1 million in
1996), as well as amortization of intangibles resulting from acquisitions.
General and administrative expenses were $41.2 million or 10.9% of revenue
for the year ended December 31, 1997, compared to $27.6 million or 9.7% of
revenue in 1996. Included in general and administrative expenses is a $4.6
million bad debt provision.
25
Operating income was $36.0 million or 9.6% of revenue for 1997, compared
to $30.2 million or 10.6% of revenue in 1996. The following table states
operating income and change in operating income by North American segments, in
dollar and percentage terms (in thousands):
YEAR ENDED
DECEMBER 31, CHANGE
--------------------------- -----------------------
1996 1997 $ %
------------ ------------ ---------- ----------
External Telecommunications Networks ......... $ 35,838 42,344 $ 6,506 18.2%
External Energy Networks ..................... 566 607 41 7.2
Internal Network Services .................... 4,303 3,565 (738) (17.2)
Other ........................................ (10,498) (10,483) 15 0.1
--------- ------- ------- -----
$ 30,209 $ 36,033 $ 5,824 19.3%
========= ========= =======
BRAZIL
The following tables states for the periods indicated our Brazilian
operations in dollar and percentage of revenue terms (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997(1) 1998
---------------------- -----------------------
Revenue ............................... $74,900 100.0% $141,954 100.0%
Costs of revenue ...................... 63,266 84.5 112,667 79.4
Depreciation and amortization ......... 390 0.4 3,349 2.4
General and administrative
expenses ............................. 1,615 2.2 10,636 7.4
------- ----- -------- -----
Operating income .................... $ 9,629 12.9% $ 15,302 10.8%
======= ===== ======== =====
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------
1998 1999
---------------------- ----------------------
Revenue ............................... $95,019 100.0% $41,991 100.0%
Costs of revenue ...................... 79,610 83.8 32,598 77.6
Depreciation and amortization ......... 2,730 2.9 2,381 5.7
General and administrative
expenses ............................. 7,145 7.5 5,129 12.2
------- ----- ------- -----
Operating income .................... $ 5,534 5.8% $ 1,883 4.5%
======= ===== ======= =====
- ----------------
(1) Brazilian operations began on August 1, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Brazilian revenue was $42.0 million for the nine months ended September
30, 1999, compared to $95.0 million for the same period in 1998, representing a
decrease of $53.0 million or 55.8%. Brazilian revenue decreased primarily due
to the devaluation of the Brazilian reals and to a reduction in work performed.
Revenue in local currency was R$68.5 million reals during the nine months ended
September 30, 1999, compared to R$105.6 million reals for the same period in
1998, representing a decrease of 35.1%. Due to recent economic conditions in
Brazil, it is uncertain when, if at all, previous levels of telephony
infrastructure spending will re-commence.
Brazilian costs of revenue were $32.6 million or 77.6% of revenue for the
nine months ended September 30, 1999, compared to $79.6 million or 83.8% of
revenue for the same period in 1998. The decrease was as a result of amounts
paid by a customer during the second quarter for additional costs incurred
during prior periods for which no revenue had been recorded due to the
uncertainty of its collection. This improved costs of revenue during the nine
months ended September 30, 1999 by 3.9%. Most of the costs associated with this
project were previously recorded in earlier periods.
Depreciation and amortization expense was $2.4 million or 5.7% of revenue
for the nine months ended September 30, 1999 compared to $2.7 million or 2.9%
of revenue for the same period in 1998. Depreciation and amortization relates
primarily to an intangible asset resulting from one acquisition completed in
early 1998 that is being amortized over a five year period relative to the
volume of work under specified contracts.
General and administrative expenses were $5.1 million or 12.2% of revenue
for the nine months ended September 30, 1999, compared to $7.1 million or 7.5%
of revenue for the same period in 1998.
26
General and administrative expenses were R$5.4 million reals or 7.9% of reals
revenue during the nine months ended September 30, 1999, compared to R$6.2
million reals or 5.9% of reals revenue for the same period in 1998. The
decrease in general and administrative expenses in both dollar and reals terms
was due to a reduction in work performed.
YEAR ENDED DECEMBER 31, 1998 OPERATING INCOME COMPARED TO FIVE MONTHS ENDED
DECEMBER 31, 1997 OPERATING INCOME
Brazilian operations commenced on August 1, 1997. Our Brazilian revenue
was $142.0 million for the year ended December 31, 1998, compared to $74.9
million in 1997, representing an increase of $67.1 million or 89.5%. The
increase in revenue was due primarily to a full year of operations in 1998,
compared to five months in 1997.
Brazilian costs of revenue were $112.7 million for the year ended December
31, 1998, compared to $63.3 million in 1997. Costs of revenue were 79.4% of
revenue in 1998, compared to 84.5% in 1997. The decrease in costs of revenue as
a percentage of revenue was due primarily to the completion of certain wireless
projects in the fourth quarter of 1998.
Depreciation and amortization expense was $3.3 million for the year ended
December 31, 1998, compared to $0.4 million for the year ended December 31,
1997. Depreciation and amortization relates primarily to an intangible asset
resulting from one acquisition which is being amortized over a five year
period. Depreciation and amortization expense was 2.4% of revenue for the year
ended December 31, 1998, compared to 0.4% of revenue for the year ended
December 31, 1997.
General and administrative expenses were $10.6 million or 7.4% of revenue
for the year ended December 31, 1998, compared to $1.6 million or 2.2% in 1997.
The increase in general and administrative expenses was due primarily to costs
of establishing an infrastructure to support anticipated additional work
following the privatization of Telebras, which did not take place until July
1998.
COMBINED RESULTS--NORTH AMERICA AND BRAZIL ONLY
The following table states for the periods indicated certain combined
income statement data for North America and Brazil only and the related
percentage of combined revenue.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- ----------------------
Operating income .................... $ 30,209 10.6% $ 45,661 10.1% $ 28,394 3.5%
Interest expense .................... (6,059) (2.1) (6,595) (1.5) (23,753) (2.9)
Interest income ..................... 2,958 1.0 775 0.2 8,488 1.0
Other income (expense), net ......... 389 0.2 7,857 1.7 1,183 0.2
Income before provision for
income taxes, equity in
earnings (losses) of
unconsolidated companies
and minority interest .............. 27,497 9.7 47,698 10.5 14,312 1.8
Provision for income taxes .......... (10,244) (3.6) (18,633) (4.1) (4,563) (0.6)
Equity in earnings (losses) of
unconsolidated companies
and minority interest(1) ........... 270 0.1 (3,184) (0.7) (4,787) (0.6)
---------- ---- ---------- ---- ---------- ----
Net income (loss) ................... $ 17,523 6.2% $ 25,881 5.7% $ 4,962 0.6%
========== ==== ========== ==== ========== ====
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------
1998 1999
---------------------- ----------------------
Operating income .................... $ 38,858 6.8% $ 73,406 9.8%
Interest expense .................... 16,523 2.9 20,815 2.8
Interest income ..................... 5,492 1.0 8,495 1.2
Other income (expense), net ......... 671 0.1 (57) --
Income before provision for
income taxes, equity in
earnings (losses) of
unconsolidated companies
and minority interest .............. 28,498 5.0 61,029 8.2
Provision for income taxes .......... (11,356) (2.0) (25,354) (3.4)
Equity in earnings (losses) of
unconsolidated companies
and minority interest(1) ........... (1,611) (0.3) (2,000) (0.3)
---------- ---- ---------- ----
Net income (loss) ................... $ 15,531 2.7% $ 33,675 4.5%
========== ==== ========== ====
- ----------------
(1) Consists of the minority interest of our Brazilian joint venture partner.
(2) Adjusted to exclude our Spanish operations which were sold effective
December 31, 1998.
27
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
For a discussion of revenue, costs of revenue, depreciation and
amortization and general and administrative expenses, see "North America" and
"Brazil" above.
Interest expense was $20.8 million or 2.8% of revenue for the nine months
ended September 30, 1999, compared to $16.5 million or 2.9% of revenue for the
same period in 1998. The increase in interest expense of $4.3 million was due
primarily to increased indebtedness resulting from the issuance of our 7 3/4%
Senior Subordinated Notes in early 1998. Additionally, the average outstanding
balances on our revolving line of credit increased to support growth and the
customer financing agreement which was satisfied in full in September 1999.
Interest income includes interest of $4.8 million earned and collected
from a customer to which we extended financing for our services, which
terminated in September 1999.
Reflected in other income, net for the nine months ended September 30,
1999, are the following transactions. At various dates predominantly during the
second quarter of 1999, we sold approximately 20 parcels of non-core real
estate assets with a book value of approximately $6.9 million and a non-core
business with a book value of approximately $4.3 million. We recognized a loss
on sale of approximately $3.6 million from these sales. These losses resulted
from our selling a portion of those assets in a manner that we knew would
accelerate the timing of the disposition and the receipt of cash proceeds from
the sale. We also reserved $1.0 million for a 1994 lawsuit from a predecessor
company following a $1.1 million judgment awarded in October 1999. We have
appealed this judgment and may incur other costs related to this lawsuit, such
as interest and attorneys' fees. Offsetting these amounts was a fee of $4.8
million collected from a telecommunications customer related to extensions to
the maturity date of a vendor financing arrangement.
For the nine months ended September 30, 1999, our effective tax rate was
approximately 42% for North American operations and 33% for Brazilian
operations.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
For a discussion of revenue, costs of revenue, depreciation and
amortization and general and administrative expenses, see "North America" and
"Brazil" above.
Interest expense was $23.8 million or 2.9% of revenue for the year ended
December 31, 1998, compared to $6.6 million or 1.5% of revenue in 1997. The
increase in interest expense was due primarily to increased indebtedness
resulting from the issuance of our Senior Subordinated Notes in early 1998, the
proceeds of which were used primarily for acquisitions and to fund
international operations investments. Minority interest primarily relates to
our Brazilian joint venture partner with a 49% interest.
Interest income includes interest income from temporary investments and
interest received from a customer.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Interest expense was $6.6 million or 1.5% of revenue for the year ended
December 31, 1997, compared to $6.1 million or 2.1% of revenue in 1996. The
decrease in interest expense as a percentage of revenue was due to increased
revenue while the average balance on debt remained basically unchanged.
Included in other income for 1997 is a $7.1 million gain on sale of our
indirect interest in an Ecuadorian cellular company.
28
SPAIN
The following tables state for the periods indicated our Spanish
operations, which were sold effective December 31, 1998, in dollar and
percentage of revenue terms (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996(1) 1997
----------------------- -----------------------
Revenue ................................................ $188,155 100.0% $207,493 100.0%
Costs of revenue ....................................... 135,389 71.9 153,180 73.8
Depreciation and
amortization ........................................... 2,058 1.1 3,013 1.5
General and administrative expenses .................... 30,975 16.5 39,478 19.0
-------- ------ -------- ------
Operating income (loss) ............................... 19,733 10.5 11,822 5.7
Interest expense ....................................... (5,375) ( 2.9) (4,946) ( 2.4)
Interest income ........................................ 288 0.2 1,008 0.1
Other income (loss) .................................... 380 0.2 475 --
-------- ------ -------- ------
Income (loss) before benefit from income taxes,
equity in earnings of unconsolidated companies
and minority interest ................................ 15,026 8.0 8,359 4.0
(Provision) benefit from income taxes .................. (5,347) ( 2.7) (2,311) ( 1.2)
Equity in earnings of unconsolidated companies ......... 2,728 1.4 2,897 1.4
Minority interest ...................................... 135 -- (162) --
-------- ------ -------- ------
Net income (loss) ...................................... $12,542 6.7% $ 8,783 4.2%
======== ====== ======== ======
YEAR ENDED DECEMBER 31,
-------------------------
1998(2)
-------------------------
Revenue ................................................ $237,340 100.0%
Costs of revenue ....................................... 183,724 77.4
Depreciation and
amortization ........................................... 2,680 1.1
General and administrative expenses .................... 51,070 21.5
-------- -----
Operating income (loss) ............................... (134) ( 0.0)
Interest expense ....................................... (5,827) ( 2.5)
Interest income ........................................ 605 --
Other income (loss) .................................... (6,338) ( 2.7)
-------- -----
Income (loss) before benefit from income taxes,
equity in earnings of unconsolidated companies
and minority interest ................................ (11,694) ( 4.9)
(Provision) benefit from income taxes .................. (7,987) ( 3.2)
Equity in earnings of unconsolidated companies ......... 1,291 0.1
Minority interest ...................................... (487) --
-------- -----
Net income (loss) ...................................... $(18,877) ( 8.0)%
======== =====
- ----------------
(1) Spanish operations began on April 30, 1996, the date of acquisition. MasTec
sold 87% of its Spanish operations effective December 31, 1998.
(2) Includes a total of $13.4 million of severance charges of which $1.9
million is reflected in costs of revenue and $11.5 million in general and
administrative expenses.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
We sold 87% of our Spanish operations effective December 31, 1998. Revenue
from Spanish operations was $237.3 million for the year ended December 31,
1998, compared to $207.5 million in 1997, representing an increase of $29.8
million or 14.4%. The increase was due to acquisitions made in 1998.
Costs of revenue were $183.7 million or 77.4% of revenue for the year
ended December 31, 1998, compared to $153.2 million or 73.8% of revenue in
1997. The increase in costs of revenue as a percentage of revenue was due
primarily to increased labor costs associated with a new labor agreement and to
$1.9 million in direct labor severance costs.
Depreciation and amortization expense was $2.7 million for the year ended
December 31, 1998, compared to $3.0 million in 1997. Depreciation and
amortization expense was 1.1% of revenue for the year ended December 31, 1998,
compared to 1.5% of revenue in 1997.
General and administrative expenses were $51.1 million or 21.5% of revenue
for the year ended December 31, 1998, compared to $39.5 million or 19.0% of
revenue in 1997. The increase in general and administrative expenses as a
percentage of revenue was due to severance charges of $11.5 million resulting
from reductions in administrative personnel.
Included in other expense for 1998 is a $9.2 million loss on sale of the
Spanish operation. The effective income tax rate on a consolidated basis for
the year ended December 31, 1998 increased to 479% from 37% in 1997. This
increase was mainly attributable to the recognition of approximately $9.2
million of a loss on sale of our Spanish operations, however for tax purposes
the Company recorded a
29
tax provision of $7.8 million. Excluding the effect of the book loss on sale
and the taxable gain, the effective tax rate would have been 40.1%, which is
attributed to the non-deductibility of the amortization of intangibles and
other expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO EIGHT MONTHS ENDED DECEMBER 31, 1996
Revenue generated by Spanish operations was $207.5 million for the year
ended December 31, 1997, compared to $188.2 million in 1996, representing an
increase of $19.3 million or 10.3%. The increase in revenue was due primarily
to a full year of operations in 1997, compared to eight months in the 1996. We
acquired our Spanish operations effective April 30, 1996. Our Spanish
operations were negatively impacted during 1997 by a devaluation of
approximately 18% in the Spanish peseta and by work stoppages in the second
half of 1997.
Costs of revenue were $153.2 million or 73.8% of revenue for the year
ended December 31, 1997, compared to $135.4 million or 71.9% of revenue in
1996. The increase in costs of revenue as a percentage of revenue was due
primarily to lower productivity during 1997 as a result of the work stoppages.
General and administrative expenses were $39.5 million or 19.0% of revenue
for the year ended December 31, 1997, compared to $31.0 million or 16.5% of
revenue in 1996. The increase in general and administrative expenses was due to
a full year of operations in 1997, compared to eight months in 1996. The
increase in general and administrative expenses as a percentage of revenue was
due mainly to increased salaries and compensation expense resulting from
increases in base salary.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are for working capital, capital expenditures,
acquisitions and investments, and debt service. Our primary sources of
liquidity are cash flows from operations, borrowings under revolving lines of
credit and the proceeds from the sale of assets held for sale.
Net cash provided by operating activities was $75.7 million for the nine
months ended September 30, 1999, compared to $14.9 million for the same period
in 1998. Net cash used in operating activities was $13.9 million for the year
ended December 31, 1998 compared to cash provided by operating activities of
$15.2 million in 1997. Net cash used by operating activities in 1998 was due
principally to a net loss for the year ended December 31, 1998. During the year
ended December 31, 1996, $37.4 million was generated from operations.
Our working capital at September 30, 1999, excluding assets held for sale
of $72.2 million, was $170.8 million compared to $192.8 million excluding
assets held for sale of $57.2 million at December 31, 1998. Our North American
working capital as of September 30, 1999 was $133.7 million, comprised
primarily of $244.9 million in accounts receivable, $33.5 million in
inventories and other current assets and $11.0 million in cash, net of $155.7
million in current liabilities.
We have a revolving line of credit with a group of banks that provides for
borrowings up to an aggregate amount of $165.0 million. Amounts outstanding
under the credit facility mature on June 9, 2001. We are required to pay an
unused facility fee ranging from .25% to .50% annually on the facility,
depending upon certain financial covenants. The credit facility contains
customary events of default and covenants which prohibit, among other things,
making investments in excess of a specified amount, incurring additional
indebtedness in excess of a specified amount, paying dividends in excess of a
specified amount, making capital expenditures in excess of a specified amount,
creating liens, prepaying other indebtedness, including our 7 3/4% Senior
Subordinated Notes, and engaging in mergers or combinations without the prior
written consent of the lenders. The credit facility also provides that we must
maintain financial ratio coverages at the end of each fiscal quarter such as
debt to earnings and earnings to interest expense.
During 1999, we acquired three external telecommunications network
services providers for $11.1 million in cash and $2.4 million in notes and
invested $57.7 million primarily in our fleet to support
30
revenue growth which we financed from cash provided by operations and from
financing activities. We have also sold assets and investments for which we
have received approximately $28.4 million in cash, $15.9 million of which was
attributable to the sale of our Spanish operations. We invested cash (net of
cash acquired of $5.0 million in 1998 and $3.3 million in 1997) in acquisitions
and investments in unconsolidated companies totaling $89.1 million during 1998
compared to $49.0 million in 1997. During the year ended December 31, 1996, we
invested $6.2 million in acquisitions and received $9.4 million from the sale
of non-core assets. During 1998, we made capital expenditures of $76.4 million,
primarily for machinery and equipment used in the production of revenue,
compared to $21.5 million in 1997. Cash paid for capital expenditures in 1996
was $7.1 million and an additional $8.6 million of capital expenditures were
financed. The increase in capital expenditures was due mainly to fleet upgrades
for acquired companies and internal growth. Of the total invested funds in
1998, $64.5 million was related to North American acquisitions and $71.4
million was related to North American capital expenditures.
We anticipate that cash from this offering, available cash, cash flows
from operations and proceeds from the sale of assets and investments and
borrowing availability under the credit facility will be sufficient to satisfy
our working capital requirements for the foreseeable future. However, to the
extent that we should desire to increase our financial flexibility and capital
resources or choose or be required to fund future capital commitments from
sources other than operating cash or from borrowings under our existing credit
facility, we may consider raising additional capital by increasing the credit
facility or through the offering of additional equity and/or debt securities in
the public or private markets. There can be no assurance, however, that
additional capital will be available to us on acceptable terms, if at all.
We have a $28.4 million investment in a PCS wireless system in Paraguay
which is held for sale and are committed to spend an additional $5.0 million to
complete the system. In September 1999, the Paraguayan telecommunications
regulatory agency rescinded its previous revocation of our license to develop
the system, reaffirmed the grant of the license to us and extended the deadline
for us to complete the system. The terms of our license now require us to
complete the system by January 31, 2000. We believe, based upon assurances from
our equipment vendor, that the system will be completed on a timely basis. If
we are unable to complete the system, however, we will seek a further extension
of the deadline. The Paraguayan agency could deny a further extension and we
could lose our license to develop the system. In this event, we would seek to
sell our assets in Paraguay in order to recover a portion of our investment. In
addition, our Paraguayan subsidiary is under a preliminary investigation for
alleged improper conduct by certain of its employees in connection with a prior
extension of the completion deadline. We believe that the allegations are
baseless.
Included in assets held for sale at September 30, 1999 is approximately
$34.0 million of investments in Argentina and Ecuador, which have defaulted
during the second quarter of 1999 on their third-party debt obligations. We do
not guarantee any of their indebtedness. We are monitoring our investments in
Argentina, Ecuador and Paraguay and have determined that the carrying values of
these assets as of September 30, 1999 have not been impaired. While we do not
currently anticipate taking an impairment charge on any of the assets, there
can be no assurance that future transactions or events will not result in a
permanent impairment of these assets.
We sold 87% of our Spanish operations effective December 31, 1998 for
$27.2 million in cash, payable in four installments and $25.0 million of
assumed debt and we have posted a $3.0 million letter of credit for the benefit
of those operations to be used for working capital. As of September 30, 1999,
$12.5 million of the cash purchase price plus accrued interest had not been
paid when due, however $1.8 million has subsequently been paid (a portion of
which is in escrow), which has reduced the outstanding balance to $10.7 million
in 1999. On December 2, 1999 we commenced foreclosure proceedings against the
collateral securing the unpaid portion of the purchase price, and we are
presently in negotiations regarding the payment of the amounts owed to us. We
expect to receive payment of the remaining amounts owed to us and do not
anticipate taking an impairment charge on those assets. However, we cannot
assure you when that balance will be paid, if at all, or that future
transactions or events will not result in a permanent impairment of those
assets.
31
YEAR 2000
The Year 2000 computer issue is primarily the result of computer programs
using two digits rather than four to define the applicable year. Any of our
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure, disruption of operations and/or a temporary inability to conduct
normal business activities.
We undertook a Year 2000 project of both our domestic and international
operations, which included an assessment of our telecommunications equipment,
computer equipment, software, database, data services, network infrastructure,
telephone equipment, and third party vendors and suppliers. Our Year 2000 plan
addressed the Year 2000 issue in five phases for both domestic and
international operations.
1. inventory and assessment;
2. impact analysis and implementation planning;
3. implementation and testing;
4. contingency planning to assess reasonably likely worst case scenarios;
and
5. on-going monitoring.
Currently, we have completed 100% of Phases 1 and 2. All but two of our
operations have completed Phases 3 and 4. Our remaining operations are
scheduled to complete Phases 3 and 4 by December 31, 1999. The two systems
being implemented for our two domestic operations are Oracle
Accounting/Financial and Starbuilding Accounting/Financial. As part of our Year
2000 efforts, we have initiated formal communications with all of our
significant vendors, suppliers, banks and clients to determine the extent to
which related interfaces with our systems are vulnerable if these third parties
fail to remediate their Year 2000 issues. In connection with this process,
between February 1999 and May 1999 we sent over 2,100 letters and
questionnaires to vendors in both the United States and Brazil with whom we had
conducted business. Approximately 40% of those vendors provided us with
responses that indicated that they were already compliant or will be compliant
on a timely basis. During October 1999 we re-solicited the 285 of our most
critical vendors that either had not provided us with a response to our first
survey or had provided an unacceptable response. Approximately 31% of those
vendors responded that they were already compliant or will be compliant on a
timely basis. We have identified our most critical vendors that have provided
us with unacceptable responses and are currently in the process of determining
the amount of risk to which we may be exposed. Where necessary we are working
to mitigate any material adverse effect non-compliant vendors may have on our
business by either working with those vendors to help reduce the risk of a
break in service or supply or by identifying acceptable alternate vendors.
There cannot be any assurance that any such third parties will address any Year
2000 issues that they have or that such third parties' systems will not
materially adversely affect our systems and operations.
Based on our assessment efforts, we do not believe that Year 2000 issues
will have a material adverse effect on our financial condition or results of
operations. Our Year 2000 issues and any potential business interruptions,
costs, damages or losses related thereto, are dependent, in part, upon the Year
2000 readiness of third parties such as vendors and suppliers.
Through September 30, 1999, related costs incurred in our Year 2000
project were not material, and we do not expect that the total cost of our Year
2000 project will be material to our financial position or results of
operations.
32
RISKS RELATING TO THE COMPANY'S FAILURE TO BECOME YEAR 2000 COMPLIANT. We
continue to enhance our contingency plans, including the identification of our
most likely worst case scenarios. Currently, the most likely sources of risk to
us include:
/bullet/ interruptions to our customers' operations which could prevent
them from utilizing our services and paying for the services when
rendered; and
/bullet/ failure of our suppliers' operations which would result in our
inability to obtain equipment, materials and supplies to meet the demands
of our customers.
The risks described above could materially and adversely affect our
business, results of operations and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
we are unable to determine at this time what our most reasonable and likely
worst case scenario would be or whether the consequences of Year 2000 failures
will have a material adverse impact on our results of operations, liquidity, or
financial condition.
CONTINGENCY PLANS. Contingency plans for Year 2000-related interruptions
have been developed and include emergency backup and recovery procedures for
lost data, billing and collection procedures, identification of alternate
suppliers and increasing inventory levels of critical supplies and equipment.
These activities are intended to provide a means of managing risk, but cannot
eliminate the potential for disruption due to third-party failure. For the two
operations that will complete implementation and testing at the end of this
year, their current systems have been upgraded to the Year 2000 version as a
contingency plan.
For those vendors and suppliers that have not responded to our Year 2000
questionnaire and are critical to our business, contingency plans and actions
have been developed as appropriate.
ONGOING MONITORING
The process to evaluate all new products, equipment, services and third
party suppliers is in place to effectively monitor ongoing Year 2000 issues.
SEASONALITY
Our North American operations have historically been seasonally weaker in
the first and fourth quarters of the year and have produced stronger results in
the second and third quarters. This seasonality is primarily the result of
customer budgetary constraints and preferences and the effect of winter weather
on external network activities. Some of our U.S. customers 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 operation is not expected to fluctuate seasonally.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The primary inflationary factor affecting our operations is increased
labor costs. We have not experienced significant increases in labor costs to
date. Competition for qualified personnel could increase labor costs for us in
the future. Our international operations, which represent approximately 6% of
our total revenue may, at times in the future, be exposed to high inflation in
certain foreign countries. We anticipate that revenue from international
operations will be less significant to operations in the foreseeable future due
to our current intentions to dispose of them, however, the likelihood and
extent of further devaluation and deteriorating economic conditions in Brazil
and other Latin American countries and the resulting impact on our results of
operations, financial position and cash flows cannot now be determined.
33
BUSINESS
GENERAL
We design, build, install and maintain internal and external networks
supporting the Internet, Internet-related applications, e-commerce and other
communications and energy facilities for leading telecommunications, cable
television, energy and other Fortune 500 companies. Based on revenue, we are
the largest end-to-end telecommunications and energy infrastructure service
provider in North America. We offer comprehensive nework infrastructure
solutions to a diverse group of customers, enabling our customers to connect
with their customers.
Currently, we operate from approximately 160 locations throughout North
America, which accounted for 94% of our revenue for the nine months ended
September 30, 1999. Our operating income has grown significantly in the past
five years through both acquisitions and internal growth. Our consolidated
operating income increased 124% for the nine months ended September 30, 1999
over the comparable period of 1998. Our 1999 growth was achieved primarily
through internal growth.
We are organized into eight service lines centered around our customers,
which include some of the largest and most prominent companies in the
telecommunications and energy fields. Our customers include:
/bullet/ incumbent local exchange carriers,
/bullet/ competitive local exchange carriers,
/bullet/ cable television operators,
/bullet/ long distance carriers,
/bullet/ wireless phone companies,
/bullet/ telecommunications equipment vendors,
/bullet/ co-location facilities providers,
/bullet/ public and private energy companies and
/bullet/ financial institutions and other Fortune 500 companies.
Representative customers are:
BellSouth Telecommunications, Inc. Global Crossing, Ltd.
SBC Communications Williams Communications Group, Inc.
GTE Corporation AT&T
Sprint Corp. Charter Cable, Inc.
US West Time Warner, Inc.
Qwest Communications, Inc. Winstar
Telergy, Inc. NEC
Enron Carolina Power and Light Co.
Level 3 Communications First Union National Bank
BellSouth accounted for 11% of our revenue for the nine months ended
September 30, 1999. Our top 10 customers combined accounted for less than 40%
of our domestic revenue.
INDUSTRY OVERVIEW
Our industry is experiencing a number of trends that we believe will lead
to a significant increase in the demand for our services over the next several
years.
34
INCREASED DEMAND FOR BANDWIDTH. Recent increased growth in
telecommunications voice, video and data traffic, electronic commerce, and in
the transmission of high quality information, entertainment and other content
over the Internet, coupled with increased use of and reliance on personal
computers, has enhanced the need for greater bandwidth. Market research
analysts estimate that at the end of 1998, 25 million U.S. households were
online, implying a 24% household penetration. This number is expected to have
reached 30 million by year-end 1999 and over 58 million by 2004 (55% of
households). The total number of U.S. Internet users (business and residential)
is anticipated to reach 126 million in 2004. We believe 50% of these users will
access the network by means of a broadband technology.
Because of the physical limitations of existing network facilities,
telecommunications providers and cable television system operators are
upgrading facilities with new and innovative technology, expanding and, in many
cases, replacing the existing telecommunications infrastructure to allow for
increased bandwidth. The "race for the last mile", increased upgrades and
maintenance of existing networks are expected to drive further capital spending
growth by our customers even after substantial completion of their backbone
networks.
INCREASED OUTSOURCING OF INFRASTRUCTURE NEEDS. Telecommunication service
providers are entering new geographic and product markets and offering bundled
services that once were offered separately. Additionally, a growing number of
energy companies are exploring ventures in the telecommunications industry to
maximize the value of their rights of way. Consolidation and deregulation in
the telecommunications industry has created integrated, geographically diverse
companies who have combined assets to compete in the changing marketplace.
These providers are focusing on the increased range of their core competencies
of providing telecommunications and energy services and are increasingly
outsourcing infrastructure needs.
INCREASED DEMAND FOR COMPREHENSIVE SOLUTIONS. Increased competition and
the resulting increase in investment in infrastructure and content by
telecommunications and other service providers have led to greater concerns
about the quality and reliability of infrastructure providers. We believe that
our customers increasingly are seeking comprehensive end-to-end solutions to
their infrastructure needs by turning to fewer qualified infrastructure service
providers who have the size, financial capability and technical expertise to
deliver a quality and reliable network on time. These customers are seeking
service providers that can build out large and complex networks quickly, with a
high level of quality and who can rapidly mobilize their capital equipment,
financial assets and personnel to respond effectively to the increasing scale
and time constraints of customer demands.
COMPETITIVE STRENGTHS
We have positioned ourselves to take advantage of these trends by
emphasizing the following competitive strengths:
NATIONAL FOOTPRINT AND NAME RECOGNITION. We have significantly broadened
our geographic presence in recent years and believe we are capable of servicing
customers across the United States and Canada. We are continuing to develop the
brand name "MasTec" across all of our operating units nationwide to further
position ourselves as an integrated, national company.
END-TO-END SOLUTIONS. We believe we are one of the few infrastructure
providers capable of providing all of the design, building, installation and
maintenance services necessary for a complete telecommunications network
starting from a transmission point, such as a telephone company central office
or cable television head-end, and running through aerial, underground and
buried cables or through wireless transmission to the ultimate end users' voice
and data ports, computer terminals, cable outlets or cellular stations.
35
TECHNICAL EXPERTISE AND RELIABLE CUSTOMER SERVICE. We believe that we have
established a reputation for quality and reliability, technical expertise and
operating and financial efficiency. We believe that our reputation among our
customers should give us an advantage in securing larger, more technically
complex infrastructure projects, a greater volume of business from our existing
customers and new customers.
DIVERSE AND LONG-STANDING CUSTOMER BASE. We have a diverse customer base
that allows us to capitalize on the wide range of technological advances and
other market developments that drive capital spending by our customers. We have
continually provided services to our top ten customers for an average of over
15 years. We believe that our diverse and long-standing customer base makes us
less susceptible to downturns in any particular geographic region or industry
sector.
EXPERIENCED MANAGEMENT. We have a strong management team to continue
executing our growth strategy. Our management team has the operational,
business development and financial knowledge and experience to anticipate
trends in our industry and to consistently meet and exceed our clients'
expectations for comprehensive and reliable solutions.
GROWTH STRATEGY
The key elements of our growth strategy are as follows:
EXPAND EXISTING CUSTOMER RELATIONSHIPS AND PURSUE NEW CUSTOMERS. We
believe that our customers increasingly are seeking single national vendors to
provide all of their telecommunications and energy infrastructure services
needs. Consequently, we actively market our national footprint and
comprehensive service offerings to our existing and potential customers and
focus on increasing the range of services we provide. We also team with
engineering firms, equipment suppliers and other vendors to provide turnkey
services to our customers.
CONTINUE TO ACHIEVE OPERATING EFFICIENCIES. We intend to continue to
improve our profitability by focusing on ways to achieve cost savings,
economies of scale and improved asset and personnel utilization. We have
realigned our North American operations along service and customer lines to
focus on our core businesses and instituted a program to improve efficiency and
productivity by leveraging existing administrative personnel to support
increased growth. We also intend to further develop and expand the use of
integrated management information systems across our service lines to
facilitate financial control, project costing and asset allocation. The goal of
the program is to realize savings in overhead and other expenses and thereby
improve operating margins and profitability. An element of the program includes
paying our service line presidents and other managers incentive compensation
based upon profitability, return on assets and other financial criteria.
PURSUE STRATEGIC ALLIANCES AND SELECTED ACQUISITIONS. Through strategic
alliances and selected acquisitions, we continue to add customers and
capabilities as well as expand our geographic coverage. Most recently, we
teamed with Skanska USA, Inc. to provide project management for RCN
Corporation's announced construction of a $3 billion fiber optic network. We
have also announced an arrangement with Lucent NetCare Professional Services to
provide comprehensive broadband infrastructure solutions to the cable
television industry throughout the United States. We have completed 33 domestic
acquisitions in the last five years, targeting selected companies to expand
into customer and geographic markets we did not currently serve and to expand
the range and depth of services we provided. We will continue to focus our
acquisition efforts on profitable companies with good reputations and strong
management. We are not currently engaged in any negotiations to make any
material acquisitions.
36
SERVICE LINES
Our North American operations consist of three segments:
/bullet/ External Telecommunications Networks,
/bullet/ External Energy Networks and
/bullet/ Internal Networks.
EXTERNAL TELECOMMUNICATIONS NETWORKS. We design, build, install and
maintain the physical facilities used to provide end-to-end telecommunications
service from the provider's central office, switching center or cable head-end
to the ultimate consumer's home or business. These services include:
/bullet/ designing conduit networks and fiber rings;
/bullet/ placing and splicing fiber optic, coaxial and copper cable;
/bullet/ excavating trenches in which to place the cable;
/bullet/ fabricating and placing related structures such as poles, anchors,
conduits, manholes, cabinets and closures;
/bullet/ placing drop lines from the main distribution terminals to the
customer's home or business; and
/bullet/ maintaining, removing and replacing these facilities.
We also provide route development, right of way and other site
acquisition, permitting, materials procurement, acceptance testing and as-built
documentation.
We bundle our services and are organized to serve our customers' needs as
follows:
/bullet/ INTER-EXCHANGE NETWORKS. We design, engineer and build fiber
optic and other cable networks between metropolitan areas using specialty
equipment such as trenchers, plows and directional borers.
/bullet/ LOCAL EXCHANGE NETWORKS. We design, install, build and maintain
telecommunications networks from the provider's point-of-presence to their
customers' locations within metropolitan areas (local loop).
/bullet/ BROADBAND NETWORKS. We design, engineer, build and install the
infrastructure for network rebuilds, upgrades and maintenance for cable
television multiple system operators.
/bullet/ WIRELESS NETWORKS. We provide turnkey installation and
maintenance services to the wireless communications industry, including site
acquisition, design and building of communication towers, placement of antennas
and associated wiring, and installation of transmission equipment and shelters.
/bullet/ INTELLIGENT TRAFFIC SERVICES. We also provide similar services to
the traffic control and highway safety industry, including the installation and
maintenance of traffic signals, controllers, connecting signals, variable
message signs, closed-circuit television and other monitoring devices and
controllers.
37
Our external telecommunications network services customers include:
BellSouth Telecommunications, Inc.
GTE Corporation
Qwest Communications, Inc.
Williams Communication, Inc.
Global Crossing, Ltd.
Telergy, Inc.
Tele-Communications, Inc.
Charter Cable, Inc.
Sprint Corp.
Sprint Spectrum, L.P.
EXTERNAL ENERGY NETWORKS. We provide external network and infrastructure
services to public and private utilities. These services consist of overhead
and underground installation and maintenance of electrical and other utilities'
transmission and distribution networks, substation construction and
maintenance, right-of-way maintenance and restoration of asphalt and concrete
surfaces. They are substantially similar to the services we provide to our
telecommunications customers, but the work often involves the installation and
splicing of high-voltage transmission and distribution lines. Our external
energy networks customers include:
Carolina Power and Light Co.
Florida Power and Light Co.
Texas Utilities Company
Virginia Power Co.
INTERNAL NETWORK SERVICES. We provide switching and transmission services,
premise wiring services and structured cabling services. These services consist
of the design, installation, testing and documentation of switching and
transmission equipment and supporting components at a provider's
point-of-presence (central office) locations. We design, install and maintain
integrated voice, data and video networks inside customer premises as well as
the infrastructure required to support complex intranet and Internet solutions.
We provide systems integration services, which involve the selection,
configuration, installation and maintenance of software, hardware, other
computing and communications equipment and cabling to provide an integrated
computing and communications system. Internal network services are less capital
intensive than external network services but require a more technically
proficient work force. We provide:
/bullet/ switching and transmission services to equipment vendors such as
Lucent Technologies, Inc. and NEC North America, Inc.; and
/bullet/ premise wiring and structured cabling services to large corporate
customers with multiple locations such as First Union National Bank and
Montgomery Ward and Co.
BACKLOG
At September 30, 1999, we had a backlog for domestic operations of
approximately $222.4 million as compared to a backlog of $249.9 million at
December 31, 1998. Our backlog consists of the uncompleted portion of services
we are to perform under project-specific contracts. We do not include as
backlog the estimated amount of work under our 87 master services agreements
because the customer under these contracts is not committed to order a specific
volume of services from us. We expect to complete substantially all of our
backlog at September 30, 1999 during the next 12 calendar months.
38
SALES AND MARKETING
We have developed a marketing plan emphasizing the "MasTec" brand name
nationwide and the role we play in building the e-world to position ourselves
as a seamless, end-to-end infrastructure service provider. Local marketing
efforts are principally carried out by the management of our service lines,
with our executive management supplementing their efforts at the corporate
level. Our service line presidents market to existing and potential
telecommunications and other utility customers to negotiate new contracts or to
be placed on lists of vendors invited to submit bids for master services
agreements and individual projects. They are responsible for developing and
maintaining successful long-term relationships with customers, which we believe
helps facilitate our repeat business. Our external and internal network
services are also marketed through commissioned salespeople and our corporate
marketing department.
SAFETY AND INSURANCE
We are committed to ensuring that our employees perform their work safely
and strive to instill safe work habits in all of our employees. In this regard
we evaluate our employees 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
employees they supervise. We also hold regular training sessions and seminars
with our employees devoted to safe work practices.
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 our insurance policies are generally
subject to high deductibles and we are effectively self-insured for worker's
compensation and automobile liability up to $250,000 and for general liability
up to $100,000. We have umbrella coverage up to a policy limit of $25.0
million. We actuarially determine any liabilities for unpaid claims and
associated expenses, including incurred but not reported losses, and reflect
those liabilities in our balance sheet as an accrued liability. We continually
review the determination of these claims and expenses and the extent of the
accrued liability.
SUPPLIERS
Our customers supply the majority of the raw materials and supplies
necessary to carry out our contracted work, although we are increasingly
supplying materials and supplies on turnkey projects. 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 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.
COMPETITION
The industries in which we operate are highly competitive 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 markets, as well as large national and international engineering firms
and equipment vendors on turnkey projects who subcontract work to contractors
other than us. Despite the current trend toward outsourcing, we may also face
competition from existing or prospective customers who employ in-house
personnel to perform some of the same types of services as we provide. There
are relatively few significant barriers to entry into the markets in which we
operate and, as a result, any organization that has adequate financial
resources and access to technical expertise may
39
become one of our competitors. Although we believe we are the largest provider
of external network services for telecommunications service providers and
energy companies in the United States, neither we nor any of our competitors
can be considered dominant in the industry on a national basis.
Because of the highly competitive bidding environment for infrastructure
services, the price of the contractor's bid historically has often been the
principal factor in determining whether the contractor is awarded the work.
Smaller competitors are sometimes able to win bids based on price alone due to
their lower overhead costs. We believe that as demand for our services
increases, customers will increasingly consider other factors in choosing a
service provider, including technical expertise and experience, financial and
operational resources, nationwide presence, industry reputation and
dependability, which should benefit contractors such as us.
EMPLOYEES
As of September 30, 1999, we had approximately 9,100 employees, 8,800 of
whom were employed in North American operations. Approximately 500 of our
employees are represented by a labor union, principally the Communication
Workers of America or the International Brotherhood of Electrical Workers under
agreements with wage rates established through dates ranging from the end of
January 2000 to May 2001. We believe that our employee relations are good.
40
MANAGEMENT
The following is a list of the names and ages of all of our directors and
executive officers, indicating all positions and offices they hold with us. Our
directors hold office for a three year term and until their successors have
been elected and qualified. Our executive officers hold office for one year or
until their successors are elected by our Board of Directors.
NAME AGE POSITION
- ---- ----- --------
Jorge Mas ...................... 36 Chairman of the Board of Directors
Joel-Tomas Citron .............. 37 Vice Chairman of the Board of Directors, President
and Chief Executive Officer
Eliot C. Abbott ................ 50 Director
Arthur B. Laffer ............... 59 Director
Olaf Olafsson .................. 36 Director
Joseph P. Kennedy, II .......... 47 Director
William N. Shiebler ............ 57 Director
Jose S. Sorzano ................ 58 Director
Carmen M. Sabater .............. 35 Senior Vice President and Chief Financial Officer
Jose Sariego ................... 45 Senior Vice President and General Counsel
Arlene Vargas .................. 32 Vice President and Controller
JORGE MAS has been our Chairman of the Board of Directors since January
1998 and a director since March 1994. From March 1994 to October 1999, Mr. Mas
was our Chief Executive Officer. In addition, Mr. Mas is the Chairman of the
Board of Directors of Neff Corporation, a publicly-held construction equipment
sales and leasing company, is involved in several real estate holding companies
and has served on the Board of Directors of First Union National Bank since
April 1998. Mr. Mas has been Chairman of the Cuban American National
Foundation, a not-for-profit organization, since July 1999, and was Vice
Chairman from July 1998 until July 1999.
JOEL-TOMAS CITRON was elected our Chief Executive Officer in October 1999
and has been a member of our Board of Directors since January 1998. Mr. Citron
was elected Vice Chairman of the Board of Directors in November 1998 and was
elected President in May 1999. Mr. Citron was the managing partner of Triscope
Capital LLC, a private investment partnership from January 1998 until December
1998 and Chairman of the Board of Directors of the United States subsidiary of
Proventus AB, a privately held investment company based in Stockholm, Sweden
from January 1992 to December 1997. Mr. Citron is also a member of the Board of
Directors of Neff Corporation; past Chairman of the Board of Directors of
American Information Systems, Inc. (now owned by Exodus Communications, Inc.),
a provider of Internet and Internet systems solutions; and a member of the
Board of Directors of Telergy, Inc., a facilities-based provider of integrated
communications services and high bandwidth fiber optic capacity in New York
State.
ELIOT C. ABBOTT has been a member of the Board of Directors since March
1994. Since February 1, 1997, Mr. Abbott has been a partner in the Miami law
firm of Kluger, Peretz, Kaplan & Berlin, P.A. From October 1, 1995 to January
31, 1997, Mr. Abbott was a member of the New York law firm of Kelley Drye &
Warren. From 1976 until September 30, 1995, Mr. Abbott was a shareholder in the
Miami law firm of Carlos & Abbott.
ARTHUR B. LAFFER has been a member of the Board of Directors since March
1994. Mr. Laffer has been Chairman of the Board of Directors of Laffer
Associates, an economic research and financial consulting firm, since 1979 and
Chief Executive Officer, Laffer Advisors Inc., an investment advisor and
broker-dealer, since 1981. Mr. Laffer is a director of Nicholas Applegate
Mutual Funds, Oxigene, Inc., Neff Corporation and Coinmach Laundry Corporation.
OLAF OLAFSSON has been a member of the Board of Directors since September
1999. Mr. Olafsson has been Vice Chairman of Time Warner Digital Media since
November 1999. Prior to joining Time
41
Warner Digital Media, Mr. Olafsson was President of Advanta Corporation, a
financial services company, from March 1998 until October 1999 and a member of
Advanta's Board of Directors since 1997. Prior to joining Advanta, Mr. Olafsson
was the founder and President of Sony Interactive Entertainment, Inc., an
interactive entertainment software and hardware unit of Sony Corporation
established in 1991. Mr. Olafsson also serves on the Board of Directors of
Scholastic Corp., a global children's publishing and media company.
JOSEPH P. KENNEDY, II has been a member of the Board of Directors since
October 1999. Mr. Kennedy is Chairman of Citizens Energy Corporation, a
not-for-profit energy provider, which he founded in 1979. Mr. Kennedy served
six terms as a U.S. Representative during which time he was a member of the
House Banking and Financial Services Committee, a senior member of the House
Veteran's Affairs Committee and the co-chair of the Older American Caucus. He
also served as the ranking Democrat on the Housing and Community Opportunity
Subcommittee.
WILLIAM N. SHIEBLER has been a member of the Board of Directors since June
1999. Mr. Shiebler has been a Senior Managing Director of Putnam Investments, a
Boston based investment management firm and Vice Chairman of the Board of
Directors of Putnam Mutual Funds since 1990. Mr. Shiebler served as President
of Putnam Mutual Funds from 1990 until 1998. Mr. Shiebler has also been the
Chairman of Pacific Corporate Group, a private equity investment management and
consulting firm, since March 1999. Prior to joining Putnam, he was President
and Chief Operating Officer of Dean Witter Reynolds Intercapital, the
investment management division of Dean Witter Reynolds. Mr. Shiebler is the
President of the Kean University Foundation and a Trustee of the Boston Public
Library Foundation.
JOSE S. SORZANO has been a member of the Board of Directors since October
1994. Mr. Sorzano has been Chairman of the Board of Directors of The Austin
Group, Inc., an international corporate consulting firm, since 1989. Mr.
Sorzano was also Special Assistant to the President for National Security
Affairs from 1987 to 1988; Associate Professor of Government, Georgetown
University, from 1969 to 1987; President, Cuban American National Foundation,
from 1985 to 1987; and Ambassador and U.S. Deputy to the United Nations from
1983 to 1985.
CARMEN M. SABATER has been our Senior Vice President since December 1998
and was elected Chief Financial Officer in May 1999. From 1994 until December
1998 Ms. Sabater was our Corporate Controller. Prior to joining us, Ms. Sabater
was a Senior Manager with Deloitte & Touche, a public accounting firm.
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 Corporate Controller since
September 1998. Prior to joining us, Ms. Vargas was a Senior Manager from June
1997 to September 1998 and a Manager from June 1994 to June 1997 with
PricewaterhouseCoopers LLP, a public accounting firm.
42
PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides information concerning the beneficial
ownership of our common stock, as of December 9, 1999 and as adjusted to
reflect the sale of the common stock offered by this prospectus, by
/bullet/ Jorge Mas, the selling shareholder,
/bullet/ each person known to us to beneficially own more than 5% of our
common stock,
/bullet/ each of our current directors and executive officers and
/bullet/ all of our current directors and executive officers as a group.
Unless otherwise indicated, each named shareholder has sole voting and
investment power with respect to the shares beneficially owned by the
shareholder.
BEFORE STOCK OFFERING
--------------------------------
COMMON
STOCK
NAME OWNED PERCENTAGE
- ------------------------------- ------------------- ------------
Jorge Mas ..................... 13,965,925(3) 49.2%
Joel-Tomas Citron ............. 227,144(5) *
Eliot C. Abbott ............... 40,919(5) *
Arthur B. Laffer .............. 128,178(5) *
Olaf Olafsson ................. -- *
Joseph P. Kennedy, II ......... -- *
William N. Shiebler ........... 10,172 *
Jose S. Sorzano ............... 42,669(5) *
Carmen M. Sabater ............. 21,625(5) *
Jose Sariego .................. 22,601(5) *
Arlene Vargas ................. 1,000(5) *
American Express Company,
American Express
Financial Corporation and
Growth Portfolio(3) .......... 2,179,750(6) 7.7%
All executive officers
and directors as a group
(11 persons) ................. 14,460,233 51.3%
AFTER STOCK OFFERING(1) AFTER STOCK OFFERING(2)
-------------------------------- -------------------------------------
COMMON COMMON
STOCK STOCK
NAME OWNED PERCENTAGE OWNED PERCENTAGE
- ------------------------------- ------------------- ------------ ------------------------- -----------
Jorge Mas ..................... 13,965,925(3) 45.2% 13,590,925(3)(4) 44.3%
Joel-Tomas Citron ............. 227,114(5) * 227,144(5) *
Eliot C. Abbott ............... 40,919(5) * 40,919(5) *
Arthur B. Laffer .............. 128,178(5) * 128,178(5) *
Olaf Olafsson ................. -- * -- *
Joseph P. Kennedy, II ......... -- * -- *
William N. Shiebler ........... 10,172 * 10,172(5) *
Jose S. Sorzano ............... 42,669(5) * 42,669(5) *
Carmen M. Sabater ............. 21,625(5) * 21,625(5) *
Jose Sariego .................. 22,601(5) * 22,601(5) *
Arlene Vargas ................. 1,000(5) * 1,000(5) *
American Express Company,
American Express
Financial Corporation and
Growth Portfolio(3) .......... 2,179,750(6) 7.1% 2,179,750(6) 7.1%
All executive officers
and directors as a group
(11 persons) ................. 14,460,233 46.8% 14,085,233 45.9%
- ----------------
* Less than 1%
(1) Assumes the over-allotment option is not exercised.
(2) Assumes the over-allotment option is exercised.
(3) Includes 7,890,811 shares owned directly by the Jorge L. Mas Canosa
Holdings I Limited Partnership (the "Family Partnership"), and indirectly
by Jorge Mas, as the sole officer and director of Jorge L. Mas Holdings
Corporation, a Texas corporation, the sole general partner of the Family
Partnership; and 5,587,311 shares owned of record by Jorge Mas Holdings I
Limited Partnership, a Texas limited partnership ("Jorge Mas Holdings").
The sole general partner of Jorge Mas Holdings is Jorge Mas Holdings
Corporation, a Texas corporation that is wholly-owned by Mr. Mas. Also
includes 188,447 shares owned of record by the Mas Family Foundation, a
Florida not-for-profit corporation (the "Family Foundation"); 199,199
shares covered by options exercisable within 60 days of December 9, 1999;
and 100,157 shares owned of record individually. Mr. Mas disclaims
beneficial ownership of the shares held by the Family Partnership except
to the extent of his pecuniary interest therein, and disclaims beneficial
ownership of all of the shares owned by the Family Foundation.
(4) Mr. Mas will borrow 125,000 shares of the common stock he is offering from
Jorge Mas Holdings. Mr. Mas will be obligated to repay the borrowing by
delivering to Jorge Mas Holdings shares of our common stock equal in
number to the borrowed shares five days after demand by Jorge Mas
Holdings; and, upon demand, Jorge Mas Holdings will receive from Mr. Mas
amounts equal to dividends and other distributions on the borrowed shares.
Jorge Mas Holdings may from time to time demand a pledge of collateral by
Mr. Mas to secure his obligations to repay the borrowed shares to Jorge
Mas Holdings.
(5) The amounts shown include shares covered by options exercisable within 60
days of December 9, 1999 as follows: Joel-Tomas Citron, 222,341 shares;
Eliot C. Abbott, 39,417 shares; Arthur B. Laffer, 36,667 shares; Jose S.
Sorzano, 41,167 shares; Carmen M. Sabater 18,500 shares; Jose Sariego,
14,991 shares; and Arlene Vargas 1,000 shares.
(6) American Express Company ("AMEX"), American Express Financial Advisors
("AMEXFA") and Growth Portfolio ("GP") filed a Schedule 13G dated December
31, 1998 with the SEC reporting beneficial ownership of more than 5% of
our Common Stock. As reported in the Schedule 13G, GP possesses sole
voting power over 1,800,000 shares and AMEX and AMEXFA possess shared
voting power over 379,750 shares. As reported in the Schedule 13G, AMEX
and AMEXFA possess shared dispositive power over 2,179,750 shares, over
1,800,000 of which GP also possesses shared dispositive power.
43
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $.10 per share, and 5,000,000 shares of preferred stock, par
value $1.00 per share. As of December 9, 1999 we had 28,183,868 shares of
common stock issued and outstanding and no shares of preferred stock issued and
outstanding.
COMMON STOCK
Each share of our common stock entitles its owner to one vote on all
matters submitted to a vote of our shareholders. The holders of our common
stock are entitled to receive dividends, when, as and if declared by our Board
of Directors, in its discretion, from funds legally available for the payment
of dividends. If we liquidate or dissolve, the owners of our common stock will
be entitled to share proportionately in our assets, if any, legally available
for distribution to shareholders, but only after we have paid all of our debts
and liabilities.
Our common stock has no preemptive rights and no subscription, redemption
or conversion privileges and it is not subject to any further calls or
assessments by us. Our common stock does not have cumulative voting rights,
which means that the holders of a majority of the outstanding shares of our
common stock voting for the election of directors can elect all members of our
Board of Directors eligible for election in any year. See "--Florida law and
provisions of our Articles of Incorporation and By-Laws--Classified Board of
Directors and related provisions." A majority vote is also sufficient for other
actions that require the vote or concurrence of shareholders.
Currently, Jorge Mas, our Chairman, and other members of his family
beneficially own approximately 49% of the outstanding shares of our common
stock. They have the power to control our management and affairs. Upon the
completion of this offering, Mr. Mas and his family members will still own more
than 45% of the outstanding shares of our common stock. Accordingly, they will
remain in a position to effectively:
/bullet/ control the vote of most matters submitted to our shareholders,
including any merger, consolidation or sale of all or substantially all
of our assets;
/bullet/ elect all of the members of our Board of Directors;
/bullet/ prevent or cause a change in our control; and
/bullet/ decide whether we will issue additional common stock or other
securities or declare dividends.
The Mas family's ability to exercise significant control over us may
discourage, delay or prevent a takeover attempt that you might consider in your
best interest and that might result in you receiving a premium for your common
stock.
All of the outstanding shares of our common stock are, and the shares of
our common stock which we are offering by this prospectus will be, when issued
and paid for, fully paid and nonassessable.
The transfer agent and registrar for our common stock is First Union
National Bank of North Carolina.
PREFERRED STOCK
Our Articles of Incorporation authorize our Board of Directors to
/bullet/ issue preferred stock in one or more series,
/bullet/ establish the number of shares to be included in each such series
and
44
/bullet/ fix the designations, powers, preferences and rights of the shares
of each series and any qualifications, limitations or restrictions on
those shares.
The Board of Directors may establish a class or series of preferred stock
with preferences, powers and rights (including voting rights) senior to the
rights of the holders of our common stock. If we issue any of our preferred
stock it may have the effect of delaying, deferring or preventing a change in
our control.
MATERIAL PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BY-LAWS
Our Articles of Incorporation and our By-Laws contain material provisions
that may make the acquisition of control of us more difficult.
BUSINESS COMBINATIONS. Our Articles of Incorporation contain material
provisions which may make it more difficult for a person or entity that is the
holder of more than 10% of our outstanding voting stock to force us to approve
a "business combination." For purposes of this discussion, a "business
combination" includes any:
/bullet/ merger or consolidation of us with or into another corporation,
/bullet/ sale or lease of all or any substantial part of our property and
assets or
/bullet/ issuance of our securities in exchange for sale or lease to us of
property and assets having an aggregate fair market value of $1 million
or more.
Our Articles of Incorporation require at least 80% of the voting power of
all of our outstanding shares entitled to vote in the election of directors,
voting together as a single class, to vote in favor of a business combination
proposed by any holders of more than 10% of our outstanding voting stock in
order for that transaction to be approved. This voting requirement is not
applicable to business combinations if either:
/bullet/ our Board of Directors has approved a memorandum of understanding
with the other corporation with respect to the transaction prior to the
time that the other corporation became a holder of more than 10% of our
outstanding voting stock or
/bullet/ the transaction is proposed by a corporation of which we are the
majority owner.
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS. Our By-Laws provide
that the number of our directors will be established from time to time by a
majority vote of our Board of Directors and our shareholders. Our By-Laws also
provide that our Board of Directors will be divided into three classes of
directors, with each class having a number as nearly equal as possible and that
directors will serve for staggered three-year terms. As a result, one-third of
our Board of Directors will be elected each year. These classified board
provision could prevent a party who acquires control of a majority of our
outstanding voting stock from obtaining control of the Board of Directors until
the second annual shareholders meeting following the date the acquirer obtains
its controlling interest.
Our shareholders may remove any of our directors or our entire Board of
Directors if the votes in favor of removal constitute at least a majority of
all of our outstanding voting stock entitled to vote. However, our By-Laws also
provide that our shareholders may only remove our directors for "cause" and
only by a vote at a meeting which is called for the purpose of removing the
director or directors. The By-Laws define "cause" as failing to substantially
perform his duties to us (other than as a result of physical or mental
disability) or willfully engaging in gross misconduct injurious to us. If there
is a vacancy on our Board of Directors either a majority of our remaining
directors or our shareholders may fill the vacancy.
SHAREHOLDER ACTION BY WRITTEN CONSENT. Our By-Laws provide that any
actions which our shareholders may take at a shareholders' meeting can be taken
by written consent in lieu of a meeting.
45
In order to effect a shareholder action by written consent in lieu of a meeting
holders of our outstanding stock having at least the minimum number of votes
that would be necessary to authorize the action at a shareholders' meeting must
sign a written consent which states the action to be taken. If our shareholders
take any action by written consent in lieu of a meeting we must notify all of
our shareholders that did not consent to the action in writing within 10 days
after receiving the written consent and describe the action to them.
INDEMNIFICATION. Our Articles of Incorporation and By-Laws provide that we
will indemnify each of our directors and officers to the fullest extent
permitted by law. Our By-Laws permit us to purchase insurance on behalf of our
directors, officers, employees and agents against liabilities that they may
incur in those capacities, whether or not we would have the power to indemnify
them against such liabilities.
MATERIAL UNITED STATES TAX CONSEQUENCES FOR NON-U.S. INVESTORS
INTRODUCTION
The following is a summary of material United States federal tax
consequences to non-U.S. investors of owning and disposing of common stock. In
this summary, "non-U.S. investor" means:
/bullet/ a nonresident alien individual,
/bullet/ a foreign corporation,
/bullet/ a nonresident alien fiduciary of a foreign estate or trust or
/bullet/ a foreign partnership, one or more members of which is, for U.S.
tax purposes, a nonresident alien individual, a foreign corporation, or a
nonresident alien fiduciary of a foreign estate or trust.
This summary does not address all of the federal tax considerations that
may be relevant to you in light of your particular circumstances and also does
not discuss any state, local or foreign tax. This summary is based on current
provisions of the Internal Revenue Code, Treasury regulations, judicial
opinions, published positions of the Internal Revenue Service (the "IRS") and
other applicable authorities. These authorities are all subject to change,
possibly with retroactive effect. If you are considering buying common stock,
you should consult your tax advisor with respect to the current and future tax
consequences of investing in the common stock.
DISTRIBUTIONS
If distributions are paid on the shares of our common stock, these
distributions generally will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles, and then will
constitute a return of capital that is applied against your basis in the common
stock to the extent these distributions exceed those earnings and profits. To
the extent a distribution, which is not a dividend, exceeds your basis in the
common stock, it shall be treated as gain from the sale or exchange of common
stock.
Dividends paid to a non-U.S. investor generally will be subject to
withholding of federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. To receive a reduced treaty rate,
you must furnish to us or our paying agent a completed IRS Form 1001 or W-8BEN
(or substitute form) certifying that you qualify for a reduced rate. Dividends
that are effectively connected with the conduct of a trade or business within
the United States or, if a treaty applies,
46
attributable to a permanent establishment within the United States, will be
exempt if you provide us with an IRS Form 4224 or IRS Form W-8ECI (or
substitute form). Dividends exempt from withholding because they are
effectively connected or attributable to a permanent establishment will instead
be taxed at ordinary federal income tax rates on a net income basis. Further,
if the non-U.S. investor is a corporation, this effectively connected dividend
income may also be subject to an additional branch profits tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty. Under
current Treasury regulations, dividends paid before January 1, 2001 to an
address outside the United States are presumed to be paid to a resident of the
country of address, unless the payer has knowledge to the contrary for purposes
of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate. However, for dividends paid after December
31, 2000, this presumption is eliminated.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A non-U.S. investor generally will not be subject to federal income tax on
any gain recognized on the sale or other disposition of common stock, except in
the following circumstances:
(1) The gain will be subject to federal income tax if it is effectively
connected with a trade or business of the non-U.S. investor within the
United States or, if a treaty applies, is attributable to a permanent
establishment. Unless an applicable treaty provides otherwise, the
non-U.S. investor will be taxed on its net gains derived from the sale
under regular graduated U.S. federal income tax rates. If the non-U.S.
investor is a foreign corporation, it may be subject to an additional
branch profits tax.
(2) The gain will be subject to federal income tax if the non-U.S. investor is
an individual who holds the common stock as a capital asset, is present in
the United States for 183 or more days in the taxable year of the sale or
other disposition, and certain other conditions are met.
(3) The gain may be subject to federal income tax pursuant to federal income
tax laws applicable to certain expatriates.
(4) The gain may be subject to federal income tax if we are or have been within
the shorter of the five-year period preceding such disposition or the
period the non-U.S. investor held the common stock a "United States real
property holding corporation" and the non-U.S. investor held, at any time
during the five-year period ending on the date of disposition (or, of
shorter, the non-U.S. investor's holding period), more than 5 percent of
the outstanding common stock. We believe that we will not constitute a
United States real property holding corporation immediately after the
offering and do not expect to become a United States real property holding
corporation; however, we can give no assurance in this regard.
An individual non-U.S. holder described in clause 1 above will be taxed on
the net gain derived from the sale under regular graduated United States
federal income tax rates. An individual non-U.S. holder described in clause 2
above will be subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States capital losses, notwithstanding the fact
that the individual is not considered a resident of the United States. If a
non-U.S. holder that is a foreign corporation falls under clause 1 above, it
will be taxed on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits within the meaning of the
Internal Revenue Code for the taxable year, as adjusted for specified items,
unless it qualifies for a lower rate under an applicable income tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current law, backup withholding is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements. United
States backup withholding tax generally will not apply to dividends paid
47
before January 1, 2001 to a non-U.S. investor at an address outside the United
States, or to dividends paid after December 31, 2000 if the non-U.S. investor
certifies that it is a non-U.S. investor on an IRS Form W-8BEN or otherwise
establishes an exemption. We must report annually to the IRS and to each
non-U.S. investor the amount of dividends paid to such investor and the amount,
if any, of tax withheld with respect to such dividends. This information may
also be made available to the tax authorities in the non-U.S. investor's
country of residence.
Payment of the proceeds of a sale of common stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
is a non-U.S. holder, or otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of common stock by or through a foreign office of a broker.
If, however, the broker is, for United States federal income tax purposes, a
U.S. person, a controlled foreign corporation, or a foreign person that derives
50% or more of its gross income for specified periods from the conduct of a
trade or business in the United States, the payments will be subject to
information reporting, but not backup withholding, unless:
/bullet/ the broker has documentary evidence in its records that the
beneficial owner is a non-U.S. holder and other conditions are met; or
/bullet/ the beneficial owner otherwise establishes an exemption.
FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is not a
citizen or a "resident," which is specifically defined for federal estate tax
purposes, of the United States at the time of death, will be included in such
individual's gross estate for federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
48
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below have
severally agreed to purchase, and we have agreed to sell to them, severally,
the respective number of shares of common stock set forth opposite their names.
Morgan Stanley & Co. Incorporated, Jefferies & Company, Inc. and Morgan Keegan
& Company, Inc., are acting as U.S. representatives for the U.S. underwriters
named below, and Morgan Stanley & Co. International Limited, Jefferies
International Limited and Morgan Keegan & Company, Inc., are acting as
international representatives for the international underwriters named below.
NAME NUMBER OF SHARES
- ------------------------------------------- -----------------
U.S. Underwriters:
Morgan Stanley & Co. Incorporated
Jefferies & Company, Inc.
Morgan Keegan & Company, Inc.
Subtotal ................................ 2,000,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited
Jefferies International Limited
Morgan Keegan & Company, Inc.
Subtotal ................................ 500,000
---------
Total ................................. 2,500,000
=========
The U.S. underwriters and the international underwriters, are referred to
as the "underwriters," and the U.S. representatives and the international
representatives are referred to as the "representatives." The underwriters are
offering the shares of common stock subject to their acceptance of the shares
from us and subject to prior sale. The underwriting agreement provides that the
obligations of the underwriters to pay for and accept delivery of the shares of
common stock offered hereby are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered hereby
(other than those covered by the U.S. underwriters' over-allotment option
described below) if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters'
over-allotment option described below.
Pursuant to the agreement between the U.S. and international underwriters,
each U.S. underwriter has represented and agreed that, with certain exceptions:
/bullet/ it is not purchasing any shares (as defined herein) for the
account of anyone other than a United States or Canadian person (as
defined herein); and
/bullet/ it has not offered or sold, and will not offer or sell, directly
or indirectly, any shares or distribute any prospectus relating to the
shares outside the United States or Canada or to anyone other than a
United States or Canadian person.
Pursuant to the agreement between the U.S. and the international
underwriters, each international underwriter has represented and agreed that,
with certain exceptions:
/bullet/ it is not purchasing any shares for the account of any United
States or Canadian person; and
/bullet/ it has not offered or sold, and will not offer or sell, directly
or indirectly, any shares or distribute any prospectus relating to the
shares in the United States or Canada or to any United States or Canadian
person.
With respect to any underwriter that is a U.S. underwriter and an
international underwriter, the representations and agreements above (i) made by
it in its capacity as a U.S. underwriter apply only to
49
it in its capacity as a U.S. underwriter and (ii) made by it in its capacity as
an international underwriter apply only to it in its capacity as an
international underwriter. The limitations above do not apply to stabilization
transactions or to certain other transactions specified in the agreement
between the U.S. and international underwriters. "United States or Canadian
person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
of either country (other than a branch located outside the United States and
Canada of any United States or Canadian person). These terms also include any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian person. All shares of common stock to be purchased by the
underwriters under the underwriting agreement are referred to herein as the
"shares."
Pursuant to the agreement between the U.S. and international underwriters,
sales may be made between the U.S. underwriters and international underwriters
of any number of shares as they may agree on. The per share price of any shares
sold shall be the public offering price set forth on the cover page of this
prospectus, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Each U.S. underwriter has represented that it has not offered or sold, and
has agreed not to offer or sell, any shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in violation of Canadian securities laws.
Each U.S. underwriter has represented that any offer or sale of shares in
Canada will be made only pursuant to an exemption from the requirement to file
a prospectus in the province or territory of Canada in which such offer or sale
is made. Each U.S. underwriter has further agreed to send to any dealer who
purchases any of the shares from it a notice stating that, by purchasing such
shares, such dealer represents that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in violation of Canada's securities laws. Each dealer
also represents that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each of
these dealers will deliver to any other dealer to whom it sells any of such
shares a notice containing substantially the same statement as is contained in
this sentence.
Pursuant to the agreement between the U.S. and international underwriters,
each international underwriter has represented and agreed that:
/bullet/ it has not offered or sold and, prior to the date six months after
the closing date for the sale of the shares to the international
underwriters, will not offer or sell, any shares to persons in the United
Kingdom except to persons whose ordinary activities include acquiring,
holding, managing or disposing investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995;
/bullet/ it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the shares in, from or otherwise involving the United Kingdom;
and
/bullet/ it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the
offering of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document
may otherwise lawfully be issued or passed on.
Each international underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, in Japan or to or for the account of
any resident of Japan, any of the shares acquired in connection with the
distribution contemplated hereby, except for offers or sales to Japanese
50
international underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law and otherwise
in compliance with applicable provisions of Japanese law.
Each international underwriter has also agreed to send to any such dealer
a notice stating that, by purchasing the shares, the dealer represents and
agrees that it has not offered or sold, and will not offer or sell, any of such
shares in Japan or to or for the account of any resident thereof except for
offers or sales to Japanese international underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each of these dealers will send to any other dealer to whom it
sells any of those shares a notice containing substantially the same statement
as is contained in this sentence.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and the dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives.
The selling shareholder has granted to the U.S. underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of 375,000 additional shares of common stock at the public offering
price, less underwriting discounts and commissions. The U.S. underwriters may
exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock offered
hereby. To the extent this option is exercised, each U.S. underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of those additional shares of common stock as the number set
forth next to it in the preceding table bears to the total number of shares of
common stock set forth next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public would be $ , the total underwriters' discounts
and commissions would be $ , the total proceeds to the selling shareholder
would be $ and the total proceeds to us would be unchanged.
Our common stock is listed on the New York Stock Exchange under the symbol
"MTZ" and we have applied to the New York Stock Exchange to have the shares of
our common stock that we will issue in the offering listed there subject to
official notice of issuance.
Each of the selling shareholder, us and our directors, executive officers
and certain of our other shareholders has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 90 days after the date of
this prospectus:
/bullet/ offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer, any shares of
our common stock or any securities convertible into or exercisable or
exchangeable for our common stock; or
/bullet/ enter into any swap or other arrangement that transfers to another
any of the economic consequences of ownership of our common stock.
51
The restrictions described in the previous paragraph do not apply to:
/bullet/ the sale of shares to the underwriters;
/bullet/ the issuance by us of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing;
/bullet/ any private placement of shares of common stock to a strategic
investor who agrees to be bound by the restrictions above;
/bullet/ the issuance by us of shares of our common stock as consideration
for the purchase by us of any business or assets; or
/bullet/ transactions by any person other than us relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering.
To facilitate the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with the offering,
creating a short position in the common stock for their own account. In
addition, to cover over-allotments or to stabilize the price of the common
stock, the underwriters may bid for, and purchase, shares of common stock in
the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing shares of
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and
may end any of these activities at any time.
The selling shareholder, the underwriters and us have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
From time to time, Morgan Stanley & Co. Incorporated, Jefferies & Company,
Inc. and Morgan Keegan & Company, Inc. have provided, and continue to provide,
investment banking services to us for which they have received customary fees
and commissions.
LEGAL MATTERS
The validity of the shares we are offering will be passed upon for us by
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., Miami, Florida.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The audited financial statements included in this Prospectus, except as
they relate to Sintel, S.A., have been audited by PricewaterhouseCoopers LLP,
independent accountants, and, insofar as they relate to Sintel, S.A., by Arthur
Andersen, independent accounts, whose reports on them appear elsewhere in this
Prospectus. We have included our financial statements in this Prospectus in
reliance on the reports of our independent accountants given on their authority
as experts in auditing and accounting.
52
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the reports, statements and other information that we file, at the SEC's Public
Reference Room at 450 Fifth Street, N.W., in Washington, D.C. Please call the
SEC at 1-800-SEC-0330 for further information on their Public Reference Room.
Our SEC filings are also available from the New York Stock Exchange, from
commercial document retrieval services and from the internet site maintained by
the SEC at http://www.sec.gov.
The SEC allows us to "incorporate by reference" in this prospectus the
information that we file with the SEC. This permits us to disclose important
information to you by referring to those documents rather than repeating them
in full in this prospectus. The information incorporated by reference in this
prospectus contains important business and financial information. In addition,
information that we file with the SEC after the date of this prospectus will
update and supersede the information in this prospectus and incorporated
filings. Our later filings will be considered to be included in this
prospectus.
The documents which we incorporate by reference consist of the documents
listed below and any future filings which we make with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended:
/bullet/ Our annual report on Form 10-K for the year ended December 31,
1998.
/bullet/ Our quarterly reports on Form 10-Q for the quarterly periods ended
March 31, 1999, June 30, 1999 and September 30, 1999.
/bullet/ Our current report on Form 8-K dated December 31, 1998 and filed
on January 14, 1999.
/bullet/ Our definitive proxy statement dated April 14, 1999 and filed on
April 7, 1999.
We will provide you with a copy of any document incorporated by reference
without charge. Direct your request for copies to:
MasTec, Inc.
3155 N.W. 77th Avenue
Miami, Florida 33122-1205
Attention: Corporate Secretary
(305) 406-1813
For information about us, you should rely only on the information
contained in this prospectus or incorporated in this prospectus by reference.
We have not authorized anyone else to provide you with information other than
this prospectus or to make representations as to matters not stated in this
prospectus. If anyone else has provided you with different information, you
should not rely on it.
We will update this information by means of supplemental or revised
prospectuses, and, as described above, by the future filing of our reports with
the SEC. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that offer or sale would not be permitted.
53
MASTEC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
-------
Report of Independent Accountants ........................................................ F-2
Consolidated Statements of Operations
for the Years Ended December 31, 1996, 1997 and 1998 ................................... F-4
Consolidated Balance Sheets as of December 31, 1997 and 1998 ............................. F-5
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1996, 1997 and 1998 ................................... F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996, 1997 and 1998 ................................... F-7
Notes to Consolidated Financial Statements ............................................... F-10
Consolidated Statement of Operations
for the three months and nine months ended September 30, 1998 and 1999 (unaudited) ..... F-28
Consolidated Balance Sheet
as of September 30, 1999 (unaudited) and December 31, 1998 ............................. F-29
Consolidated Statement of Changes in Shareholders' Equity
for the nine months ended September 30, 1998 and 1999 (unaudited) ...................... F-30
Consolidated Statement of Cash Flows
for the nine months ended September 30, 1998 and 1999 (unaudited) ...................... F-31
Notes to Consolidated Financial Statements (unaudited) ................................... F-33
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of MasTec, Inc.:
In our opinion, based upon our audits and the report of other auditors, 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 ("MasTec") at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. These consolidated financial statements are the
responsibility of MasTec's management; our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the consolidated financial statements of Sintel, S.A., a wholly-owned
subsidiary until December 31, 1998 which statements reflect total assets of
$195.2 million at December 31, 1997 and total revenues of $207.2 million and
$207.6 million for the years ended December 31, 1997 and 1998, respectively.
Those statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Sintel, S.A. is based solely on the report of the other
auditors. We conducted our audits of the consolidated financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall consolidated financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Miami, Florida
February 10, 1999
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Sistemas e Instalaciones de Telecomunicacion, S.A. (Sintel)
1. We have audited the consolidated balance sheet of SINTEL, S.A. and
subsidiaries ("Sintel") as of December 31, 1998 and 1997 and the related
consolidated statements of income and the accompanying notes, all expressed in
Spanish pesetas which are not included herein. 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.
2. We conducted our audits in accordance with generally accepted auditing
standards in Spain which are substantially consistent with those in the United
States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
3. The framework agreement entered into with Telefonica de Espana, S.A.,
whereby the latter guaranteed a minimum level of purchases from the Controlling
Company, expired on December 31, 1998. In view of this situation, the
Controlling Company is implementing a strategy consisting of the internal
rationalization of its operating structure and the expansion and
diversification of its production activities in Spain and Latin America, as
discussed in Note 1.
4. In relation to what is described in the previous paragraph, in 1998 the
Controlling Company restructured its operations which gave rise to an
extraordinary expense of Ptas. 1,810 million for indemnities to terminated
employees. In view of the extraordinary nature of this restructuring, the
Controlling Company's directors considered it appropriate to offset a portion
of this cost and reversed Ptas. 1,001 million of voluntary reserves with a
credit to income for the year. The recording of this transaction is detailed in
Notes 10 and 18. Although the use of voluntary reserves is unrestricted for the
Shareholder's Meeting, Spanish accounting regulations do not provide for the
reversal of this reserve and consequent recording as extraordinary revenues for
1998. Therefore, under generally accepted accounting principles, net income for
the year should be reduced, and voluntary reserves should be increased, by
Ptas. 1,001 million. However, this matter does not change the total balance of
consolidated shareholder's equity as of December 31, 1998.
5. In our opinion, except as described in paragraphs 3 and 4 above, the
consolidated financial statements referred to above present fairly, in all
materials respects the consolidated financial position of SINTEL, S.A. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations for the years then ended, in conformity with generally accepted
accounting principles in Spain.
6. Further in our opinion, the reconciliation of consolidated net income
for each of the two years in the period ended December 31, 1998 and
shareholders' equity as of December 31, 1998 and 1997 presented in Note 21 and
Note 22 to the 1998 and 1997 consolidated financial statements, respectively,
which reconciles net income and shareholders' equity, as shown in the
consolidated financial statements, to net income and shareholders' equity, as
determined in accordance with generally accepted accounting principles in the
United States, presents fairly the information shown therein on a consistent
basis.
/s/ ARTHUR ANDERSEN
Arthur Andersen
Madrid, Spain
March 31, 1999
F-3
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
------------- ----------- -------------
Revenue ....................................................... $ 472,800 $659,439 $1,048,922
Costs of revenue .............................................. 352,329 495,840 803,112
Depreciation and amortization ................................. 12,000 23,855 43,313
Compensation charge ........................................... -- -- 33,765
General and administrative expenses ........................... 58,529 82,261 140,472
--------- -------- ----------
Operating income ............................................. 49,942 57,483 28,260
Interest expense .............................................. 11,434 11,541 29,580
Interest income ............................................... 3,246 1,783 9,093
Other income (expense), net ................................... 769 8,332 (5,155)
--------- -------- ----------
Income before provision for income taxes, equity in earnings of
unconsolidated companies and minority interest ............... 42,523 56,057 2,618
Provision for income taxes .................................... 15,591 20,944 12,550
Equity in earnings of unconsolidated companies ................ 3,040 2,897 1,906
Minority interest ............................................. 93 (3,346) (5,889)
--------- -------- ----------
Net income (loss) ............................................. $ 30,065 $ 34,664 $ (13,915)
========= ======== ==========
Basic weighted average common shares outstanding .............. 24,703 26,460 27,489
Basic earnings (loss) per share ............................... $ 1.22 $ 1.31 $ (0.51)
Diluted weighted average common shares outstanding ............ 25,128 27,019 27,489
Diluted earnings (loss) per share ............................. $ 1.20 $ 1.28 $ (0.51)
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
--------------------------
1997 1998(1)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 6,063 $ 19,864
Accounts receivable, unbilled revenue and retainage, net ......... 346,596 283,590
Inventories ...................................................... 8,746 12,658
Assets held for sale ............................................. 10,782 57,238
Other current assets ............................................. 22,009 59,601
-------- --------
Total current assets ........................................... 394,196 432,951
Property and equipment, net ....................................... 86,109 137,382
Investments in unconsolidated companies ........................... 48,160 5,886
Intangibles, net .................................................. 99,890 140,461
Other assets ...................................................... 1,869 18,806
-------- --------
Total assets ................................................... $630,224 $735,486
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of debt ....................................... $ 54,562 $ 11,143
Accounts payable and accrued expenses ............................ 166,596 84,372
Other current liabilities ........................................ 48,950 87,417
-------- --------
Total current liabilities ...................................... 270,108 182,932
-------- --------
Other liabilities ................................................. 41,924 37,592
-------- --------
Long-term debt .................................................... 94,495 310,689
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock ..................................................... 2,758 2,738
Capital surplus .................................................. 154,013 149,479
Retained earnings ................................................ 70,392 56,477
Accumulated other comprehensive income ........................... (3,466) (4,421)
-------- --------
Total shareholders' equity ..................................... 223,697 204,273
-------- --------
Total liabilities and shareholders' equity ..................... $630,224 $735,486
======== ========
- ----------------
(1) Does not include financial condition of the Company's Spanish operations,
which were sold effective December 31, 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK
--------------------- CAPITAL RETAINED
SHARES AMOUNT SURPLUS EARNINGS
---------- ---------- ----------- ------------
Balance December 31, 1995 .............. 26,435 $2,643 $ 134,186 $ 5,663
Net income ............................. 30,065
Foreign currency
translation adjustment ................
Stock issued from treasury for stock
options exercised ..................... 48
Tax benefit resulting from stock
option plan ........................... 513
Stock issued from treasury for
an acquisition ........................ 8,844
Stock issued for debentures
from treasury ......................... 5,492
---------
Balance December 31, 1996 .............. 26,435 2,643 149,083 35,728
Net income ............................. 34,664
Foreign currency translation
adjustment ............................
Stock issued from treasury for
options exercised ..................... 206
Tax benefit resulting from stock
option plan ........................... 1,538
Stock issued for acquisitions .......... 1,621 162 76,219
Stock issued from treasury for
an acquisition ........................ 4,479
Stock issued for stock dividend
from treasury ......................... (75,802)
Stock issued from treasury ............. 3,007
---------
Balance December 31, 1997 .............. 28,056 2,805 158,730 70,392
Retirement of treasury stock ........... (476) (47) (4,717) --
------ ------ --------- ----------
Balance December 31, 1997 .............. 27,580 2,758 154,013 70,392
Net loss ............................... (13,915)
Foreign currency translation
adjustment ............................
Stock issued, primarily for
acquisitions and stock
options exercised ..................... 469 47 8,721
Tax benefit resulting from stock
option plan ........................... 403
Repurchase of common stock ............. (667) (67) (13,658)
------ ------ ---------
Balance December 31, 1998 .............. 27,382 $2,738 $ 149,479 $ 56,477
====== ====== ========= ==========
FOREIGN ACCUMULATED
CURRENCY OTHER
TRANSLATION TREASURY COMPREHENSIVE
ADJUSTMENTS STOCK TOTAL INCOME
------------- ------------- ----------- --------------
Balance December 31, 1995 .............. $ 1 $ (91,989) $ 50,504 $ 5,664
Net income ............................. 30,065 30,065
Foreign currency
translation adjustment ................ (803) (803) (803)
Stock issued from treasury for stock
options exercised ..................... 523 571 --
Tax benefit resulting from stock
option plan ........................... 513 --
Stock issued from treasury for
an acquisition ........................ 2,201 11,045 --
Stock issued for debentures
from treasury ......................... 6,117 11,609 --
--------- --------- ----------
Balance December 31, 1996 .............. (802) (83,148) 103,504 34,926
Net income ............................. 34,664 34,664
Foreign currency translation
adjustment ............................ (2,664) (2,664) (2,664)
Stock issued from treasury for
options exercised ..................... 979 1,185 --
Tax benefit resulting from stock
option plan ........................... 1,538 --
Stock issued for acquisitions .......... 76,381 --
Stock issued from treasury for
an acquisition ........................ 1,603 6,082 --
Stock issued for stock dividend
from treasury ......................... 75,802 -- --
Stock issued from treasury ............. 3,007 --
--------- ----------
Balance December 31, 1997 .............. (3,466) (4,764) 223,697 66,926
Retirement of treasury stock ........... -- 4,764 -- --
-------- --------- --------- ----------
Balance December 31, 1997 .............. (3,466) --- 223,697 66,926
Net loss ............................... (13,915) (13,915)
Foreign currency translation
adjustment ............................ (955) (955) (955)
Stock issued, primarily for
acquisitions and stock
options exercised ..................... 8,768 --
Tax benefit resulting from stock
option plan ........................... 403 --
Repurchase of common stock ............. (13,725) --
--------- ----------
Balance December 31, 1998 .............. $ (4,421) $ -- $ 204,273 $ 52,056
======== ========= ========= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1997 1998
------------ ------------ -------------
Cash flows from operating activities:
Net income (loss) .................................................. $ 30,065 $ 34,664 $ (13,915)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ..................................... 12,000 23,855 43,313
Minority interest ................................................. (93) 3,346 5,889
Equity in earnings of unconsolidated companies .................... (3,040) (2,897) (1,906)
Deferred tax expense (benefit) .................................... 2,574 (4,991) 6,974
(Gain) loss on sale of assets ..................................... (365) (6,848) 8,918
Changes in assets and liabilities net of effect of acquisitions
and divestitures:
Accounts receivable, unbilled revenue and retainage, net ......... (12,013) (28,809) (34,942)
Inventories and other current assets ............................. (2,448) 64 (16,759)
Other assets ..................................................... (2,102) (10,889) (27,341)
Accounts payable and accrued expenses ............................ 24,492 5,348 (2,017)
Other current liabilities ........................................ (6,706) 7,326 13,385
Other liabilities ................................................ (4,942) (4,988) 4,548
--------- --------- ----------
Net cash provided by (used in) operating activities ................. 37,422 15,181 (13,853)
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures ............................................... (7,059) (21,534) (76,445)
Cash paid for acquisitions, net of cash acquired ................... (5,034) (45,606) (75,745)
Distributions from unconsolidated companies ........................ -- 2,130 --
Investments in unconsolidated companies ............................ (1,212) (3,364) (13,384)
Repayment (advances) of notes receivable, net ...................... 1,273 565 (18,667)
Repayment of notes from shareholders ............................... -- 780 --
Net proceeds from sale of assets ................................... 9,404 29,628 5,600
--------- --------- ----------
Net cash used in investing activities ............................... (2,628) (37,401) (178,641)
--------- --------- ----------
Cash flows from financing activities:
Proceeds from revolving credit facilities .......................... 17,476 57,328 5,032
Proceeds from Senior Notes ......................................... -- -- 199,724
Other borrowings ................................................... 21,739 19,936 35,106
Debt repayments .................................................... (70,320) (59,059) (17,946)
Proceeds from issuance of common stock ............................. 792 6,264 3,779
Stock repurchased .................................................. -- -- (13,725)
Financing costs .................................................... -- (587) (4,993)
--------- --------- ----------
Net cash (used in) provided by financing activities ................. (30,313) 23,882 206,977
--------- --------- ----------
Net increase in cash and cash equivalents ........................... 4,481 1,662 14,483
Net effect of translation on cash ................................... (803) (353) (682)
Cash and cash equivalents--beginning of period ...................... 1,076 4,754 6,063
--------- --------- ----------
Cash and cash equivalents--end of period ............................ $ 4,754 $ 6,063 $ 19,864
========= ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ........................................................... $ 10,029 $ 8,727 $ 21,795
========= ========= ==========
Income taxes ....................................................... $ 11,676 $ 10,377 $ 6,593
========= ========= ==========
(CONTINUED)
F-7
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
Supplemental disclosure of non-cash investing and financing activities:
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ---------- ------------
Acquisitions accounted for under purchase method of accounting:
Fair value of assets acquired:
Accounts receivable .......................................... $248,087 $ 43,966 $ 35,184
Inventories .................................................. 2,980 1,681 2,565
Other current assets ......................................... 12,661 2,127 1,615
Property and equipment ....................................... 13,148 27,480 27,168
Investments in unconsolidated companies ...................... 9,373 -- --
Real estate and other assets ................................. 6,385 3,973 3,830
-------- -------- --------
Total non-cash assets ....................................... 292,634 79,227 70,362
-------- -------- --------
Liabilities ................................................... 162,928 32,238 20,623
Long-term debt ................................................ 78,966 8,535 18,609
-------- -------- --------
Total liabilities assumed ................................... 241,894 40,773 39,232
-------- -------- --------
Net non-cash assets acquired .................................. 50,740 38,454 31,130
Cash acquired ................................................. 1,130 3,304 4,975
-------- -------- --------
Fair value of net assets acquired ............................. 51,870 41,758 36,105
Excess over fair value of assets acquired ..................... 4,956 98,088 55,314
-------- -------- --------
Purchase price ................................................ $ 56,826 $139,846 $ 91,419
======== ======== ========
Notes payable issued in acquisitions .......................... $ 36,561 $ 130 $ 10,199
Acquisition costs, cash paid and common stock issued
for acquisitions ............................................. 18,015 129,809 81,220
Contingent consideration ...................................... 2,250 9,907 --
-------- -------- --------
Purchase price ................................................ $ 56,826 $139,846 $ 91,419
======== ======== ========
Property acquired through financing arrangements .............. $ 8,550 $ 413 $ --
======== ======== ========
Disposal of Sintel:
Accounts receivable .......................................... $137,214
Inventories .................................................. 2,774
Other current assets ......................................... 37,722
Property and equipment ....................................... 17,251
Other assets ................................................. 2,825
--------
Total non-cash assets ....................................... 197,786
--------
Liabilities ................................................... 109,448
Long-term debt ................................................ 25,013
--------
Total liabilities ........................................... 134,461
--------
Net non-cash assets sold ...................................... 63,325
Cash .......................................................... 2,234
Investment retained ........................................... (4,072)
--------
Fair value of net assets sold ................................. 61,487
Net loss on sale .............................................. (9,222)
--------
Sale price .................................................... $ 52,265
========
Assumption of debt ............................................ 25,013
Seller financing .............................................. 27,252
--------
Sale price .................................................... $ 52,265
========
(CONTINUED)
F-8
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
In 1996, we issued approximately 198,000 shares of common stock for an
acquisition. Common stock was issued from treasury at a cost of $2.2 million.
In 1996, we converted $11.6 million of its 12% convertible subordinated
debentures into common stock. Common stock was issued from treasury at a cost
of $6.1 million.
In 1996, we purchased of an additional 3% interest in Supercanal was
financed in part by the sellers for $2 million.
In 1997, we issued approximately 1,621,000 shares of common stock for
domestic acquisitions, of which 250,000 shares were issued from treasury stock
at a cost of approximately $1.6 million.
In 1997, we converted a note receivable and accrued interest thereon
totaling $29 million into stock of Conecel.
In 1998, we issued approximately 158,200 shares of common stock primarily
as payment for contingent consideration related to 1997 acquisitions. In
addition, we issued approximately 58,600 shares as bonuses to certain employees
and fees to directors.
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We are one of the preeminent builders of internal and external voice,
video, data, internet and other computer and communications networks for
leading telecommunications service providers, cable television operators,
Fortune 500 corporations and power companies. We design, install, construct and
maintain aerial, underground and buried copper, coaxial and fiber optic cable
networks as well as wireless antenna networks ("external network services").
Clients for our external network services include major domestic and
international telecommunication service providers, incumbent and competitive
local exchange carriers, cable television operators, long-distance carriers and
wireless phone companies. We also provide external network services to the
electric power industry ("power") that are similar to the services it provides
to telecommunications customers. Additionally, we design, install and maintain
integrated local and wide area networks and provides systems integration and
other value added services ("internal network services") for corporate
customers and other organizations with multiple locations.
For the years ended, December 31, 1996, 1997 and 1998, revenue expressed
as a percentage of North American revenue, generated by external network
services for telecommunications service providers was 77.1%, 74.6% and 68.1%,
respectively, by external network services for electric power companies was
1.3%, 5.2% and 18.0%, respectively, and by internal network services was 12.5%,
12.5% and 13.4%, respectively. We operated in 1998 principally in North America
(the United States and Canada), Brazil and Spain (Brazil and Spain combined are
also referred to as "International"). Combined revenue generated by
International operations, as a percentage of total revenue was 39.8% in 1996,
42.8% in 1997 and 36.2% in 1998. See Note 9.
On December 31, 1998, we sold our Spanish operations, whose principal
customer was Telefonica.
In July and August 1997, we consummated two acquisitions, which were
accounted for as pooling of interests. In July 1998, we applied purchase
accounting to these acquisitions due to transactions contemplated with
management of such acquired companies that were later finalized in 1998 (see
Note 2). Accordingly, the consolidated financial statements include the results
of operations from the dates of such acquisitions and prior years have been
adjusted accordingly. The change in accounting resulted in increases in capital
surplus and intangibles assets of approximately $53.0 million as of December
1997. As to the statement of income, the adjusted 1997 revenue, net income and
earnings per share are $659.4 million, $34.7 million and $1.28, respectively,
in comparison to the originally reported amounts of $703.4 million, $42.7
million and $1.44, respectively.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is presented
below:
MANAGEMENT'S ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management 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
reserve for allowance for bad debts, accrued workers' compensation claims, and
the realizability of certain intangibles and assets held for sale. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
MasTec, Inc. and its subsidiaries. All material intercompany accounts and
transaction have been eliminated. Certain prior year amounts have been
reclassified to conform to the current presentation.
F-10
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
COMPREHENSIVE INCOME (LOSS). As reflected in the consolidated statement 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. 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 its equity investments
denominated in a currency other than their functional currency are included in
results of operations as incurred.
INTERNATIONAL OPERATIONS. We own interests in a number or foreign
operations, primarily in Latin America, which are subject to greater political,
monetary, economic and regulatory risks than its 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
REAIS. The impact of the devaluation on an operation depends on the
devaluation's effect on the local economy and the ability of an operation to
raise prices and/or reduce expenses. Additionally, the economies of other
countries in Latin America could be adversely impacted by Brazil's economic and
monetary problems. The likelihood and extent of further devaluation and
deteriorating economy conditions in Brazil and other Latin American countries
and the resulting impacts on MasTec's results of operations, financial position
and cash flows is not known.
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 projects are completed. Upon completion of the projects
customers generally provide written acceptance. 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. Losses, if
any, on such 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 customers as per individual contract terms.
We also provide management, coordination, consulting and administration
services for construction projects. Compensation for such services is
recognized ratably over the term of the service agreement.
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 relates to options assumed exercised under
the treasury method of accounting of approximately 425,000 and 559,000 at
December 31, 1996 and 1997, respectively.
F-11
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Potentially dilutive shares, as of December 31, 1998 which have not been
included in the diluted per share calculation include 336,000 shares because
their effects would be anti-dilutive due to the loss incurred by us.
Accordingly, for 1998, diluted net loss per common share is the same as basic
net loss per common share.
CASH AND CASH EQUIVALENT. We consider all short-term investments with
maturities of three months or less when purchased to be cash equivalents. We
place our temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of the F.D.I.C.
insurance limits. We have not experienced any loss to date on these
investments. At December 31, 1998, we had cash and cash equivalent in Brazilian
REALS of approximately $9.1 million.
INVENTORIES. Inventories (consisting principally of material 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 income.
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 22 years. At December 31,
1997 and 1998, we had recorded intangibles primarily consisting of goodwill of
$99.9 million and $142.2 million, respectively (net of accumulated amortization
of $3.5 million in 1997 and $14.9 million in 1998).
We review long-lived assets, identifiable intangibles and goodwill and
reserves for 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 are self-insured for certain property and casualty
and worker's compensation exposure and, accordingly, accrues the estimated
losses not otherwise covered by insurance.
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
F-12
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 1--NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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 6).
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,
$199.8 million at December 31, 1998. The fair value of our Senior Notes was
approximately $195.0 million at December 31, 1998. 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 market place.
NOTE 2--ACQUISITIONS AND INVESTING ACTIVITIES
During 1997 and 1998, we completed 11 and 12 North America acquisitions,
respectively, which 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. Contingent consideration, to the extent earned, will be
recorded as additional goodwill. If the acquisitions had been made at the
beginning of 1997 or 1998, pro forma results of operations would not have
differed materially from actual results based on historical performance prior
to their acquisition by us. Acquisitions made in 1998 were: M.E. Hunter, Inc.
of Atlanta, Georgia, C & S Directional Boring, Inc. of Purcell, Oklahoma,
Office Communications Systems, Inc. of Inglewood, California, Phasecom Systems,
Inc. of Toronto, Canada, P&E Electric Company, Inc. of Nashville, Tennessee,
Lessard-Nyren Utilities, Inc. of Hugo, Minnesota, Electronic Equipment
Analyzers, Inc. of Raleigh, North Carolina, Cotton and Taylor of Las Vegas,
Nevada, Stackhouse, Inc. of Goldsboro, North Carolina, Martin Telephone
Contractors, Inc. of Cades, South Carolina, Barkers CATV Construction, Inc. of
Burleson, Texas and Fiber and Cable Works, Inc. of Roanoke, Virginia,
telecommunications infrastructure and utility contractors with operations
primarily in the western, northern and southeastern United States as well as
Canada. Of the total 1998 acquisitions, eight, two and two pertained to
external network services, power and internal network services, respectively.
Additionally, we made four international acquisitions of telecommunications
infrastructure contractors: CIDE Engenharia Ltda. of Brazil, Acietel Mexicana,
S.A. of Mexico, Artcom Services, Inc. of Puerto Rico ("Artcom") and Proyco
Ltda. of Colombia ("Proyco"). During 1998, we sold 87% of its Spanish
operations which included Artcom and Proyco.
We entered into agreements with certain senior management personnel at two
of our operating subsidiaries. These senior managers have agreed to multi-year
employment agreements and 10-year
F-13
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 2--ACQUISITIONS AND INVESTING ACTIVITIES--(CONTINUED)
non-competition and non-solicitation agreements. Under the definitive
agreements, we paid the senior managers compensation in the form of cash and
common stock options. The cash portion totals approximately $33.3 million, of
which approximately $13.3 million was paid in 1998 and approximately $20.0
million was paid in the first quarter of 1999. As a result of these agreements,
we recorded a non-recurring compensation charge of approximately $33.8 million
(including the value of vested stock options) in the fourth quarter of 1998.
Additionally at December 31, 1998, we had approximately $7.1 million due from
these employees which was received during February 1999.
On April 30, 1996, we purchased from Telefonica 100% of the capital stock
of Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel"), a company
engaged in telecommunications infrastructure construction services in Spain,
Argentina, Chile, and Peru. In Argentina, Chile and Peru, MasTec operated
through unconsolidated corporations in which it held a 50% interest. On
December 31, 1998, we sold 87% of its Spanish operations to a group of
investors. The investor group included the chief executive officer of Sintel
and a member of its board of directors. We received $0.9 million (130.5 million
pesetas at an exchange rate of 142 pesetas to the dollar) on the date of
closing and through March 31, 1999 has received $10.2 million. The sale
included the assumption of our remaining indebtedness to Telefonica for the
purchase of the Spanish operations of $25.0 million (3.6 billion pesetas), for
which we are not contingently liable.
On July 31, 1997, we completed our acquisition of 51% of MasTec Inepar
S/A-Sistemas de Telecomunicacoes ("MasTec Inepar"), a newly formed Brazilian
telecommunications infrastructure contractor, for 250,000 shares of common
stock and $29.4 million in cash, of which $7.3 million remains outstanding.
Subsequent to December 31, 1998, we signed letters of intent to acquire
two external network and one internal network services contractors, subject to
a number of conditions.
Common stock issued in acquisitions is generally valued based upon the
market price of the common stock on the date of purchase or the date the
purchase price is determined.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful
accounts of $3.1 million, $3.1 million, and $7.3 million at December 31, 1996,
1997 and 1998, respectively. We recorded a provision for doubtful accounts of
$1.2 million, $5.3 million and $4.5 million during 1996, 1997 and 1998,
respectively. In addition, we recorded write-offs of $0.1 million, $5.3 million
and $0.3 million during 1996, 1997 and 1998, respectively.
Accounts receivable include retainage which has been billed but is not due
until completion of performance and acceptance by customers, and claims for
additional work performed outside original contract terms. Retainage aggregated
$10.2 million and $16.1 million at December 31, 1997 and 1998, respectively.
Retainage is expected to be collected within one year. Any retainage expected
beyond a year is recorded in long-term other assets.
Included in accounts receivable is unbilled revenue of $97.5 million and
$83.3 million at December 31, 1997 and 1998, respectively. Such unbilled
amounts represent work performed but not
F-14
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 3--ACCOUNTS RECEIVABLE--(CONTINUED)
billable to customers as per individual contract terms, of which $49.5 million
and $45.2 million at December 31, 1997 and 1998, respectively, are related to
our Brazilian operations. Unbilled revenue is typically billed within one to
two months.
During 1998, we entered into a financing agreement to provide financing to
a customer. As of December 31, 1998, we had $41.8 million outstanding under
this agreement, of which approximately $30.0 million and $11.8 million is
reflected in accounts receivable and other current assets, respectively, in the
accompanying consolidated balance sheet as of December 31, 1998. We will
terminate the financing agreement as of April 30, 1999.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31,
1997 and 1998 (in thousands):
ESTIMATED
USEFUL LIVES
1997 1998 (IN YEARS)
------------ ------------ -------------
Land ................................... $ 8,430 $ 10,230
Buildings and improvements ............. 9,474 11,291 5 - 20
Machinery and equipment ................ 97,727 170,922 3 - 7
Office furniture and equipment ......... 5,810 9,319 3 - 5
--------- ---------
121,441 201,762
Less--accumulated depreciation ......... (35,332) (58,865)
--------- ---------
$ 86,109 $ 142,897
========= =========
F-15
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 5--DEBT
Debt is comprised of the following at December 31, (in thousands):
1997 1998
------------ -----------
Revolving Credit Facility, at LIBOR plus 1.50% (6.96% at
December 31, 1997 and 7.06% at December 31, 1998) ................... $ 83,010 $ 106,300
Revolving Credit Facility, at MIBOR plus 0.30 (5.60% at
December 31, 1997) .................................................. 10,894 --
Other Spanish bank facilities at interest rates from 5.65% to 6.75% .. 17,438 --
Other bank facilities at LIBOR plus 1.25% (6.31% at
December 31, 1998) .................................................. -- 6,206
Notes payable for equipment, at interest rates from 7.5% to 8.5% due
in installments through the year 2000 ............................... 14,500 6,145
Notes payable for acquisitions, at interest rates from 7% to 8% due in
installments through February 2000 .................................. 23,215 3,431
Senior Notes, 7.75% due February 2008 ................................ -- 199,750
--------- ---------
Total debt ........................................................... 149,057 321,832
Less current maturities .............................................. (54,562) (11,143)
--------- ---------
Long-term debt ....................................................... $ 94,495 $ 310,689
========= =========
In June 1997, we entered into a revolving line of credit agreement with a
group of banks as amended, (the "Credit Facility"). The Credit Facility
provides for borrowings up to an aggregate amount of $165.0 million. Amounts
outstanding under the revolving credit facility mature on June 9, 2000. Upon
written request by us and at the bank's sole discretion, the maturity date of
the Credit Facility may be extended for successive annual periods up to a final
maturity date of June 9, 2002. We are required to pay an unused facility fee
ranging from .25% to .50% per annum on the facility, depending upon certain
financial covenants.
The Credit Facility is secured by a pledge of shares of certain of our
subsidiaries. Interest under the Credit Facility accrues at rates based, at our
option, on the agent bank's Base Rate plus a margin of up to .50% depending on
certain financial covenants or 1% above the overnight federal funds effective
rate, whichever is higher, or its LIBOR Rate (as defined in the Credit
Facility) plus a margin of 1.00% to 2.25%, depending on certain financial
covenants.
We had outstanding $18.7 million in standby letters of credit as of
December 31, 1998.
On January 30, 1998, we issued $200.0 million, 7.75% senior subordinated
notes (the "Senior Notes") due in February 2008 with interest due
semi-annually. The net proceeds were used primarily for acquisitions and other
corporate purposes.
The Credit Facility and the Senior Notes contain customary events of
default and covenants which prohibit, among other things, making investments in
excess of a specified amount, incurring additional indebtedness in excess of a
specified amount, paying dividends in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens, prepaying
other indebtedness, including the Senior Notes, and engaging in certain mergers
or combinations without the prior written
F-16
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 5--DEBT--(CONTINUED)
consent of the lenders. The Credit Facility also provides that we must maintain
certain financial ratio coverage, requiring, among other things minimum ratios
at the end of each fiscal quarter of debt to earnings and earnings to interest
expense.
At December 31, 1998 debt matures as follows:
1999 ...................... $ 11,143
2000 ...................... 109,063
2001 ...................... 1,503
2002 ...................... 345
2003 ...................... 28
Thereafter ................ 199,750
--------
$321,832
========
NOTE 6--STOCK OPTION PLANS
Shares underlying stock options and exercise prices have been adjusted to
reflect the three-for-two stock split declared in 1997 by the Board of
Directors. Our only stock option plans currently in effect are the 1994 Stock
Incentive Plan (the "1994 Plan") and the 1994 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan"). Under our 1976 stock option
plan, there are 5,250 shares available for grant and have been reserved for and
may still be issued in accordance with the terms of such plan.
The 1994 Plan authorizes the grant of options or awards of restricted
stock up to 2,500,000 shares of our common stock, of which 500,000 shares may
be awarded as restricted stock. As of December 31, 1998, options to purchase
1,567,695 (net of 464,255 stock options cancelled) shares had been granted
under the 1994 Plan. Options are exercisable at prices and over periods
established by the Compensation Committee of the Board of Directors and must be
exercised no later than 10 years from the date of grant.
The Directors' Plan authorizes the grant of options to purchase up to
600,000 shares of our common stock to the non-employee members of our Board of
Directors. Options to purchase 142,500 shares have been granted to Board
members through 1998. The options granted become exercisable ratably over a
three year period from the date of grant and may be exercised for a period of
up to ten years beginning the year after the date of grant at an exercise price
equal to the fair market value of such shares on the date the option is
granted.
In addition, during 1994 options to purchase 150,000 shares of common
stock at $3.83 per share were granted to a director outside the Directors' Plan
in lieu of the Director's Plan and annual fees paid to the director.
Compensation expense of $42,500 in connection with the issuance of this option
is being recognized annually over the five-year vesting period. The options are
exercisable ratably over a three to five year period beginning the year after
the date of grant and may be exercised for a period of up to ten years
beginning the year after the date of grant. In 1997, options to purchase
110,000 shares of common stock at fair market value on the date of grant were
granted to two executive officers outside the 1994 plan.
In connection with two acquisitions completed during 1997, options to
purchase 900,000 shares of our common stock at prices ranging from $17.50 to
$20.19 were granted to individuals during 1998 outside the 1994 Plan subject to
varying vesting schedules.
F-17
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 6--STOCK OPTION PLANS--(CONTINUED)
The following is a summary of all stock option transactions:
WEIGHTED
AVERAGE FAIR
WEIGHTED VALUE OF
STOCK AVERAGE OPTIONS
OPTIONS EXERCISE PRICE EXERCISE PRICE GRANTED
------------- ---------------- ------------------ -------------
Outstanding December 31, 1995 ......... 676,800 $ 6.33 $ 0.10 - $ 8.92
Granted ............................... 306,000 17.05 7.42 - 28.58 $ 9.23
Exercised ............................. (82,200) 6.38 0.10 - 8.92
Canceled .............................. (2,700) 5.29 5.29 - 8.92
------- ------ ---------------
Outstanding December 31, 1996 ......... 897,900 9.98 0.10 - 28.58
Granted ............................... 1,254,950 24.96 21.09 - 48.19 $19.97
Exercised ............................. (201,950) 5.58 0.10 - 21.83
Canceled .............................. (343,475) 23.62 5.29 - 48.19
--------- ------ ---------------
Outstanding December 31, 1997 ......... 1,607,425 17.06 0.10 - 31.63
Granted ............................... 1,234,250 19.17 12.97 - 31.88 $13.29
Exercised ............................. (101,990) 11.38 1.33 - 21.09
Canceled .............................. (110,580) 19.47 5.29 - 31.63
--------- ------ ---------------
Outstanding December 31, 1998 ......... 2,629,105 $18.32 $ 0.10 - $31.88
========= ====== ===============
The following table summarizes information about stock options outstanding
at December 31, 1998:
STOCK OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
PRICES STOCK OPTIONS CONTRACTUAL LIFE PRICE STOCK OPTIONS PRICE
- ------------------ --------------- ------------------ ---------- --------------- ---------
.10 - .10 3,600 4.50 $ 0.10 3,600 $ 0.10
3.83 - 5.29 94,200 5.19 4.83 35,700 5.29
6.83 - 9.81 327,430 6.41 8.66 181,330 8.73
12.97 - 17.50 532,500 9.98 17.34 166,667 17.50
20.19 - 31.88 1,671,375 8.62 21.32 674,911 21.09
--------- ---- ------ ------- ------
2,629,105 8.49 $18.32 1,062,208 $17.82
========= ==== ====== ========= ======
We have reflected below the 1996, 1997 and 1998 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
BlackScholes option-pricing model with the following assumptions used for
grants in 1996, 1997 and 1998, respectively: a five, six and five year expected
life for 1996, 1997 and 1998, respectively; volatility factors of 57%, 82% and
72%, respectively; risk-free interest rates of 6.1%, 5.5% and 4.3%,
respectively; and no dividend payments.
F-18
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 6--STOCK OPTION PLANS--(CONTINUED)
Had compensation cost for our options plans been determined and recorded
in accordance with SFAS No. 123, our net income and earnings per share would
have been reduced to the pro forma amounts as follows:
1996 1997 1998
---------- ---------- -------------
Net income (loss):
As reported ...................... $30,065 $34,664 $ (13,915)
======= ======= =========
Pro forma ........................ $29,211 $28,797 $ (28,472)
======= ======= =========
Basic earnings (loss) per share:
As reported ...................... $ 1.22 $ 1.31 $ (0.51)
Pro forma ........................ $ 1.18 $ 1.09 $ (1.04)
Diluted earnings (loss) per share:
As reported ...................... $ 1.20 $ 1.28 $ (0.51)
Pro forma ........................ $ 1.16 $ 1.07 $ (1.04)
The 1996, 1997 and 1998 pro forma effect on net income (loss) is not
necessarily representative of the effect in future years because it does not
take into consideration pro forma compensation expense related to grants made
prior to 1995 and does not reflect a tax benefit related to the compensation
expense given that the options are considered incentive stock options and such
benefit, if any, cannot be presently determined.
NOTE 7--INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
1996 1997 1998
---------- --------- -----------
Current:
Federal ........................... $ 10,891 $ 9,583 $ 3,198
Foreign ........................... 5,347 4,465 1,376
State and local ................... 1,536 1,670 1,002
-------- ------- -------
17,774 15,718 5,576
-------- ------- -------
Deferred:
Federal ........................... (1,965) 2,730 2,119
Foreign ........................... -- 2,040 5,430
State and local ................... (218) 456 (575)
-------- ------- -------
(2,183) 5,226 6,974
-------- ------- -------
Provision for income taxes ......... $ 15,591 $20,944 $12,550
======== ======= =======
F-19
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 7--INCOME TAXES--(CONTINUED)
' The tax effects of significant items comprising our net deferred tax
liability as of December 31, 1997 and 1998 are as follows (in thousands):
1997 1998
------------ ------------
Deferred tax assets:
Non-compete ......................................... $ -- $ 5,951
Bad debts ........................................... 1,104 5,680
Accrued self insurance .............................. 2,100 4,566
Operating loss and tax credit carry forward ......... 1,565 1,186
All other ........................................... 6,446 6,603
-------- --------
Total deferred tax assets ............................ 11,215 23,986
-------- --------
Deferred tax liabilities:
Installment sale .................................... -- 6,271
Accounts receivable retainage ....................... 3,866 6,973
Property and equipment .............................. 7,536 9,208
Asset re-evaluations ................................ 6,066 5,677
All other ........................................... 5 3,420
-------- --------
Total deferred tax liabilities ....................... 17,473 31,549
Valuation allowance ................................. 1,376 211
-------- --------
Net deferred tax liability ........................... $ (7,634) $ (7,774)
======== ========
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. Deferred tax assets of $1.2 million for 1997 have been
recorded in current assets in the accompanying consolidated financial
statements. The net change in the valuation allowance for deferred tax assets
was a decrease of $1.2 million, resulting from a purchase accounting adjustment
whose effect was to reduce an intangible asset and did not impact our effective
tax rate.
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
L996 1997 1998
------ ------ --------
U.S. statutory federal rate applied to pretax income .......... 35% 35% 35%
State and local income taxes .................................. 2 2 10
Effect of non-U.S. tax rates .................................. (1) (1) (23)
Amortization of intangibles ................................... -- -- 58
Gain on sale of Spanish operations ............................ -- -- 329
Non-deductible expenses ....................................... -- -- 37
Other ......................................................... 1 1 33
-- -- ---
Provision for income taxes .................................... 37% 37% 479%
== == ===
No provision has been made for the years ended December 31, 1997 and 1998
for U.S. income taxes on the undistributed earnings of the foreign subsidiaries
since it is our intention to utilize those
F-20
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 7--INCOME TAXES--(CONTINUED)
earnings in the foreign operations for an indefinite period of time. During
1998, we sold our interest in our Spanish operations which resulted in a tax
liability of $7.8 million primarily due to the difference between book and tax
bases of our U.S. holding company for our Spanish operations. At December 31,
1998, undistributed earnings of the remaining foreign subsidiaries amounted to
$11.8 million. If the earnings of such foreign subsidiaries were not
indefinitely reinvested, a deferred tax liability of $0.2 million would be
required.
The Internal Revenue Service (the "IRS") examined the tax returns for the
fiscal years ended April 30, 1989 through April 30, 1993. During 1998, the IRS
concluded its examination which resulted in a payment of approximately
$150,000. The IRS is currently reviewing the tax returns filed by us for the
years ended December 31, 1995 and 1996. No adjustments have been proposed to
date related to this review.
NOTE 8--CAPITAL STOCK
We have authorized 100,000,000 shares of common stock, $0.10 par value. At
December 31, 1997 and 1998, approximately 28,056,000 and 27,382,000 shares of
common stock were issued, 27,580,000 and 27,382,000 shares were outstanding
(adjusted for the stock split), respectively, and 476,000 and 0 were held in
treasury, at cost (after giving effect to the stock split paid in the form of a
dividend from treasury stock), respectively. At December 31, 1997 and 1998,
MasTec had 5,000,000 shares of authorized but unissued preferred stock.
NOTE 9--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS
We derive a substantial portion of its revenue from providing
telecommunications infrastructure services to Telefonica, BellSouth and
Telebras. For the year ended December 31, 1996, approximately 31% and 13% of
our revenue was derived from services performed for Telefonica and BellSouth,
respectively. For the year ended December 31, 1997, approximately 27%, 13% and
11% of our revenue was derived from services performed for Telefonica,
BellSouth and Telebras, respectively. For the year ended December 31, 1998,
approximately 19%, 7% and 8% of MasTec's revenue was derived from services
performed for Telefonica, BellSouth and Telebras, respectively. For the year
ended December 31, 1997, revenue generated from Telebras is included from
August 1, 1997 (See Note 2). For the year ended December 31, 1998, revenue
generated from Telebras is included from January 1, 1998 through July 31, 1998,
subsequent to that period Telebras was privatized and divided into more than
eight unaffiliated companies owned by private investors. Accounts receivable
from our three largest customers approximated $192.0 million at December 31,
1997.
EXTERNAL NETWORK SERVICES. Our principal domestic business consists of
external network services for telecommunications providers, including incumbent
and competitive local exchange carriers, cable television operators,
long-distance carriers and wireless communications providers. External network
services consist of all of the services necessary to design, install and
maintain the physical facilities used to provide telecommunications services
from the provider's cable head-end to the ultimate consumer's home or business.
These services include the placing and splicing of cable, the excavation of
trenches in which to place the cable, the placing of related structures such as
poles, anchors, conduits, manholes, cabinets and closures, the placing of drop
lines from the main transmission lines to the customer's home
F-21
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 9--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS--(CONTINUED)
or business, and the maintenance and removal of these facilities. We have
developed expertise in directional boring, a highly specialized and
increasingly common method of placing buried cable networks in congested urban
markets without digging a trench. Services to many of these customers are
provided under exclusive master contracts with two to three year initial terms
expiring at various dates.
We provide a full range of external network services to its
telecommunications company customers, although certain of our customers handle
certain of these services in-house. Our customers generally supply materials
such as cable, conduit and telephone equipment, and we provide the expertise,
personnel, tools and equipment necessary to perform the required installation
and maintenance services.
INTERNAL NETWORK SERVICES. We provide design, installation and maintenance
of internal networks linking the customers' voice, video, data and internet
computer and communications networks at multiple locations. We also provide
systems integration services, which involve the selection, configuration,
installation and maintenance of software, hardware, other computing and
communications equipment and cabling to provide an integrated computing and
communications system. Internal network services is less capital intensive than
external network construction but requires a more technically proficient work
force. We provide these services to its customers nationwide, primarily on the
east and west coasts of the United States.
EXTERNAL NETWORK ENERGY. We provide external network services to power
companies, including investor-owned utilities and rural cooperatives. These
services, which are substantially similar to the external network services
provided to telecommunications companies, include overhead and underground
construction and maintenance of electrical and other utilities transmission and
distribution networks, substation construction and maintenance, right-of-way
maintenance and restoration of asphalt and concrete surfaces. The work often
involves the installation and splicing of high-voltage transmission and
distribution lines. Services to many of these customers are provided under
exclusive master contracts with two to three year initial terms expiring at
various dates, as well as on a project by project basis awarded under
competitive bidding and individual negotiations. We currently have 42 master
service agreements with power companies.
F-22
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 9--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS--(CONTINUED)
The following table set forth, for each of 1996, 1997 and 1998, certain
information about segment results of operations and segment assets (in
thousands).
EXTERNAL INTERNAL EXTERNAL
TELECOMMUNICATIONS NETWORK ENERGY
1996 NETWORKS SERVICES NETWORKS INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ----------------------------- -------------------- ---------- ---------- ------------------ ------------ -------------
Revenue ..................... $219,559 $35,524 $3,773 $188,155 $ 25,789 $472,800
======== ======= ====== ======== ========= ========
Operating income (loss) ..... 35,838 4,303 566 19,733 (10,498) 49,942
Depreciation and
amortization .............. 8,718 484 522 2,058 218 12,000
Total assets ................ 105,333 16,140 2,890 259,624 99,031 483,018
Capital expenditures ........ 3,714 689 320 -- 2,336 7,059
EXTERNAL INTERNAL EXTERNAL
TELECOMMUNICATIONS NETWORK ENERGY
1997 NETWORKS SERVICES NETWORKS INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ----------------------------- -------------------- ---------- ---------- ------------------ ------------ -------------
Revenue ..................... $284,415 $47,285 $19,693 $282,392 $ 25,654 $659,439
======== ======= ======= ======== ========= ========
Operating income (loss) ..... 42,344 3,565 607 21,450 (10,483) 57,483
Depreciation and
amortization ................ 16,210 1,022 2,888 3,403 332 23,855
Total assets ................ 192,594 50,305 33,805 293,288 60,232 630,224
Capital expenditures ........ 16,387 1,113 1,223 1,879 932 21,534
EXTERNAL INTERNAL EXTERNAL
TELECOMMUNICATIONS NETWORK ENERGY
1998 NETWORKS SERVICES NETWORKS INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ----------------------------- -------------------- ---------- ---------- ------------------ ------------ -------------
Revenue ..................... $455,798 $ 89,687 $120,218 $379,294 $ 3,925 $1,048,922
======== ======== ======== ======== ========= ==========
Operating income (loss) ..... 58,974 (3,411) 10,910 15,167 (53,380) 28,260
Depreciation and
amortization ................ 24,600 1,617 10,095 6,029 972 43,313
Total assets ................ 303,088 60,659 86,809 152,125 132,805 735,486
Capital expenditures ........ 41,946 2,361 25,872 5,003 1,263 76,445
- ----------------
(1) For 1996, international includes our Spanish operations. As of December 31,
1998 international consists primarily of our Brazilian operations. For the
year ended December 31, 1997, revenue, depreciation and amortization, and
operating profit was $74.9 million, $390,000 and $9.6 million,
respectively, for Brazil and $207.5 million, $3.0 million and $11.8
million, respectively, for Spain. As of December 31, 1997, assets and
capital expenditures consisted of $93.4 million and $0, respectively, for
Brazil, $195.2 million and $1.9 million, respectively, for Spain and $4.7
million related to other international entities. For the year ended
December 31, 1998 revenue, depreciation and amortization, and operating
profit (loss) was $142.0 million, $3.3 million, and $15.3 million,
respectively for Brazil and $237.3 million, $2.7 million and $(134,000),
respectively, for Spain. As of December 31, 1998 total assets consisted of
$117.2 million for Brazil, capital expenditures consisted of $3.5 million
for Brazil and $1.5 million for Spain, and total assets of $34.9 million
related to our other international entities, which includes a note
receivable of $25.8 million in connection with the sale of our Spanish
operations.
(2) Consists of non-core construction and corporate operations. The operating
loss in 1998 reflects a $33.8 million compensation charge for payments to
certain operational managers.
F-23
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 9--OPERATIONS BY GEOGRAPHIC AREAS AND SEGMENTS--(CONTINUED)
There are no significant transfers between geographic areas and segments.
Operating income consists of revenue less operating expenses, and does not
include interest expense, interest and other income, equity in earnings of
unconsolidated companies, minority interest and income taxes. Operating income
is net of corporate general and administrative expenses. Total assets are those
assets used in our operations in each segment. Corporate assets include cash
and cash equivalents, investments in unconsolidated companies, assets held for
sale and notes receivable.
NOTE 10--COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of ours, filed a purported
class action and derivative suit in Delaware state court against us, the
then-members of our Board of Directors, and National Beverage Corporation
("NBC"), our then-largest stockholder. The complaint alleges, among other
things, that our Board of Directors and NBC breached their respective fiduciary
duties in approving certain transactions.
In November 1993, Mr. Kahn filed a class action and derivative complaint
against us, the then members of our Board of Directors, and Jorge L. Mas, Jorge
Mas and Juan Carlos Mas, our principal shareholders. The 1993 lawsuit alleges,
among other things, that our Board of Directors and NBC breached their
respective fiduciary duties by approving the terms of the acquisition of MasTec
by the Mas family, and that the Mas family had knowledge of the fiduciary
duties owed by NBC and our Board of Directors and knowingly and substantially
participated in the breach of these duties. The lawsuit also claims
derivatively that each member of our Board of Directors engaged in
mismanagement, waste and breach of fiduciary duties in managing our affairs
prior to the acquisition by the Mas Family.
There has been no activity in either of these lawsuits in more than two
years. We believe that the allegations in each of the lawsuits are without
merit and intends to defend these lawsuits vigorously. We believe that we will
not incur any material liability from these lawsuits.
In November 1997, Church & Tower filed a lawsuit against Miami-Dade County
(the "County") in Florida state court alleging breach of contract and seeking
damages exceeding $3.0 million in connection with the County's refusal to pay
amounts due to Church & Tower under a multi-year agreement to perform road
restoration work for the Miami-Dade Water and Sewer Department ("MWSD"), a
department of the County, and the County's wrongful termination of the
agreement. The County has refused to pay amounts due to Church & Tower under
the agreement until alleged overpayments under the agreement have been
resolved, and has counterclaimed against us and is seeking damages. The County
also has refused to award a new road restoration agreement for MWSD to Church &
Tower, which was the low bidder for the new agreement. We are vigorously
pursuing this lawsuit and believe that we will not incur any material liability
from this lawsuit.
We are a party to other pending legal proceedings arising in the normal
course of business, none of which MasTec believes is material to our financial
position or results of operations.
Federal, state and local laws and regulations govern our operation of
underground fuel storage tanks. We are in the process of removing, restoring
and upgrading these tanks, as required by applicable laws, and has identified
certain tanks and surrounding soil which will require remedial cleanups. The
cost of these cleanups is not expected to be material.
F-24
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 10--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In connection with certain contracts, we have signed certain agreements of
indemnity in the aggregate amount of approximately $194.4 million, of which
approximately $145.3 million relate to the uncompleted portion of contracts in
process. These agreements are to secure the fulfillment of obligations and
performance of the related contracts.
During 1998, we provided a customer financing in connection with the sale
of its services. As of December 31, 1998, we had $41.8 million outstanding
under this agreement. We anticipate that it will provide an additional $8.0
million of financing under this agreement. We expect to terminate the financing
agreement as of April 30, 1999.
We have entered into an agreement to expand the telephone network of the
Nicaraguan telephone company. We are not currently rendering construction
services in Nicaragua and is seeking non-recourse outside financing for the
project before proceeding.
We have committed to continue developing a PCS cellular phone system
through its investment in Paraguay. We anticipate investing approximately $13.0
million for the development of this system over the next 12 months.
We announced a stock repurchase program in April 1998. Through December
31, 1998, we purchased a total of 667,000 shares at an average price of $20.58.
The Credit Facility restricts the amount of shares that we may repurchase up to
an additional amount of $5.5 million (see Note 5).
Our current and future operations and investments in certain foreign
countries are generally subject to the risks of political, economic or social
instability, including the possibility of expropriation, confiscatory taxation,
hyper-inflation or other adverse regulatory or legislative developments, or
limitations on the repatriation of investment income, capital and other assets.
We cannot predict whether any of such factors will occur in the future or the
extent to which such factors would have a material adverse effect on our
international operations.
NOTE 11--ASSETS HELD FOR SALE
In previous years, we recorded a charge of $23.1 million to adjust the
carrying values of its real estate investment to estimated net realizable value
based on offers received to dispose of certain real estate investments in a
bulk transaction. Included in assets held for sale in the accompanying balance
sheet is approximately $10.5 million of real estate at December 31, 1998. We
are actively marketing this real estate and expect to dispose of substantially
all these assets in 1999.
We have a 28% voting interest in Supercanal Holding, S.A. ("Supercanal"),
a holding company of numerous cable television operators predominately in
Argentina. We only had one representative on Supercanal's nine member Board of
Directors and we are one of only three shareholders in Supercanal. The other
two shareholders, holding 72% of Supercanal's outstanding common stock have
operational control over Supercanal and are parties to a stockholders'
agreement providing for voting agreement over fundamental board and stockholder
decisions. We do not, therefore, exercise significant influence over the
management of Supercanal. During 1998, we contributed an additional $1.7
million. Based on the most recent available financial information, for the nine
months ended September 30, 1998, Supercanal incurred losses of $53.0 million
(unaudited) and reflected a shareholders' deficiency of $5.0 million
(unaudited).
F-25
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 11--ASSETS HELD FOR SALE--(CONTINUED)
In July 1995, we made a $25 million non-recourse term loan collateralized
by 40% of the capital stock of a holding company that owned 52.6% of the
capital stock of Consorcio Ecuatoriano de Telecomunicaciones, S.A. ("Conecel"),
one of two cellular phone operators in the Republic of Ecuador. In June 1997,
we converted our loan and accrued interest into the stock of the holding
company, representing approximately 40% of the outstanding stock of the holding
company. In December 1997, we sold our investment in the holding company for
$20.0 million in cash and 7.5 million shares of Conecel common stock
(representing approximately 10% of the outstanding common stock of Conecel)
valued at $25.0 million. Accordingly, we recognized a gain of $4.4 million net
of tax based on the percent of cash received to the total transaction value.
During January 1999, we engaged investment bankers to dispose of our
investments in Supercanal and Conecel which have a carrying value at December
31, 1998 of $33.9 million. We also have other international investments with a
carrying value of $5.6 million recorded as assets held for sale as of December
31, 1998. We estimate that the carrying value of such assets held for sale will
be realized upon their ultimate disposition.
NOTE 12--QUARTERLY INFORMATION (UNAUDITED)
The following table presents unaudited quarterly operating results for the
two years ended December 31, 1998. 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, 1997 and 1998. Results of
operations for any particular quarter are not necessarily indicative of results
of operations for a full year or predictive of future periods. Quarterly
results have been adjusted to reflect the application of purchase accounting to
acquisitions previously accounted for as pooling of interests (see Note 1).
1997 1998
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)
STATEMENT OF INCOME DATA
Revenue ..................... $130,143 $141,499 $184,562 $203,235 $ 186,095 $246,106 $288,606 $ 328,115
Gross profit, excluding
depreciation and
amortization ............... 36,928 39,675 41,688 44,918 33,129 59,878 $ 70,093 82,710
Operating income (loss) ..... 15,495 17,614 16,772 7,602 (13,599) 20,011 26,289 (4,441)
Net income (loss) ........... 9,287 10,826 8,498 6,053 (12,099) 9,395 13,413 (24,624)
Basic earnings (loss)
per share .................. $ 0.36 $ 0.42 $ 0.32 $ 0.22 $ (0.44) $ 0.34 $ 0.49 $ (0.90)
Diluted earnings (loss)
per share .................. $ 0.36 $ 0.41 $ 0.31 $ 0.22 $ (0.44) $ 0.33 $ 0.48 $ (0.90)
We believe that the effects of inflation have not had a significant impact
on our results of operations or financial condition. Our results of operations
have historically been seasonally weaker in the first and fourth quarters of
the year and have produced stronger results in the second and third quarters.
F-26
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
NOTE 12--QUARTERLY INFORMATION (UNAUDITED)--(CONTINUED)
During the third quarter of 1997, we commenced operations in Brazil,
through our subsidiary MasTec Inepar.
During the fourth quarter of 1997, we sold at a gain of $4.4 million net
of taxes a portion of Conecel.
First quarter of 1998 was negatively affected by severe weather, $4.0
million related to provisions for bad debt recorded in our North American
operations and $13.4 million of severance expenses related to our Spanish
operations.
During the fourth quarter of 1998, we sold at a loss of $9.2 million
($17.0 million net of taxes) 87% of our Spanish operations.
During the fourth quarter of 1998, we recorded a $33.8 million
compensation charge for senior management at certain operating subsidiaries,
$4.5 million for losses on a non-core contract, $1.4 million for startup costs
and $500,000 associated with bad debts reserves.
* * * * * * * * * * * *
F-27
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998(1) 1999 1998(1)
----------- ----------- ----------- -----------
Revenue ................................................ $301,092 $288,606 $746,576 $720,807
Costs of revenue ....................................... 227,760 218,513 568,126 557,707
Depreciation and amortization .......................... 14,037 11,830 40,551 30,994
General and administrative expenses .................... 24,560 31,974 64,493 99,406
-------- -------- -------- --------
Operating income ...................................... 34,735 26,289 73,406 32,700
Interest expense ....................................... 7,273 7,788 20,815 19,916
Interest income ........................................ 2,753 2,621 8,495 6,010
Other income, net ...................................... (358) 1,053 (57) 2,467
-------- -------- -------- --------
Income before provision for income taxes, equity
in earnings of unconsolidated companies and
minority interest .................................... 29,857 22,175 61,029 21,261
Provision for income taxes ............................. 12,405 8,966 25,354 9,769
Equity in earnings of unconsolidated companies ......... -- 803 -- 1,558
Minority interest ...................................... (306) (599) (2,000) (2,344)
-------- -------- -------- --------
Net income ............................................. $ 17,146 $ 13,413 $ 33,675 $ 10,706
======== ======== ======== ========
Basic Weighted average common shares outstanding ....... 28,052 27,428 27,693 27,640
Basic earnings per share ............................... $ 0.61 $ 0.49 $ 1.22 $ 0.39
Diluted Weighted average common shares outstanding...... 28,725 27,672 28,214 28,010
Diluted earnings per share ............................. $ 0.60 $ 0.48 $ 1.19 $ 0.38
- ----------------
(1) 1998 results include the Company's Spanish operations which were sold
effective December 31, 1998. Included in the 1998 results above are
revenue and net income of $59.6 million and $2.1 million, respectively,
for the three months ended and revenue and net loss of $151.4 million and
$4.8 million, respectively for the nine months ended September 30, 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
F-28
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1998(1)
--------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 28,656 $ 19,864
Accounts receivable, unbilled revenue and retainage, net ......... 259,818 283,590
Inventories ...................................................... 21,131 12,658
Assets held for sale ............................................. 72,179 57,238
Other current assets ............................................. 29,375 59,601
--------- --------
Total current assets ............................................ 411,159 432,951
Property and equipment, net ....................................... 153,586 137,382
Investments in unconsolidated companies ........................... 5,893 5,886
Intangibles, net .................................................. 152,798 140,461
Other assets ...................................................... 18,103 18,806
--------- --------
Total assets .................................................... $ 741,539 735,486
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of debt ....................................... $ 13,207 11,143
Accounts payable and accrued expenses ............................ 84,071 84,372
Other current liabilities ........................................ 70,886 87,417
--------- --------
Total current liabilities ....................................... 168,164 182,932
--------- --------
Other liabilities ................................................. 43,760 37,592
--------- --------
Long-term debt .................................................... 289,953 310,689
--------- --------
Commitments and contingencies
Shareholders' equity:
Common stock ..................................................... 2,817 2,738
Capital surplus .................................................. 164,054 149,479
Retained earnings ................................................ 90,152 56,477
Foreign currency translation adjustments ......................... (17,361) (4,421)
--------- --------
Total shareholders' equity ...................................... 239,662 204,273
--------- --------
Total liabilities and shareholders' equity ...................... $ 741,539 735,486
========= ========
- ----------------
(1) Does not include financial condition of the Company's Spanish operations,
which were sold effective December 31, 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
F-29
MASTEC, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
FOREIGN
COMMON STOCK CURRENCY
------------------- CAPITAL RETAINED TRANSLATION
SHARES AMOUNT SURPLUS EARNINGS ADJUSTMENTS TOTAL
-------- -------- ----------- ---------- ------------ -----------
Balance December 31, 1998 .......... 27,382 $2,738 $149,479 $56,477 $ (4,421) $ 204,273
Net income ......................... 33,675 33,675
Foreign currency
translation adjustments .......... (12,940) (12,940)
Stock issued ....................... 784 79 14,575 14,654
------ ------ -------- ---------
Balance September 30, 1999 ......... 28,166 $2,817 $164,054 $90,152 $ (17,361) 239,662
====== ====== ======== ======= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-30
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
Cash flows from operating activities:
Net income (loss) ..................................................... $ 33,675 $ 10,706
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ........................................ 40,551 30,994
Minority interest .................................................... 2,000 2,344
Loss (gain) on sale of assets ........................................ 3,488 (246)
Equity in earnings of unconsolidated companies ....................... -- (1,558)
Changes in assets and liabilities net of effect of acquisitions:
Accounts receivables, unbilled revenue and retainage, net ........... (16) (31,829)
Inventories and other current assets ................................ (11,826) 5,293
Other assets ........................................................ 4,204 (16,374)
Accounts payable and accrued expenses ............................... 5,802 (1,407)
Other current liabilities ........................................... (3,549) 4,616
Other liabilities ................................................... 1,324 12,362
--------- ----------
Net cash provided by operating activities .............................. 75,653 14,901
--------- ----------
Cash flows from investing activities:
Capital expenditures .................................................. (57,659) (57,460)
Cash paid for acquisitions (net of cash acquired) and
contingent consideration ............................................ (13,311) (74,946)
Investment in unconsolidated companies held for sale .................. (20,778) (20,853)
Repayments (advances) of notes receivable ............................. 18,667 (30,794)
Proceeds from sale of international subsidiary ........................ 15,914 --
Proceeds from sale of assets .......................................... 12,521 3,623
--------- ----------
Net cash used in investing activities .................................. (44,646) (180,430)
--------- ----------
Cash flows from financing activities:
(Repayments) proceeds, net from revolving credit facilities ........... (21,297) 24,393
Proceeds from Senior Notes ............................................ -- 199,724
Proceeds (repayments) of debt ......................................... (808) (35,766)
Net proceeds (payments) for common stock issued (repurchased) ......... 3,343 (9,677)
Financing costs ....................................................... -- (4,993)
--------- ----------
Net cash (used in) provided by financing activities .................... (18,762) 173,681
--------- ----------
Net increase in cash and cash equivalents .............................. 12,245 8,152
Effect of translation on cash .......................................... (3,453) 68
Cash and cash equivalents--beginning of period ......................... 19,864 6,063
--------- ----------
Cash and cash equivalents--end of period ............................... $ 28,656 $ 14,283
========= ==========
(CONTINUED)
F-31
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1999, we completed certain
acquisitions which have been accounted for as purchases. The fair value of the
net assets acquired totaled $3,478 and was comprised primarily of $6,986 of
accounts receivable, $2,125 of property and equipment, $677 of other assets and
$266 in cash, offset by $6,576 of assumed liabilities. The excess of the
purchase price over the fair value of net assets acquired was $7,250 and was
allocated to goodwill. We also issued 527,597 shares of common stock with a
value of $11,314 related to the payment of contingent consideration from
earlier acquisitions. Of the $11,314, $2,314 was recorded as a reduction of
other current liabilities and $9,000 as additional goodwill.
During the nine months ended September 30, 1998, we completed certain
acquisitions which have been accounted for as purchases. The fair value of the
net assets acquired totaled $88,219 and was comprised primarily of $32,568 of
accounts receivable $26,414 of property and equipment, $7,035 of other assets
and $4,644 in cash, offset by $36,548 of assumed liabilities. The excess of the
purchase price over the net assets acquired was $54,106 and was allocated to
goodwill.
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
NOTE 1--BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of MasTec,
Inc. ("MasTec" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. They do
not include all information and notes required by generally accepted accounting
principles for complete financial statements and should be read together with
the audited financial statements and notes thereto included in our annual
report on Form 10-K for the year ended December 31, 1998. The balance sheet
data as of December 31, 1998 was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. The financial information furnished reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations and cash flows for the quarterly periods presented. The
results of operations for the periods presented are not necessarily indicative
of our future results of operations for the entire year.
Our comprehensive income (loss) for the nine months ended September 30,
1999 and 1998 was $20.7 million and $12.2 million, respectively. The components
of comprehensive income (loss) are net income (loss) and foreign currency
translation adjustments.
NOTE 2--ACQUISITIONS AND INVESTING ACTIVITIES
During 1999, we acquired Directional Advantage Boring, Inc., Central
Trenching, Inc. and Queens Network Cable Corp., three telecommunications
infrastructure service providers. These acquisitions have been accounted for
under the purchase method of accounting. 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.
NOTE 3--DEBT
Debt is comprised of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
Revolving credit facility, weighted average rate of 6.96% at September 30,
1999 and 7.06% at December 31, 1998 .................................... $ 85,276 $ 106,300
Other bank facilities at LIBOR plus 1.25% (6.90% at September 30, 1999
and 6.31% at December 31, 1998) ........................................ 9,290 6,206
Notes payable for equipment, at interest rates from 7.5% to 8.5% due in
installments through the year 2000 ..................................... 4,240 6,145
Notes payable for acquisitions, at interest rates from 7.0% to 8.0% due in
installments through February 2000 ..................................... 4,586 3,431
Senior Notes, 7.75% due February 2008 .................................... 199,768 199,750
--------- ---------
Total debt ............................................................... 303,160 321,832
Less current maturities .................................................. (13,207) (11,143)
--------- ---------
Long-term debt ........................................................... $ 289,953 $ 310,689
========= =========
F-33
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
NOTE 3--DEBT--(CONTINUED)
We have a revolving line of credit with a group of banks (as amended, the
"Credit Facility") that provides for borrowings up to an aggregate amount of
$165.0 million. Amounts outstanding under the revolving credit facility mature
on June 9, 2001. We are required to pay an unused facility fee ranging from
.25% to .50% per annum on the facility, depending upon certain financial
covenants.
The Credit Facility is secured by a pledge of shares of certain of our
subsidiaries. Interest under the Credit Facility accrues at rates based, at our
option, on the agent bank's Base Rate plus a margin of up to .50% depending on
certain financial covenants or 1% above the overnight federal funds effective
rate, whichever is higher, or its LIBOR Rate (as defined in the Credit
Facility) plus a margin of 1.00% to 2.25%, depending on certain financial
covenants.
On January 30, 1998, we issued $200.0 million, 7.75% senior subordinated
notes (the "Senior Notes") due in February 2008 with interest due
semi-annually.
The Credit Facility and the Senior Notes contain customary events of
default and covenants which prohibit, among other things, making investments in
excess of a specified amount, incurring additional indebtedness in excess of a
specified amount, paying dividends in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating certain liens,
prepaying other indebtedness, including the Senior Notes, and engaging in
certain mergers or combinations without the prior written consent of the
lenders. The Credit Facility also provides that we must maintain certain
financial ratio coverages at the end of each fiscal quarter such as debt to
earnings and earnings to interest expense.
NOTE 4--OPERATIONS BY SEGMENTS AND GEOGRAPHIC AREAS
The following table sets forth, for the three months and nine months ended
September 30, 1999 and 1998, certain information about segment results of
operations and segment assets (in thousands):
EXTERNAL INTERNAL EXTERNAL
THREE MONTHS TELECOMMUNICATIONS NETWORK ENERGY
1999 NETWORK SERVICES NETWORK INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ------------------------ -------------------- ---------- --------- ------------------ ---------- -------------
Revenue ................ 220,601 $31,974 $38,626 $9,891 $ -- $301,092
Operating income (loss) 35,082 2,106 2,509 (687) (4,275) 34,735
Depreciation and
amortization ......... 8,912 686 3,258 753 428 14,037
EXTERNAL INTERNAL EXTERNAL
THREE MONTHS TELECOMMUNICATIONS NETWORK ENERGY
1998 NETWORK SERVICES NETWORK INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ------------------------ -------------------- ---------- --------- ------------------ ---------- -------------
Revenue ................ 138,174 $26,006 $34,086 $89,703 $ 637 $288,606
Operating income (loss) 21,470 1,235 3,726 3,431 (3,573) 26,289
Depreciation and
amortization ......... 5,964 768 2,516 2,383 199 11,830
F-34
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
NOTE 4--OPERATIONS BY SEGMENTS AND GEOGRAPHIC AREAS--(CONTINUED)
EXTERNAL INTERNAL EXTERNAL
NINE MONTHS TELECOMMUNICATIONS NETWORK ENERGY
1999 NETWORK SERVICES NETWORK INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ----------------------------- -------------------- ---------- ----------- ------------------ ------------ -------------
Revenue ..................... 517,121 $72,280 $113,762 $ 41,991 $ 1,422 $746,576
Operating income (loss) ..... 73,860 3,065 8,733 1,883 (14,135) 73,406
Depreciation and
amortization .............. 25,728 1,899 9,356 2,381 1,187 40,551
Total assets ................ 408,070 62,148 89,923 103,408 77,990 741,539
Capital expenditures ........ 47,739 819 8,128 86 887 57,659
EXTERNAL INTERNAL EXTERNAL
NINE MONTHS TELECOMMUNICATIONS NETWORK ENERGY
1998 NETWORK SERVICES NETWORK INTERNATIONAL(1) OTHER(2) CONSOLIDATED
- ----------------------------- -------------------- ---------- --------- ------------------ ------------ -------------
Revenue ..................... 318,939 $ 65,205 $82,715 $246,428 $ 7,520 $720,807
Operating income (loss) ..... 41,631 (3,949) 8,046 (624) (12,404) 32,700
Depreciation and
amortization .............. 18,642 1,550 6,407 4,500 (105) 30,994
Total assets ................ 300,798 65,978 88,337 333,848 105,403 894,364
Capital expenditures ........ 38,197 1,310 10,681 2,725 4,547 57,460
- ----------------
(1) International for 1998 includes the results of the Company's Spanish
operations which were sold effective December 31, 1998.
(2) Consists of non-network construction operations and corporate expenses.
There are no significant transfers between geographic areas and segments.
Operating income consists of revenue less operating expenses, and does not
include interest expense, interest and other income, equity in earnings of
unconsolidated companies, minority interest and income taxes. Consolidated
operating income is net of corporate general and administrative expenses. Total
assets are those assets used in our operations in each segment. Corporate
assets include cash and cash equivalents, investments in unconsolidated
companies, assets held for sale and notes receivable.
NOTE 5--COMMITMENTS AND CONTINGENCIES
During 1999, we had provided vendor financing to a telecommunications
customer in connection with the sale of our services. All amounts due under
this financing arrangement were paid in full in September 1999.
We have a $28.4 million investment through a wholly-owned Paraguayan
subsidiary, in a PCS wireless system in Paraguay which is held for sale and are
committed to spend an additional $5.0 million to complete the system. In
September 1999, the Paraguayan telecommunications regulatory agency rescinded
its previous revocation of our license to develop the system, reaffirmed the
grant of the license to us and extended the deadline for us to complete the
system. The terms of our license now require us to complete the system by
January 31, 2000. Our Paraguayan subsidiary is under a preliminary
investigation for alleged improper conduct by certain of its employees in
connection with the prior extension of the completion deadline. Although, we
believe that the allegations are baseless, we are cooperating with the
investigators.
F-35
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
NOTE 5--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Included in assets held for sale at September 30, 1999 is our Argentinan
investment in Supercanal, with a carrying value at September 30, 1999 of
approximately $17.9 million, and our Ecuadorian investment in Conecel with a
carrying value of approximately $16.1 million. We currently have a 28% minority
voting interest in Supercanal and a 10% minority voting interest in Conecel.
Both Supercanal and Conecel defaulted, during the second quarter of 1999, on
their third-party debt obligations. We do not guarantee any of their
indebtedness.
We are monitoring our investments in Argentina, Ecuador and Paraguay and
have determined that the carrying values of these assets as of September 30,
1999 have not been impaired. There can be no assurance that future transactions
or events will not result in a permanent impairment of these assets.
We sold 87% of our Spanish operations effective December 31, 1998 for
$27.2 million in cash payable in four installments and $25.0 million of assumed
debt. As of September 30, 1999, $12.5 million of the cash purchase price plus
accrued interest had not been paid when due, however we received $1.8 million
subsequently (a portion of which is in escrow), which has reduced the
outstanding balance to $10.7 million. We have posted a $3.0 million letter of
credit for the benefit of our former Spanish operations to be used for working
capital.
NOTE 6--ASSETS HELD FOR SALE
During the nine months ended September 30, 1999 we sold non-core real
estate reflected at $6.9 million at a loss of $1.1 million. Currently,
approximately $4.6 million remains unsold. Of the original $10.5 million
reflected at December 31, 1998, an additional $950,000 was recorded as an asset
held for sale and subsequently disposed.
F-36
[GRAPHIC OMITTED]
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 2000
2,500,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
---------------
MASTEC, INC. IS OFFERING 2,500,000 SHARES OF ITS COMMON STOCK.
---------------
MASTEC'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"MTZ." ON , 2000 THE REPORTED LAST SALE PRICE OF MASTEC'S COMMON STOCK ON
THE NEW YORK STOCK EXCHANGE WAS $ PER SHARE.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
---------------
PRICE $ A SHARE
---------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS MASTEC
-------------- --------------- --------------
PER SHARE ......... $ $ $
TOTAL ............. $ $ $
A SELLING SHAREHOLDER HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO
AN ADDITIONAL 375,000 SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. WE WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF THESE ADDITIONAL SHARES.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS
ON , 2000.
---------------
MORGAN STANLEY DEAN WITTER
JEFFERIES INTERNATIONAL LIMITED
MORGAN KEEGAN & COMPANY, INC.
, 2000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated amount of expenses (other
than underwriting discounts and commissions) to be borne by the Registrant in
connection with the Offerings:
SEC Registration Fee .................. $16,801.31
Legal Fees and Expenses ............... 100,000
Accounting Fees and Expenses .......... 100,000
Printing and Mailing Expenses ......... 50,000
Miscellaneous Expenses ................ 103,199
----------
TOTAL FEES AND EXPENSES ............. $ 370,000
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act (the "Florida
Act") provides that a director is not personally liable for monetary damages to
the corporation or any person for any statement, vote, decision or failure to
act regarding corporate management or policy, by a director, unless: (a) the
director breached or failed to perform his duties as a director; and (b) the
director's breach of, or failure to perform, those duties constitutes: (i) a
violation of criminal law unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director derived an improper
personal benefit, either directly or indirectly; (iii) a circumstance under
which the director is liable for an improper distribution; (iv) in a proceeding
by, or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interests of
the corporation, or willful misconduct; or (v) in a proceeding by or in the
right of someone other than the corporation or a shareholder, recklessness or
an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety
or property.
Section 607.0850 of the Florida Act provides that a corporation shall have
the power to indemnify any person who was or is a party to any proceeding
(other than an action by, or in the right of, the corporation), by reason of
the fact that he is or was a director, officer or employee or agent of the
corporation, against liability incurred in connection with such proceeding if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 607.0850 also provides that a corporation shall have the
power to indemnify any person, who was or is a party to any proceeding by, or
in the right of, the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
Section 607.0850 further provides that such indemnification shall be authorized
if such person acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation, except that no
indemnification shall be made under this provision in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
unless, and only to the extent that, the court in which such proceeding was
brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper. Section
607.0850 further provides that to the extent that a director, officer, employee
or agent has been successful on the merits or otherwise in defense of any of
the foregoing proceedings, or in defense of any claim, issue or matter therein,
he shall be indemnified
II-1
against expenses actually and reasonably incurred by him in connection
therewith. Under Section 607.0850, any indemnification under the foregoing
provisions, unless pursuant to a determination by a court, shall be made by the
corporation only as authorized in the specific case upon a determination that
the indemnification of the director, officer, employee or agent is proper under
the circumstances because he has met the applicable standard of conduct.
Notwithstanding the failure of a corporation to provide such indemnification,
and despite any contrary determination by the corporation in a specific case, a
director, officer, employee or agent of the corporation who is or was a party
to a proceeding may apply for indemnification to the appropriate court and such
court may order indemnification if it determines that such person is entitled
to indemnification under the applicable standard.
Section 607.0850 also provides that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of Section 607.0850.
The Registrant's Articles of Incorporation provide that the Registrant
shall indemnify to the fullest extent authorized by the Florida Act, each
person who is involved in any litigation or other proceeding because such
person is or was a director or officer of the Registrant, against all expense,
loss or liability reasonably incurred or suffered in connection therewith. The
Registrant's By-Laws provide that a director or officer may be paid expenses
incurred in defending any proceeding in advance of its final disposition upon
receipt by the Registrant of an undertaking, by or on behalf of the director or
officer, to repay all amounts so advanced if it is ultimately determined that
such director or officer is not entitled to indemnification.
The Registrant has obtained primary and excess insurance policies insuring
the directors and officers of the Registrant and its subsidiaries against
certain liabilities they may incur in their capacity as directors and officers.
Under such policies, the insurer, on behalf of the Registrant, may also pay
amounts for which the Registrant has granted indemnification to the directors
or officers.
ITEM 16. EXHIBITS
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
EXHIBITS DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------
1 Form of Underwriting Agreement between the Registrant and the Underwriters.
4 Indenture, dated as of February 4, 1998, between the Registrant and First Trust National
Association, as trustee, relating to the Registrant's 7 3/4% Senior Subordinated Notes due 2008
(incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on
Form S-4, filed on February 13, 1998, Registration No. 333-46361).
5 Form of Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. regarding
validity of the shares of Common Stock being offered.
23.1 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. (included in Exhibit 5
above).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Arthur Andersen, LLP.
24 Power of Attorney.*
- ----------------
* Previously filed.
II-2
ITEM 17. UNDERTAKINGS
a. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act), that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
b. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida, on the 20th day of
December, 1999.
MASTEC, INC.
By: /s/ JOEL-TOMAS CITRON
----------------------
Joel-Tomas Citron
Vice-Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------- ------------------------------------ ------------------
/s/ Jorge Mas Chairman of the Board of Directors December 20, 1999
- -----------------------------
Jorge Mas
/s/ Joel-Tomas Citron Vice-Chairman of the Board of December 20, 1999
- ----------------------------- Directors, President and
Joel-Tomas Citron Chief Executive Officer
(Principal Executive Officer)
/s/ Carmen Sabater Senior Vice President and December 20, 1999
- ----------------------------- Chief Financial Officer
Carmen Sabater (Principal Financial Officer)
/s/ Arlene Vargas Vice President and Controller December 20, 1999
- ----------------------------- (Principal Accounting Officer)
Arlene Vargas
* Director December 20, 1999
- -----------------------------
Eliot C. Abbott
* Director December 20, 1999
- -----------------------------
Joseph P. Kennedy, II
* Director December 20, 1999
- -----------------------------
Arthur B. Laffer
* Director December 20, 1999
- -----------------------------
Olaf Olafsson
* Director December 20, 1999
- -----------------------------
William L. Shiebler
* Director December 20, 1999
- -----------------------------
Jose S. Sorzano
- ----------------
*By: /s/ Jorge Mas
---------------------
Attorney-in-fact
II-4
INDEX TO EXHIBITS
EXHIBITS DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------
1 Form of Underwriting Agreement between the Registrant and the Underwriters.
5 Form of Opinion of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. regarding
validity of the shares of Common Stock being offered.
23.1 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. (included in Exhibit 5
above).
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Arthur Andersen, LLP.
EXHIBIT 1
__ SHARES
MASTEC, INC.
COMMON STOCK (PAR VALUE $.10 PER SHARE)
UNDERWRITING AGREEMENT
[January] __, 2000
[January] __, 2000
Morgan Stanley & Co. Incorporated
Jefferies & Company, Inc.
Morgan Keegan & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Jefferies International Limited
Morgan Keegan & Company, Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
MasTec, Inc., a Florida corporation (the "Company"), proposes
to issue and sell to the several Underwriters named in Schedules I and II hereto
(the "Underwriters"), an aggregate of 2,500,000 shares of its common stock, $.10
par value (the "Firm Shares"), pursuant to this agreement (the "Agreement").
It is understood that, subject to the conditions hereinafter
stated, __________ Firm Shares (the "U.S. Firm Shares") will be sold to the
several U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters")
in connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and __________ Firm Shares (the "International Shares") will be
sold to the several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United Sates and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Jefferies
& Company, Inc. and Morgan Keegan & Company, Inc. shall act as representatives
(the "U.S. Representatives") of the several U.S. Underwriters, and Morgan
Stanley & Co. International Limited, Jefferies & Company, Inc. and Morgan Keegan
& Company, Inc. shall act as
representatives (the "International Representatives") of the several
International Underwriters.
A certain shareholder of the Company named on Schedule III
hereto (the "Selling Shareholder") also proposes to issue and sell to the
several U.S. Underwriters not more than an additional 375,000 shares of the
Company's common stock (the "Additional Shares") if and to the extent that the
U.S. Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the "Shares". The shares of the
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock". The
Company and the Selling Shareholder are hereinafter collectively referred to as
the "Sellers", each being a "Seller".
The Company has also filed with the Securities and Exchange
Commission (the "Commission") a registration statement relating to the Shares.
The registration statement contains two prospectuses to be used in connection
with the offering and sale of the Shares: the U.S. prospectus, to be used in
connection with the offering and sales of Shares in the United States and Canada
to United States and Canadian Persons, and the international prospectus, to be
used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front cover page. The registration statement (including documents
incorporated therein by reference), as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus (including documents incorporated therein by
reference), in the respective forms first used to confirm sales of Shares are
hereinafter collectively referred to as the "Prospectus". If the Company has
filed an abbreviated registration statement to register additional shares of
Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included"or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to the
Registration Statement and all amendments or supplements thereto and any
preliminary prospectus or the Prospectus shall be deemed to mean and include the
filing of any document under the Securities Exchange Act of 1934 (the "1934
Act") which is incorporated by reference in the Registration Statement, such
preliminary prospectus or the Prospectus, as the case may be.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and incorporated by reference in the Prospectus complied or will comply
when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) the
Registration Statement, when it became effective, did not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company is listed on Schedule IV
hereto. Such entities are referred to in this agreement collectively as
the "Subsidiaries" and individually as a "Subsidiary". Each subsidiary
has been duly incorporated or established as a limited liability
company or limited liability partnership, as applicable, is validly
existing as a corporation, limited liability company or limited
liability partnership, as applicable in good standing under the laws of
the jurisdiction of its incorporation or establishment, as applicable,
has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole; all of the issued shares of capital
stock or interests of each subsidiary of the Company, as applicable,
have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company. The Irrevocable Power of Attorney and Custody
Agreement (collectively, the "Power of Attorney and Custody
Agreement"), dated the date hereof and signed by the Selling
Shareholder and the Company as Custodian (the "Custodian"), appointing
certain individuals as the Selling Shareholder's attorneys-in-fact to
the extent set forth therein and relating to the deposit of the Shares
to be sold by such Selling Shareholder and the transactions
contemplated hereby and by the Registration Statement, have been duly
authorized, executed and delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be
sold by the Selling Shareholder) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement against payment therefor, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights binding against the
Company.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement and
the Power of Attorney and Custody Agreement will not contravene any
provision of applicable law or the certificate of incorporation or
bylaws of the Company or any of its subsidiaries or any agreement or
other instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a whole,
or, to the Company's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or any of its subsidiaries, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under
this Agreement or the Power of Attorney and Custody Agreement, except
such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(n) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for cleanup, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) Except as described in the Prospectus, the Company and its
subsidiaries (i) have all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and have made
all declarations and filings with, all federal, state, local and other
governmental, administrative or regulatory authorities, all
self-regulatory organizations and all courts and other tribunals, to
own, lease, license and use their properties and assets and to conduct
their business in the manner described in the Prospectus, except to the
extent that the failure to obtain such consents, authorizations,
approvals, orders, certificates or permits or make such declarations or
filings would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and (ii) have not received any notice
of proceedings relating to the violation, revocation or modification of
any such license, consent, authorization, approval, order, certificate
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected
to have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(q) No material labor dispute with the employees of the
Company or any of its subsidiaries exists, or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal contractors that might reasonably be expected to have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(r) The Company and its subsidiaries are self-insured against
such losses and risks and in such amounts as the Company reasonably
believes are prudent and customary in the businesses in which they are
engaged and neither the Company nor any such subsidiary has any reason
to believe that it would not be able to obtain such similar coverage
from insurers as may be necessary to continue its business at a cost
that would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(s) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year
2000 Problem (that is, any significant risk that computer hardware or
software applications used by the Company and its subsidiaries will
not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000); as a result of such
review, (i) the Company has no reason to believe, and does not believe,
that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be
described or referred to in the Registration Statement or Prospectus
which have not been accurately described in the Registration Statement
or Prospectus and (B) the Year 2000 Problem will have a material
adverse effect on the condition, financial or otherwise, or on the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole, or result in any material loss or interference with
the business or operations of the Company and its subsidiaries, taken
as a whole; and (ii) the Company reasonably believes, after due
inquiry, that the suppliers, vendors, customers or other material third
parties used or served by the Company and such subsidiaries are
addressing or will address the Year 2000 Problem in a timely manner,
except to the extent that a failure to address the Year 2000 Problem by
any supplier, vendor, customer or material third party would not have a
material adverse effect on the condition, financial or otherwise, or on
the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
(t) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER.
The Selling Shareholder represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder.
(b) The execution and delivery by the Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, this Agreement and the Power of Attorney and Custody Agreement
of the Selling Shareholder will not contravene any provision of
applicable law, or any agreement or other instrument binding upon the
Selling Shareholder or, to the Selling Shareholder's knowledge, any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Selling Shareholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Selling Shareholder of its obligations under this Agreement or the
Power of Attorney and Custody Agreement of the Selling Shareholder,
except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Shares.
(c) The Selling Shareholder has, and on the Closing Date will
have, valid title to the Shares to be sold by the Selling Shareholder
and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Power of Attorney
and Custody Agreement of the Selling Shareholder and to sell, transfer
and deliver the Shares to be sold by the Selling Shareholder.
(d) The Shares to be sold by the Selling Shareholder pursuant
to this Agreement have been duly authorized and are validly issued,
fully paid and non-assessable.
(e) The Power of Attorney and Custody Agreement of the Selling
Shareholder
has been duly authorized, executed and delivered by the Selling
Shareholder and is a valid and binding agreement of the Selling
Shareholder, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity.
(f) Delivery of the Shares to be sold by the Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(g) (i) Each document, if any, filed or to be filed pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and incorporated by reference in the Prospectus complied or will comply
when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) the
Registration Statement, when it became effective, did not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph
2(g) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and
not jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $_____ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Selling
Shareholder agrees to sell to the U.S. Underwriters the Additional Shares, and
the U.S. Underwriters shall have the right to purchase, at any time and from
time to time, severally and not jointly, up to 375,000 Additional Shares at the
Purchase Price. If, at any time and from time to time, the U.S. Representatives,
on behalf of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the
Selling Shareholder and the Company in writing not later than 30 days after the
date of this Agreement, which notice shall specify a number of Additional Shares
to be purchased by the U.S. Underwriters and the date on which such shares are
to be purchased. The U.S. Underwriters may purchase Additional Shares on the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of the notice issued with respect thereto.
Additional Shares may be purchased as provided in Section 5 hereof solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. If, at any time, an option with respect to Additional Shares is
exercised, each U.S. Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares subject to such option (subject to such
adjustments to eliminate fractional shares as the U.S. Representative may
determine) that bears the same proportion to the total number of Additional
Shares to be so purchased as the number of U.S. Firm Shares set forth in
Schedule I hereto opposite the name of such U.S. Underwriter bears to the total
number of U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 90 days after the date of the Prospectus, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing, (C) any private placement of shares
of Common Stock to a strategic investor who agrees to be bound by the foregoing
restrictions, (D) the issuance by the Company of shares of Common Stock as
consideration for the purchase of any business or assets by the Company, or (E)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares. In addition, the Selling Shareholder
agrees that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the period
ending [90] days after the date of the Prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at $_____ a share (the "Public Offering Price") and to certain dealers
selected by you at a
price that represents a concession not in excess of $_____ a share under the
Public Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of $O a share, to any Underwriter or to
certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be
sold by each Seller shall be made to such Seller in Federal or other funds
immediately available in New York City against delivery of such Firm Shares for
the respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on [January] __, 2000, or at such other time on the same or such other
date, not later than [January] __, 2000, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Closing Date".
Payment for any Additional Shares shall be made to the Selling
Shareholder in Federal or other funds immediately available in New York City
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on the date specified in
the notice described in Section 3 or at such other time on the same or on such
other date, in any event not later than __________, 2000, as shall be designated
in writing by you. Each time and date of such payment are hereinafter referred
to as an "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall
be in definitive form and registered in such names and in such denominations as
you shall request in writing not later than one full business day prior to the
Closing Date or an Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or an Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than __________ (New York City time) on
the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities or in
the rating outlook for the
Company by any "nationally recognized statistical rating
organization", as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any material
adverse change, or any development that could reasonably be
expected to result in a material adverse change, in the
condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries,
taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 6(a)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson,
outside counsel for the Company, dated the Closing Date, to the effect
that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus;
(ii) each subsidiary of the Company has been duly
incorporated or established as a limited liability company or
limited liability partnership, as applicable, is validly
existing as a corporation, limited liability company or
limited liability partnership, as applicable, in good standing
under the laws of the jurisdiction of its incorporation or
establishment, as applicable, has the corporate power and
authority to own its property and to conduct its business as
described in the Prospectus;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares
to be sold by the Selling Shareholder) outstanding prior to
the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid and
non-assessable;
(v) the Shares to be sold by the Company have been
duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights;
(vi) this Agreement and the Power of Attorney and
Custody Agreement have been duly authorized, executed and
delivered by the Company;
(vii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement and the Power of Attorney and Custody Agreement
will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company;
(viii) no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement or the Power of Attorney or Custody
Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the
offer and sale of the Shares [or such as may be required by
the National Association of Securities Dealers, Inc. ("NASD"),
as to which such counsel need express no opinion];
(ix) the statements (A) in the Prospectus under the
captions "________", "_______", "Description of Capital Stock"
and "Underwriters" and (B) in the Registration Statement in
Item 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings
and fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;
(xi) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be
an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended;
(xii) the statements in the Prospectus under the
caption "Certain United States Tax Consequences for Non-U.S.
Investors", insofar as such statements constitute a summary of
the Untied States federal tax laws referred to therein, are
accurate and fairly summarize the United States federal tax
laws referred to therein;
(xiii) all documents incorporated or deemed to be
incorporated by reference in the Registration Statement and
the Prospectus, at the time they were or hereinafter are filed
with the Commission, complied and will comply in all material
respects with the requirements of the Exchange Act and the
rules and regulations of the Commission thereunder and, when
read together with the other information in the Prospectus, at
the time the Registration Statement became effective, at the
time the Prospectus was issued and at the Closing Date (and,
if any Additional Shares are purchased, at the date of the
purchase), did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein
not misleading; and
(xiv) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial data included
therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for
financial statements and schedules and other financial data as
to which such counsel need not express any belief) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and
schedules and other financial data as to which such counsel
need not express any belief) the Prospectus when issued
contained, or as of the date such opinion is delivered
contains, any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date
an opinion of Jose Sariego, Senior Vice President and General Counsel
for the Company, dated the
Closing Date, to the effect that:
(i) the Company is duly qualified to transact
business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company is duly qualified
to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iv) all of the issued shares of capital stock or
interests, as applicable, of each subsidiary of the Company
have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(v) the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this
Agreement and the Power of Attorney and Custody Agreement will
not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or, to
the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as
a whole, or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary;
(vi) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the
Registration Statement that are not described or filed as
required;
(vii) the Company and its subsidiaries (A) are in
compliance with any and all applicable Environmental Laws, (B)
have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to
conduct their respective businesses and (C) are in compliance
with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(viii) such counsel (A) has no reason to believe that
(except for financial statements and schedules and other
financial data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and
(B) has no reason to believe that (except for financial
statements and schedules and other financial data as to which
such counsel need not express any belief) the Prospectus when
issued contained, or as of the date such opinion is delivered
contains, any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e) The Underwriters shall have received on the Closing Date
an opinion of Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson,
counsel for the Selling Shareholder, dated the Closing Date, to the
effect that:
(i) this Agreement has been duly authorized, executed
and delivered by or on behalf of the Selling Shareholder;
(ii) the execution and delivery by the Selling
Shareholder of, and the performance by the Selling Shareholder
of its obligations under, this Agreement and the Power of
Attorney and Custody Agreement of the Selling Shareholder will
not contravene any provision of applicable law, or, to the
best of such counsel's knowledge, any agreement or other
instrument binding upon the Selling Shareholder or, to the
best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having
jurisdiction over the Selling Shareholder, and no consent,
approval, authorization or order of, or qualification with,
any governmental body or agency is required for the
performance by the Selling Shareholder of its obligations
under this Agreement or the Power of Attorney and Custody
Agreement of such Selling Shareholder,
except such as may be required by the securities or Blue Sky
laws of the various states in connection with offer and sale
of the Shares;
(iii) the Selling Shareholder has valid title to the
Shares to be sold by the Selling Shareholder and the legal
right and power, and all authorization and approval required
by law, to enter into this Agreement and the Power of Attorney
and Custody Agreement of the Selling Shareholder and to sell,
transfer and deliver the Shares to be sold by the Selling
Shareholder;
(iv) the Power of Attorney and Custody Agreement of
the Selling Shareholder has been duly authorized, executed and
delivered by the Selling Shareholder and is a valid and
binding agreement of the Selling Shareholder enforceable in
accordance with its terms, subject to applicable bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and general principles of equity;
(v) delivery of the Shares to be sold by the Selling
Shareholder pursuant to this Agreement will pass title to such
Shares free and clear of any security interests, claims,
liens, equities and other encumbrances; and
(vi) with respect to statements in or omissions for
the Registration Statement based upon information relating to
the Selling Shareholder, all documents incorporated or deemed
to be incorporated by reference in the Registration Statement
and the Prospectus, at the time they were or hereinafter are
filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder
and, when read together with the other information in the
Prospectus, at the time the Registration Statement became
effective, at the time the Prospectus was issued and at the
Closing Date (and, if any additional Shares are purchased, at
the date of the purchase), did not and will not contain an
untrue statement or a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statement therein not misleading; and (vii) such
counsel (A) is of the opinion that the Registration Statement
and Prospectus (except for financial statements and schedules
and other financial data included therein as to which such
counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no
reason to believe
that (except for financial statements and schedules and other
financial data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and
(C) has no reason to believe that (except for financial
statements and schedules and other financial data as to which
such counsel need not express any belief) the Prospectus when
issued contained or as of the date such opinion is delivered
contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
With respect to Sections 6(c)(xiv) and 6(e)(vii) above,
Stearns, Weaver, Miller, Weissler, Alhadeff, & Sitterson may, and with
respect to Section 6(d)(viii) above, Jose Sariego may, state that their
opinions and beliefs are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified. With respect to Section 6(e) above, Stearns,
Weaver, Miller, Weissler, Alhadeff & Sitterson may rely upon an opinion
or opinions of other counsel for the Selling Shareholder and, with
respect to factual matters and to the extent such counsel deems
appropriate, upon the representations of the Selling Shareholder
contained herein and in the Custody Agreement and Power of Attorney of
the Selling Shareholder and in other documents and instruments;
PROVIDED that (A) each such counsel for the Selling Shareholder is
satisfactory to your counsel, (B) a copy of each opinion so relied upon
is delivered to you and is in form and substance satisfactory to your
counsel, (C) copies of such Custody Agreement and Powers of Attorney
and of any such other documents and instruments shall be delivered to
you and shall be in form and substance satisfactory to your counsel and
(D) Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson shall state
in their opinion that they are justified in relying on each such other
opinion.
The opinions of Stearns, Weaver, Miller, Weissler, Alhadeff, &
Sitterson and Jose Sariego described in Sections 6(c), 6(d) and 6(e)
above shall be rendered to the Underwriters at the request of the
Company or the Selling Shareholder, as the case may be, and shall so
state therein.
(f) The Underwriters shall have received on the Closing Date
an opinion of Shearman & Sterling, counsel for the Underwriters, dated
the Closing Date, in form and
substance satisfactory to you.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from PricewaterhouseCoopers, LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
PROVIDED that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force
and effect on the Closing Date.
(i) The Common Stock shall have been approved for listing on
the New York Stock Exchange ("NYSE"), subject only to official notice
of issuance.
(j) The representations and warranties of the Selling
Shareholder contained in this Agreement shall be true and correct as of
the Closing Date and the Selling Shareholder shall have complied with
all of the agreements and satisfied all of the conditions on its part
to be performed or satisfied hereunder on or before the Closing Date.
The Underwriters shall have received on the Closing Date a certificate
dated the Closing Date and signed by the Selling Shareholder or by this
attorneys-in-fact to the effect set forth above.
(k) You shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as you may
reasonably request with respect to the good standing of the Company,
the due authorization and issuance of the Additional Shares and other
matters related to the issuance of the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, three signed copies of
the Registration Statement (including exhibits thereto and documents
incorporated by reference) and for delivery to each other Underwriter a
conformed copy of the Registration Statement
(without exhibits thereto but including documents incorporated by
reference) and to furnish to you in New York City, without charge,
prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned
in Section 7(c) below, as many copies of the Prospectus and documents
incorporated therein by reference and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
The terms "supplement" and "amendment" or "amend" as used in this
Agreement shall include all documents subsequently filed by the Company
with the Commission pursuant to the Exchange Act that are deemed to be
incorporated by reference in the Prospectus.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request; provided, however, that this in no event shall the
Company be obligated to qualify to do business in any jurisdiction in
which it is not now so qualified or to take any action which would
subject it to taxation in any jurisdiction in which it is not now so
subject or to service of process in suits, other than those arising out
of the offering or sale of shares, in any jurisdiction in which it is
not so subject.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earnings statement
covering the twelve-month period ending September 30, 2000 that
satisfies the provisions of Section 11(a) of the Securities Act and
the rules and regulations of the Commission thereunder.
8. EXPENSES. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Sellers
agree to pay or cause to be paid all expenses incident to the performance of
their obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel, the Company's accountants and counsel for
the Selling Shareholder in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky [or Legal Investment] memorandum in connection with the offer and sale of
the Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky [or Legal Investment]
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all costs and expenses incident to listing the
Shares on the NYSE and other national securities exchanges and foreign stock
exchanges, as applicable, (vi) the cost of printing certificates representing
the Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, and (ix) all
other costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Section. It
is understood, however, that except as provided in this Section, Section 9
entitled "Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any offers
they may make.
The provisions of this Section shall not supersede or
otherwise affect any agreement that the Sellers may otherwise have for the
allocation of such expenses among themselves.
9. INDEMNITY AND CONTRIBUTION. (a) The Company, agrees to
indemnify and
hold harmless each Underwriter and the Selling Shareholder and each person, if
any, who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; PROVIDED, HOWEVER,
that the indemnification contained in this paragraph (a) with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any person controlling such Underwriter) on account of any loss,
claim, damage, liability or judgement arising form the sale of the shares of
Common Stock by such Underwriter to any person if the untrue statement or
alleged untrue statement or omission or alleged omission of material fact
contained in any preliminary prospectus was corrected in the Prospectus and the
Underwriter sold such Shares to that person without sending or giving , at or
prior to the written confirmation of such sale, a copy of the Prospectus, if the
Company has previously furnished sufficient copies thereof to the Underwriters
on a timely basis to permit such sending or giving.
(b) The Selling Shareholder agrees to indemnify and hold
harmless each Underwriter and the Company and each person, if any, who controls
any Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading but only with reference to information relating to the
Selling Shareholder furnished to the Company in writing by the Selling
Shareholders expressly for use therein; PROVIDED, HOWEVER, that the
indemnification contained in this paragraph (b) with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any loss, claim,
damage, liability or judgment arising from the sale of the shares of common
stock by such Underwriter to any person if the untrue statement or alleged
untrue statement or omission or alleged omission of material fact contained in
any preliminary prospectus was corrected in the Prospectus and the Underwriter
sold such Shares to that person without sending or giving, at or prior to the
written confirmation of such sale, a copy of the Prospectus, if the Company has
previously furnished sufficient copies thereof to the Underwriters on a timely
basis to permit such sending or giving.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholder, the directors
of the Company, the officers of the Company who sign the Registration Statement
and each person, if any, who controls the Company or the Selling Shareholder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 9(a), 9(b)or 9(c), such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Selling Shareholder and all persons, if any, who control
the Selling Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. In the case of any such
separate firm for the Selling Shareholder and such control persons of the
Selling Shareholder, such firm shall be designated in writing by the persons
named as attorneys-in-fact for the Selling Shareholder under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(e) To the extent the indemnification provided for in Section
9(a), 9(b) or 9(c) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(e)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this Section
9 are several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 9 were determined
by PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 9(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, (i) no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission and (ii) the Selling Shareholder shall not be required to
contribute an amount in excess of the amount of the net proceeds of the offering
realized by the Selling Shareholder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in
this Section 9 and the representations, warranties and other statements of the
Company and the Selling Shareholder contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, the Selling Shareholder or any person
controlling the Selling Shareholder, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
10. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses
10(a)(i) through 10(a)(iv), such event, singly or together with any other such
event, makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares that it has or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; PROVIDED that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-[ninth/tenth] of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Shareholder for the purchase of such Firm Shares are not
made within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholder. In any such case either you or the relevant Sellers shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of any Seller to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason any Seller shall be unable to perform its obligations under
this Agreement, the Sellers will reimburse the Underwriters or such Underwriters
as have so terminated this Agreement with respect to themselves, severally, for
all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
MASTEC, INC.
By:
-------------------------------------
Name:
Title:
THE SELLING SHAREHOLDER
By:
-------------------------------------
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------------
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
JEFFERIES & COMPANY, INC.
MORGAN KEEGAN & COMPANY, INC.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By: Morgan Stanley & Co. International Limited
By:
-------------------------------------
Name:
Title:
EXHIBIT A
[FORM OF LOCK-UP LETTER]
[January] __, 2000
Morgan Stanley & Co. Incorporated
Jefferies & Company, Inc.
Morgan Keegan & Company, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Morgan Stanley & Co. International Limited
Jefferies International Limited.
Morgan Keegan & Company, Inc.
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), Morgan Stanley & Co. International Limited
("MSIL"), Jefferies & Company, Inc. and Morgan Keegan & Company, Inc. propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") with MasTec,
Inc., a Florida corporation (the "Company"), and a certain selling shareholder
named therein (the "Selling Shareholder") providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley and
MSIL (the "Underwriters") of 2,500,000 shares (the "Shares") of the common
stock, $.10 par value, of the Company (the "Common Stock").
To include the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (2) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (a) the sale of any Shares to the Underwriters pursuant to the Underwriting
Agreement or (b) transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Public Offering. In addition, the undersigned agrees that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, it will not,
during the period commencing on the date hereof and ending 90 days after the
date of the Prospectus, make any demand for or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on
a number of factors, including market conditions. Any Public Offering will only
be made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company, the Selling Shareholder and the Underwriters.
Very truly yours,
(Name)
(Address)
EXHIBIT 5
LAW OFFICES
STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON, P.A.
MUSEUM TOWER
150 WEST FLAGLER STREET
MIAMI, FLORIDA 33130
---------
MIAMI (305) 789-3200 $ BROWARD (954) 463-5440
FAX (305) 789-3395
- ------------------------------ ----------------------------- -------------------------------- ----------------------------------
E. RICHARD ALHADEFF THEODORE A. JEWELL STEVEN D. RUBIN OWEN S. FREED
LOUISE JACOWITZ ALLEN SHARON LEE JOHNSON MIMI L. SALL SENIOR COUNSEL
STUART D. AMES MICHAEL I. KEYES NICOLE S. SAYFIE
ALEXANDER ANGUEIRA ROBERT T. KOFMAN RICHARD E. SCHATZ DAVID M. SMITH
LAWRENCE J. BAILIN CHAD K. LANG DAVID M. SEIFER LAND USE CONSULTANT
PATRICK A. BARRY FRANK J. LOPEZ JOSE G. SEPULVEDA
SHAWN BAYNE TERRY M. LOVELL JAY B. SHAPIRO
SUSAN FLEMING BENNETT JOY SPILLIS LUNDEEN MARTIN S. SIMKOVIC TAMPA OFFICE
LISA K. BERG GEOFFREY MacDONALD CURTIS H. SITTERSON SUITE 2200
MARK J. BERNET MICHAEL C. MARSH RONNI D. SOLOMON SUNTRUST FINANCIAL CENTRE
HANS C. BEYER BRIAN J. McDONOUGH MARK D. SOLOV 401 EAST JACKSON STREET
MATTHEW W. BUTTRICK ANTONIO R. MENENDEZ EUGENE E. STEARNS TAMPA, FLORIDA 33602
ELLEN I. CHO FRANCISCO J. MENENDEZ JENNIFER D. STEARNS ----------------
SETH THOMAS CRAINE ALISON W. MILLER BRADFORD SWING (813) 223-4800
PETER L. DESIDERIO VICKI LYNN MONROE SUSAN J. TOEPFER
MARK P. DIKEMAN HAROLD D. MOOREFIELD, JR. ANNETTE TORRES
DREW M. DILLWORTH JOHN N. MURATIDES DENNIS R. TURNER FORT LAUDERDALE OFFICE
SHARON QUINN DIXON JOHN K. OLSON RONALD L. WEAVER SUITE 1900
ALAN H. FEIN JAY P. W. PHILP ROBERT I. WEISSLER 200 EAST BROWARD BOULEVARD
ANGELO M. FILIPPI DAVID C. POLLACK PATRICIA G. WELLES FORT LAUDERDALE, FLORIDA 33301
ROBERT E. GALLAGHER, JR. DARRIN J. QUAM THOMAS H. WILLIAMS, JR. ----------------
CHAVA E. GENET JOHN M. RAWICZ MARTIN B. WOODS (954) 462-9500
LATASHA A. GETHERS PATRICIA A. REDMOND KARA PLUNKETT YANGUEZ
PATRICIA K. GREEN ELIZABETH G. RICE
JOSEPH K. HALL GLENN M. RISSMAN
ALICE R. HUNEYCUTT DAVID A. ROTHSTEIN
RICHARD B. JACKSON BETTY CHANG ROWE
December 20, 1999
Jose M. Sariego, Esq.
Senior Vice President - General Counsel
MasTec, Inc.
3155 N.W. 77th Avenue
Miami, Florida 33122-1205
Re: REGISTRATION STATEMENT ON FORM S-3 OF MASTEC, INC.
Dear Mr. Sariego:
We have acted as counsel to MasTec, Inc., a Florida corporation (the
"Corporation"), in connection with the proposed public offering of 2,500,000
shares (the "Firm Shares") of the Corporation=s common stock, $.10 par value per
share (the "Common Stock"), and up to an additional 375,000 shares (the "Option
Shares") of Common Stock subject to an over-allotment option granted to the
several underwriters of such public offering. The Firm Shares and the Option
Shares are hereinafter referred to collectively as the "Shares." The Shares are
being offered by the Corporation and Jorge Mas Holdings I Limited Partnership, a
Texas limited partnership (the "Selling Shareholder"). The Corporation has filed
a Registration Statement on Form S-3 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), as amended by Amendment
No.1 thereto, pursuant to the Securities Act of 1933, as amended (the "Act"),
with respect to the public offering of the Shares. As such counsel, you have
requested our opinion as to the matters described herein relating to the
issuance of the Shares.
Jose M. Sariego, Esq.
December 20, 1999
Page 2
In connection with this opinion, we have examined (i) the Articles of
Incorporation and Bylaws of the Corporation, as amended to date, (ii) an
executed copy of the Registration Statement, together with the exhibits and
schedules thereto, in the form filed with the Commission, (iii) the minute books
and other records of corporate proceedings of the Corporation through the date
hereof, as made available to us by officers of the Corporation and (iv) such
other documents and proceedings as we have considered necessary or appropriate
for the purposes of this opinion.
In rendering this opinion, we have assumed, without independent
investigation: (i) the authenticity of all documents submitted to us as
originals; (ii) the conformity to original documents of all documents submitted
to us as certified or photostatic copies and (iii) the genuineness of all
signatures. In addition, as to questions of fact material to the opinions
expressed herein, we have relied upon such certificates of public officials,
corporate agents and officers of the Corporation and such other certificates as
we deemed relevant.
We have also assumed the legal capacity of all natural persons, the
authority of such persons signing on behalf of parties thereto other than the
Corporation and the due authorization, execution and delivery of all documents
by the parties thereto other than the Corporation. As to certain factual matters
material to the opinion expressed herein, we have also relied, to the extent we
deemed proper, upon representations, warranties and statements as to factual
matters of officers and other representatives of the Corporation and the Selling
Shareholder. Our opinion expressed below is subject to the qualification that we
express no opinion as to any law of any jurisdiction other than law of the State
of Florida and the federal laws of the United States of America. Without
limiting the foregoing, we express no opinion with respect to the applicability
thereto or effect of municipal laws or the rules, regulations or orders of any
municipal agencies within any such state.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, it is our opinion that:
(1) The Firm Shares have been duly authorized and, when issued and paid
for as contemplated by the Registration Statement and countersigned by a
transfer agent and duly registered by a registrar for the Common Stock, the
Shares will be validly issued, fully paid and non-assessable; and
(2) The Option Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
This opinion is limited to the matters expressly stated herein, and
Jose M. Sariego, Esq.
December 20, 1999
Page 3
no opinion is implied or may be inferred beyond the matters expressly stated
herein. This opinion is rendered as of the date hereof, and we assume no
obligation to update or supplement such opinion to reflect any facts or
circumstances that may hereafter come to our attention or any changes in facts
or law that may hereafter occur. We hereby consent to the filing of this letter
as an exhibit to the Registration Statement and to the reference to our Firm in
the Prospectus included therein under the caption "Legal Matters." In giving
such consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission promulgated thereunder.
Very truly yours,
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-3 of
our report dated February 10, 1999 relating to the financial statements of
MasTec, Inc., which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Miami, Florida
December 20, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in the
Registration Statement of MasTec, Inc. on Form S-3 of our report dated March
31, 1999, on our audit of the consolidated financial statements of Sistemas e
Instalaciones de Telecomunicacion, S.A. ("Sintel") and subsidiaries. We also
consent to the reference to our firm under the caption "Experts" in such
Registration Statement.
/s/ ARTHUR ANDERSEN
ARTHUR ANDERSEN
Madrid, Spain
December 20, 1999