MasTec Inc (MTZ) 2002 Q3 法說會逐字稿

Please standby. Good day, everyone and welcome to the Mastec Incorporated third quarter earnings release conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Marc Lewis, Vice President of Investor Relations. Please go ahead, sir.

Good morning. First of all, I would like to welcome to you Mastec 2002 third quarter conference call. With us today, we have Austin Shanfelter, Mastec Chief Executive Officer and Donald Weinstein, the company’s Vice President and Chief Executive Officer. We will have opening remarks by Austin followed by a more detailed financial summary by Don. These discussions will be followed by an extensive Q&A period, and we expect the call to last approximately 45 minutes. Before we continue, our Assistant General Counsel, Steve Davis, would like to make the following qualifying statement.

The following statement is made pursuant to the safe harbor for forward-looking statements made in the Private Securities Litigation Reform Act of 1995. During the course of today's conference call, we may make certain statements that are forward looking, such as statements regarding Mastec's future results and plans and anticipated trends in the industries and economies in which Mastec operates. These forward-looking statements are based on Mastec’s current expectations and are subject to a number of risks, uncertainties and assumptions, including revenue may differ from what was projected so we may be further impacted by slowdowns in our client's businesses or deterioration in our client's financial condition and our reserves and allowances may be inadequate or accounting value assets may be impaired and that the outcome of account pending litigation may be adverse to us and we may experience incur increased costs associated with realigning our business or and may be unsuccessful in those efforts. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual results may differ significantly from materially by results expressed or implied, what was expressed in any forward looking statements made by the company during this conference call. These risks uncertainties and assumptions are detailed in documents filed by the company with the Securities and Exchange Commission. Mastec does not undertake any obligation to revise these forward-looking statements to involve reflect future stops or events or circumstances. s. I would like to turn the call over to Austin for a general summary of our environment and our business. .

Thank you, Steve. Good morning. Welcome to Mastec’s third quarter call. Your Mastec management team continues to see improvements in most of its markets. Our business has stabilized and we are positioning the company for positive business opportunities going forward. Today, we'll speak about specific actions that have led us to increased revenue visibility, cost reductions, market share gains, and continued efforts to market Mastec in and its full array of services to its customers. .

While we continue to battle a tough economy and industry, we believe that it's extremely important to let our investors know not only what we have done in the past quarter but what we're currently doing and what we plan to do to continue to thrive and take advantage of the tubes opportunities that always present themselves in times like these. We have stated all year that we are one of the survivors. We are profitable. We continue to have strong cash flows, and have been able to position ourselves to pick up additional market share from our weaker competitors in each of our service areas. Our master service agreement model continues to be validated in the marketplace. While many of our customers have announced large Capex cuts this past year, our revenues have only been minimally affected, due to our missing critical nature of our MSA agreement work, we are within our revenue guidance for the third quarter and we expect revenues to remain on target for the balance of 2002. It has become apparent that a competitive advantage gap has widened between us and our some of our weaker competitors, . As we continue to show our customers exceptional project performance, financial strength, and increased bonding capacity. Fourth and final, we are responding aggressively to changes in our environment. As we announced yesterday, we are in the middle of the implementation phase of our organizational efficiency plan to increase top-line revenues, increase gross margins, reduce SG&A costs, and prove overall bottom-line performance. We expect results from these activities in the first quarter of 2003.

In the efficiency plan, which we call Project 2100, we have divided our business into four categories. First, there are some of our previous service offerings of the company that no longer fit into our core business strategy. As we discussed last quarter, we have already de-emphasized areas such as network services that did not fit into the long-term plans of the company. Second, our core businesses that do not have adequate revenue or margins to support the desired level of profitability or invest in capital resources. In these areas we are aggressively seeking to improve margins reduce costs to with customers and to reduce cost as well. We plan on exiting contracts that do not meet our the minimum rate on return of return requirements. In Project 2100, we are also developing additional revenues and opportunities to improve overall returns on investment in these areas. Third, our businesses that were providing adequate we were providing adequate profit contributions but still need margins improvements. In these units, we are aggressively looking for cost reductions and efficiencies. And finally, our project is yielding new business opportunities in adjacent spaces to our existing business that looks extremely promising. I'm now going to turn the call over to Don Weinstein, and he will give you detailed financial information as to what has happened in the third quarter.

Thanks, Austin. Good morning to everyone. As Austin mentioned, we are, indeed, in a very tough market. However, Mastec continues even in this tough market to generate profits and cash. Turning to the financials, revenue was $231.8 million for the three months ending September 30, 2002, and in line with our guidance. Net income was $2.4 million, or 5 cents per share for the three months ended September 30, 2002, compared with a loss of $75.2 million, or $1.57 a share, for the same period in 2001. Now, the drop in revenue over the third quarter of 2001 was due primarily to continued Capex spending weakness by our clients and as previously disclosed and to no one's surprise, our own internal decision to be very selective in the credit quality of new and existing customers. It's no secret that the incumbent communications and broadband carriers have announced large Capex cuts,. Additionally, we have reduced services to a number of the competitive telecommunication carriers that no longer exist or that we choose not to do work for.

Our costs of revenues were $196.6 million, or 84.8% of revenue for the three months ended September 30, 2002. This represents a gross margin of 15.2%, compared with a gross margin of 18.1% on $302.2 million of revenue for the same period of 2001. Margins in 2002 were negatively impacted by the underutilization of personal equipment and by ongoing demobilization and redeployment costs as we adjusted to the lower revenues. I'm sure that we'll talk about this considerably more during the Q&A session. General administrative expenses were $19.2 million, or 8.3% of revenue, for the three months ended September 30, 2002. ,compared to $142.4 million, or 47.1% of revenue, for the same period in 2001. However, it should be noted that included in general administrative expenses in 2001, our expenses were $116.5 million, which includes a provision for bad debt of $106.7 million to provide for receivables from clients who filed for bankruptcy and some previously disclosed one-time severance charges.

Focusing on depreciation, depreciation was $8.1 million, or 3.5% of revenue for the three months ended September 30, 2002. versus $12.3 million,, or 4.1% of revenue for the same period in 2001. We reduced depreciation expense in the three months ended September 30, 2002, by aggressively managing capital expenditures and continuing to dispose of excess equipment.

Interest expense, net of interest income, was $4.5 million for the three months ended September 30, 2002, compared to $5 million for the same period in 2001. It's important to note, we had no outstanding balances on the credit facility at the end of the third quarter of 2002, and although we continue to incur interest expense from our long-term debt and periodic credit line borrowing to meet working capital needs and support various letters of credit, we've been able to reduce our net interest expense by half a million dollars.

We continue to be in compliance with all covenants in the bank credit facility. It is important to note that. In the post-Enron and 9/11 world, casualty insurance and surety collateral requirements haves tightened significantly. F, forcing companies to pay higher costs to provide much greater collateral support for coverage. In the month of October, so after the end of the third quarter, we reduced our surety support for casualty programs by $18 million and provided additional LC, letter of credit reserve capacity, of approximately $28 million, under our credit line to support our casualty programs. I will tell you as a surety market support for casualty programs continue to evaporate, companies without the financial liquidity like Mastec will face significant issues.

So the three months ended September 30, 2002, our effective tax rate was approximately 36.5%, compared to 35.7% in 2001. It is important to note that we are evaluating all areas of our business to squeeze out additional profitability. Tax reduction and efficiency is one area of great success this year. In the third quarter just ended, we received an additional tax refund of over $6 million. Additionally, we reduced our effective tax rate by 5.3% from the first quarter of 2002. And you should continue to expect that we'll carefully manage this important cost area.

For the year, some of our largest customers were in alphabetical order,: Bell South, Direct TV, TXU, Sprint, and several of the state Departments of Transportation. During this last quarter just completed, revenues by service offering were as follows: for Telecom, 39.7%., for energy, 17.6%, . for cable, 17.1%., for government, 14.7%, and for the balance of our business, including our international, approximately 10.9%.

Looking now to the balance of 2002, as Austin mentioned, the company expects fourth quarter revenues to be in line with earlier guidance. With full-year 2002 revenue guidance to be unchanged in the range of $850 to $900 million. Earnings per share for the year is expected to range from 14 to 16 cents, exclusive of the impact of the change in accounting principles made in the first quarter, with FAS (inaudible) 142 change and expected Project 2100 costs, which will be reflected in the fourth quarter.

We are constantly looking for ways to more efficiently run our business. And in this fourth quarter, we're in the heart of the margin improvement plan. As noted earlier, we're focused on increasing margins, which will come from both expense reductions and new revenues. Growth from Mastec will come from future capital expenditure increases by our customers, renegotiation of underperforming contracts, and from market share growth. We are convinced that the future in our sector is going to belong to those companies that combine customer focus, technical excellence and the flexibility with financial strength. As we mentioned in prior calls, we plan on having a run rate EBITDA margin improvement as we enter the first quarter of 2003. At this time, we forecast EBITDA today EBITDA margins north of 10% in the first quarter of next year, and Project 2100 is a vital step in that process.

I would like to mirror that Don just stated,. these are times for Mastec to grow. Over the next few months, you can expect continued executed and aggressive strategy in our business plan. You can expect improved margins. You can expect lower costs, but not at the expense of profitable market share growth. In order to ensure that we have enough time for Q&A, I would like to now turn the call over to the conference operator so we can devote the rest of this time to questions and answers.

Thank you. Our question and answer session will be conducted electronically. If you would like to ask a question, firmly press the star key followed by the digit one on your touch-tone telephone. If you are joining with us a speaker phone, please make sure your mute function is turned off so your signal can reach our equipment. Once again, that is star one to ask a question, and we will pause for just a moment to assemble our roster. Our first question comes from Mark Hughes with Sun Trust.

Thank you very much. The energy business, I guess, it's 18% of revenue. It looks like it picked up pretty nicely from the second to the third quarter. Was there a particular project there, or could you give us some more detail on that?

Mark, good morning. First of all, what we have seen in energy is a real stabilization of our models that we've been working on it hard for probably over a year and a half. We've changed out some management in that group, and we really feel comfortable that we have a model that can be expanded. We have gotten increases with a couple of new contracts, and we're also increasing our market share with existing customers adding more crews in certain market places. And that continues to take place over the fourth quarter and we expect it to take trend in 2003.

Gotcha.

We've ended energy (ph) as a new customer, as well.

Right. The other in international, is that principally international? It looks like a nice sequential increase.

The bulk of it is international.

Yeah. It looks like it picked up from the activity level in the, you know, last several quarters, a little more detail there, if you can.

Well, we continue to finish out some of the projects that we had in the third quarter and in Latin America. They're tailing off in the fourth quarter, this year, so it's been a nice increase for us. The fourth quarter, it will come down a little bit.

Right. Gotcha. Finally, how much outstanding in letters of credit at the end of the quarter?

At the end of the quarter, I believe we have about $18 million.

Great. Thank you very much.

Next, we'll go to Alex Rygiel with Friedman, Billings, Ramsey.

Thank you. Gentlemen, I apologize if you touched upon a couple of these points. I missed the first few minutes. Can you go through your top five customers, number one? Number two, can you talk a little bit more about the contracts that you are planning on exiting because returns do not meet your expectations, and are those contracts all associated with one or two individual customers, and are any of those customers in your top five or top ten list?

Alex, good morning.

Good morning.

As I said, and I will just repeat what I said on the prepared remarks. Our largest customers in alphabetical order,: Bell South, Direct TV, TXU, Sprint, and then some of the state Departments of Transportation.

And Alex, on the exiting of some of our certain customer bases, we're looking at region by region and division by division where we don't have performance levels that we're wanting to obtain, and basically, it doesn't affect any single customer more than the others. We're basically looking at a it nationwide and looking at it from a region-by-region basis. We're exiting actually in some Telecom pieces because of just pricing pressures. We're increasing --increasing on the energy side and also on the D.O.T. side, but it's more of a concentration on certain contracts. It's not any type of industry per se.

Specifically to your question, Alex, none of the contracts under review either to be exited or renegotiated relate to any of the customers I just identified.

Great. Thank you. One follow-up question. Can you comment on a little bit about the anticipated closing AT&T broadband and Comcast in your positioning for your in future opportunities?

I think the whole cable TV market, last year, it was a very difficult year for our company and many year others in the cable TV and broadband industries, and I believe that what we're seeing is with that deal coming to a close and Adelphia stabilizing and some of the other companies trying to get their strategies out there, that their should be some increased, positive growth and improvement in the cable business model in '03 and '04. The other thing that Mastec wants to concentrate on, as well, is not just the outside plan, but also . the upgrade work. , we want to kind of concentrate also, as well, on the insulation to the whole model, and we're working very hard with our customers to look at national outsourcing deals there and try to develop that business stronger, but I am sure that you'll see increases in 2003 and '04 from the event of the AT&T Comcast deal closing.

Great. Thank you.

We'll now hear from Chris Gutek from Morgan Stanley.

Thanks. Good morning, Austin and Don.

Good morning, Chris.

A couple of questions. I guess relative to the guidance you guys gave on the second quarter call, the revenue is in the midpoint of the range, but the earnings per share was half or less than half of the midpoint of the range. I'm curious, over the course of the quarter, what changed on the margin that hurt the profitability in the quarter?

One of the items was, Chris, was that we thought we could get out some the contracts quicker than we were able to get out of. One of the things that you got to take into consideration, as we worked out through these contracts is that you don't want to have a negative path in the future for how you exit them. You don't want to have any exposure on any kind of liabilities, as well, so some of these contractors, they wound down and we exited them. We were low production levels, and we were at not efficient levels of doing that work. However, they've been exited, and I think that the big issue that we're going to talk about today here through some of the Q&A is that fact that we're done with the implementation process, or done with the process of the event process, and now it's right at the implementation phase, and so everything we're doing every day does make effect.

Okay. I apologize if you said this and I missed it, but what's the expected cost in the fourth quarter for Project 2100?

Actually, what we expect is that the cost to implement Project 2100 will range between $6 million and $7 million. We are still in the process of negotiating subleases, exiting leases and other exiting arrangements, but at this point, we believe the $6 to $7 million ins the appropriate range.

But when you say you have the other costs, you're saying the charge in the fourth quarter can be higher than the $6 to $7 million?

No, what I'm saying is we expect currently the charge to -- the extent of the charge, it may just be costs that go through our P&L. Let's be clear. The accounting requirements for a charge are such that it would only be a charge if the costs were going to extend beyond the balance of 2002. Otherwise, these will simply be costs that would be captured on P&L. Clearly, we will distinguish them for you in our published material, so you can identify the appropriate earnings in the fourth quarter of 2002, but at this time, we expect the costs to implement, Project 2100 to range between $6 and $7 million.

Okay. Great. Thanks for the clarification. On the EBITDA margin target for the first quarter of 2003, if you are assuming 10% in the first quarter, I would assume seasonally, that's the weakest quarter, so would it be appropriate we can extrapolate from that that you’re assuming something north of 10% for the full year?

I believe that's fair.

Okay. And Don, I think I might have missed this, as well, but what did you say about the bad debt expense in the quarter?

Actually, I didn't comment on bad debt expense. At had this time, I can say that in the second quarter, we reported approximately $22 million of receivables from companies that were bankrupt and had $11 million of allowance. At this time, we have about 10% less or $20 million in receivables for bankrupt accounts, and our reserve has grown from $11 to $11.5 1/2 million dollars. , so as you can see, at every level of the business, we continue to attack and see results.

Okay. Quick updated thoughts on the pricing environment. Is it getting better? Is it getting worse, or is it staying about the same?

It depends on which market. What we see is in the bottom markets where the surety is there and necessary that the pressures aren't as high. The telecom market continues to be a tough pricing model. We believe cable has stabilized and that it's a fair pricing model, and of course, energy is almost getting to the point where we see some improvements in some of our pricing and some of our models, so it's just a little bit of across the board. Telecom being the one that still has some pressures on it, and as for Mastec is making some decisions to exit certain markets when the prices won't maintain what our goals and objectives are.

Okay. In the context of the exiting from of unprofitable contracts but partially or maybe are & are fully offset of the new revenue opportunities identified with by Project 2100, net of those two impacts and looking at the overall underlying trends for demand of the service, did the revenues grow next year, or did they shrink further?

I think they will continue to grow.

Okay, and finally if I could for modeling purposes, what was the actual international revenue in the quarter?

It was approximately $10m.

Okay. Great. Thanks, guys.

Romeo Reyes with Jefferies has our next question.

Good morning.

Good morning, Romeo.

I have a couple of questions. For the purposes of the definition in the (inaudible) clarification of the agreement, can you go through the tangible net worth for North America and for Brazil? That's the first question. The second question is with respect to how much you have available on the credit facility at the end of the quarter, and then a couple of quick follow-up questions after that.

Let's do those in reverse order. The availability on the credit facility at quarter end was $641.4 million. The tangible net worth covenant and we have put the actual calculation in the queue, just so you recall, it is a North American only credit facility, and therefore, Brazil does not have an impact on it. The tangible net worth covenant is set at $180 million, and today, we have well in excess of $180 million of tangible network worth . That's for North American operations.

Okay. Fair enough. Second question or second set of questions. With respect to your EBITDA guidance for the fourth quarter, what do you expect it to be?

We would expect EBITDA in the fourth quarter to be between $15 and $205 million.

Then lastly, I guess, your cash improved a couple million dollars from $630 to $930m. Can you go over the various components of the cash movement, you know, in the quarter, if you wouldn't mind, maybe Capex, you know, working capital, et cetera? Thanks.

Sure. Our Capex for the quarter was a little over $4 million. As I mentioned in my prepared remarks, we did have a tax refund with a little over or $6.6 million. We did have some working capital changes up and down, net-net, those are probably down about $3 million.. We had some other cash investments, which were moved out of cash and now appear in other parts of the balance sheet. Certainly, that's another increment would be the earnings on the business or the cash flow on from the business. The proceeds from the sale of our assets increased about $1.5 million in the quarter. So when you add up all of those pieces, Romeo, you should be able to get to our $11 million number.

What was the cash flow from operations?

Cash flow from operations was approximately $14.5 million for the quarter.

Great.

In terms of net cash provided by operating activities, as you would find in our cash flow statement.

Great. And, I guess, and maybe for Austin, are you seeing a pickup in, you know, from outsourcing, you know, all along for the last couple of years, we have been talking about this trend continuing. Can you give us either anecdotal or tangible, you know, evidence of the r-box or the long distance companies, you know, outsourcing some of their outside plant work as they layoff thousands upon thousands of workers. Can you talk about the experience you guys are having versus some of your competitors as you gain market share? But just give us a little bit of flavor as to what you are seeing on that outsourcing. You know, maybe, can you give us a sense of what it was maybe two or three years ago, you know, what it was a year ago and what it is today and where you expect that to be going over the next year or would? . Thanks.

I guess the best example of it would be more on the cable side of the industry where historically, you think of Direct TV or cable TV model that went to lots of very internal controls of how they did installations, went to multiple small contractors, and what they're looking for and what we have seen as evidence in Mastec’s performance is a true expansion of our capabilities to do larger contracts, grow a lot larger with our opportunities with companies like that. In the Telecom business, what we're seeing is that, you know, you've got companies that in 10-year low on their Capex. They've cut back an enormous amount of their people. The question is, when they start bringing the Capex back up, are they going to hire internal people, or are they going to outsource? In our conversations with the customer base, they're really looking to outsource when those terms come. They want to know who's out there and who is available for them to outsource their work. Energy continues to be in that format. Where they have a lot of pressure on trained and qualified personnel that can perform outside work, and we continue to get additional outsourcing opportunities from the energy market, and so I think what's happened is that you've got companies that have cut back, cut back, and those would be our customers and the question is, when the environments turn, are they going to go back to an internal model, or are they going to use an outsourcing model such as a company like Mastec? We believe that that we will continue to see opportunities pick up for outsourcing on literally on all of our business the service lines and service offerings.

One last question, given the us a sense, Don, if you wouldn't mind as to how much of your revenue for the third quarter came from recurring MSA-type of work, and if you could, perhaps, you know, delve into, I mean, the visibility for the fourth quarter and for 2003, you know, how much visibility do you have on your revenues? I guess vis-à-vis your MSA work that you can say this business is basically in the bag, can you give us either percentages, or more appropriately perhaps or more useful to me and the rest of the listeners, you know, to the absolute numbers?

You know, sort of broadly, Romeo, I think what you're seeing is that generally 80 to 85% of Mastec’s revenue is MSA or MSA-like agreements, there's multi-year agreements with strong customers, geographic regions, or significant projects that are longer term in nature, even if the work is billed on a piece basis. So what you see is that, we believe, internally, that the reason our revenue -- from the very beginning of the year has been so reasonably predictable and certainly not as affected by the downturn in the broader, you know, customer base or broader Capex reduction that you have seen in the customer base is because of the strength of the MSA model.

Romeo, let me break this down a little more for you, too. I think if you look at three of our four service offerings, you look at telecom, these are agreements that are three and five years in length of nature. These are predictable. They're visible. We know what to expect from each one of our MSA agreements. You look at the energy business. Those agreements are the same thing, three and four and five years. Our ITS and DOT work, the government work we're doing, many of these contracts are multiple year contracts that we know six months in advance before we they start and we've got them in our plans. The only business on the construction side that has not been as predictable this last year is the cable TV market, and that's because of the huge pullbacks by Adelphia, waiting for the AT&T and Comcast merger to take place and the uncertainties in the entire marketplace. I think if you look across the board, it's very important to sit back there and look at talk about the history of Mastec. That is, we've been in this business for a long time, and these are recurring contracts that have been in our business for 35, 40, you know, and in some locations in Texas, 100-year-old contracts. We know what to expect. We know the consistency of the revenue, and we know how to work with the customers going forward.

Okay. Just, I guess, one last question here, and I'm sorry I keep saying that. On the cost side, you guys come in, you know, a little bit below my expectations or higher rather in costs than I was expecting. Can you give us a -- you know, after you get out of these agreements that you talked about and some of these non-profitable contracts or contracts that are not as profitable as you would like them to be. Give us a sense of what sort of gross margins we should be anticipating and has there been any sort of adjustment relative to the second quarter and perhaps go over the numbers for gross margin and perhaps for SG&A, percentage of revenues. You have been targeting 7%, I believe, if I remember correctly a couple of quarters ago. Perhaps go over that for maybe the fourth quarter and for '03, if you can. Thanks.

Let me focus on '03 because I think that will be, you know, at least the initial normalized run rate that you're going to see, more precisely the first quarter of '03. You know, again, what I referred to in my prepared remarks is that we would have a north of 10% EBITDA margin rate, and the reason I focused on EBITDA is that I, no different than you, look around at our peer groups, you know, I didn't want to confuse anyone by identifying gross margin and then SG&A because some folks have, in terms of how they characterized certain costs either have higher gross margins and higher SG&A expense, and so we felt that focusing at the EBITDA line was appropriate. As we look at where the cost at of the gross margin to sort of break it out, as we think, you know, it's not unreasonable, in the somewhere between 17 and 20% gross margin and somewhere between 7, 8, 9% SG&A level,. so net-net, we've been really trying to make it easier to make our numbers more comparable to our peer group by instead now providing guidance at the EBITDA margin line and commit to a number of north of 10%.

Okay. Any sort of earn outs still left on prior acquisitions?

There are some dollars left outstanding. About $6 million.

That's it?

Yes.

Great. Thanks very much.

If you have found that your question has been answered, you may remove yourself from the queue by pressing the pound sign. Moving on, we'll hear from Jim McLeery-ph with Utenburg Tubben-ph.

Great. Good morning. Let's see. Don, on the Project 2100, is there a cost savings per year that you've targeted for that?

Well, you can pretty much know impute what the cost savings is from by working back from a 10% EBITDA margin as compared to what our margins had had been this past year and identify what the cost savings are.

Okay, so I'm coming up somewhere around $20 - , $25 million a year, is that round numbers?

Those are round numbers.

Okay, and what happens in the December quarter? You're talking $20 to $25 million EBITDA, correct?

I said $15 to $25 million.

I'm sorry, $15 to $25 million,, but the earnings per share sequentially; you're looking for that to be down. So what costs below the EBITDA line are increasing to make the earnings per share go down?

One more time, Jim. That didn't come through clearly, sorry.

In the September quarter, you did EBITDA of $16 million. You're looking to similar to up in the December quarter, but earnings per share in the September quarter were a nickel, and you're looking for 2 cents in December.

Right.

So what's going on --some other costs must be going up below the EBITDA line.

Really, what you're seeing is it's the mix between the impacts of the runoff of the remaining unprofitable contracts. It is the lower, potentially lower -- or revenue volume. It is the other costs to implement Project 2100, and as I mentioned in my prepared remarks, there have been some increased financing costs associated with our casualty program in the form of additional LC’s outstanding.

And I missed that part. Can you go over the additional financing costs, again?

In my prepared remarks, I talked about how Mastec has replaced an $18 million surety bond supporting our casualty program with approximately $28 million of incremental LC’s. This occurred in October and there are financing costs associated with those.

Okay. Can you tell us how large those financing costs were?

The cost of the LC’s is really essentially the cost of our credit facility, so there is -- I don't mean to be vague. It's just that, you know, it's essentially the costs within our credit facility. It's the spread over Libor (ph).

Okay. Alright. And in terms of Project 2100 benefits, do those continue to increase past Q1 of '03, or do you expect -- or do you expect to get the full benefits in Q1 '03?

We expect to get the majority of the benefits to be materialized in Q1 of '03. But all of the benefits will not materialize in that first quarter, just the bulk, and therefore, we would expect to see improvement through the balance of the year.

Okay. Great. Thank you.

We will now here from Joe Gladue with the Chapman Company.

Let me follow up on one of Jim's questions first, and he was asking about the between the differences of the EBITDA expected from third quarter to fourth quarter. Is part of that difference related to the tax refund that you got in the third quarter, and I guess, are you expecting or anticipating any more --anticipating any more tax refunds going forward?

We do expect to have more tax refunds going forward. You know, depending upon the nature of the refund, depends upon whether or not it affects the effective tax rate. Some tax refunds simply are reflected in the deferred (inaudible) income taxes and therefore, don't have a direct impact on your effective tax rate. Some permanent, to use the old vernacular, change is due. So for instance a field fuel tax credit improvement would have an impact on our effective tax rate.

Okay. Let me, I guess, ask a little bit, I guess, competitive environment. Are you still seeing some failures of some of the smaller competitors, or is that pretty much washed out for the time being, and in relation to that, maybe you can touch on what some of the opportunities are in MSA’s. Are there still a lot of changes, or are there some MSA’s that are up for grabs because of, you know, some weakness among competitors?

You know, first question, you know, do we see some deterioration, we had one of our competitors last week or the week before just file Chapter 11 to make it about 12 companies that or mid-size companies in our space year-to-date that have filed Chapter 11. The mom and pop business is under a lot of pressure. I will go back to what I said almost a year ago. I think you've got two types of companies. You've got the companies that have been in business for 25 and 30 years that will survive through this process and know how to downsize and react to this marketplace. You have a lot of people that entered in at the end of last year or the year prior that are not making it and literally go out of the marketplace on a daily basis. Whether when we're at meetings now at the beginning of the year, there might be 30 and 40 companies that attended the meeting and now we're down to 5 or 6, or we're negotiating with our customers straight up for new work without having a large competition on the opportunities, so we're seeing it from the surety side as the surety market tightens that we have less competition in bids. We're seeing it in the actual bid meetings that we're attending to have less people at those bids and really, it's becoming the more stabilized, historical contractors that have been in the business for a long time that are re-evolving in the industry. So it's a good stabilization going forward.

Thank you.

We will now hear from Ram Kasargod from Morgan Keegan.

Austin and Don, I have several questions for you. If I can start off with the tax rate, you know, it went down from the second to the third. You were discussing some issues that led to that decline, and you talked about managing it aggressively. What will be the tax rate outlook for the fourth quarter and for next year?

We would expect to either stay approximately where we are or have some additional, nominal improvement in our effective tax rate.

Okay. Secondly, coming to capacity utilization, where are you right now in cap (inaudible) capillary capacity utilization and head count, and as a result of Project 2100, what can we expect in '03?

Ram, you can expect further reduction of personnel continued in fourth quarter this year, so that we're in the right place for next year. That number could be between 400 and 500 people. You can see a consolidation out of 25 to 30 facility locations. You're going to see continued reduction of non-productive equipment and other expenses which drive, you know, some efficiencies that aren't out there that are working with us every day, so we will continue to sell off unused equipment, and that marketplace, has been real tough to sell off unused equipment over the last three, four months, but we have been successfully able to do it over the last nine months, we will continue to work that equipment off accordingly.

Is it fair to assume that in '03, your Capex will be below your depreciation?

Yes.

Okay. Coming back to Brazil, you know, from what you answered earlier, Brazil was -- if international was $10 million, Brazil was below the second quarter. How much of the Brazilian impact is tied to currency and what is happening to that business in Brazil with respect to the outlook for next year? Is it a profitable business? How much of your total assets are tied to Brazil right now?

Ram, just so there's clarity, our Brazil revenue was essentially constant second quarter to third quarter. The effect of the decline in the reyal (ph) versus the dollar and certainly, the bulk of that was out of a concern about the ascendancy of a left of center candidate, Delula DeSilva (ph), and since he was hands been elected, I believe the out of balance, the greatest disparity between the dollar and the reyal approached 34. to 1, and it got to 3.9 and change to 1. As it became closer to the election day and as he espoused more moderate policies, number has come down to 3.55 to 1, and I think people are waiting on the side line to see, you know, ultimately what his entire cabinet looks like, but at least he's saying those things currently which would suggest that he desires to be in compliance with the IMF to get additional currency. Today, that business is earnings positive for us and continues to be earnings positive for us.

In terms of any revenue guidance, if it was $10 million in the third quarter, would it be roughly that that 0 -- $10 million in the fourth or below that?

It should be somewhat less in the fourth quarter. They've had some contracts runoff, but the business continues to be profitable.

Okay. And then as you look at your balance sheet and FAS 142 implementation and Project 2100, what impact does that have on your current goodwill on your books as you go through the fourth quarter? You talked also about a $6 to $7 million Project 2100 impact. Is that the nonrecurring part that's not in the 2 to 4 cents, or is that $6 to $7 million in the 2-to-4 cent estimate that you are giving us for the fourth quarter?

Let me answer those several questions. The $6 to $7 million is not included in the 2 to 4 cents. The FAS 142, we did an evaluation again in the third quarter, given the decline in Mastec stock price, and at this time, the evaluation continues to support the goodwill on our book, and the only impact Project 2100 would have upon FAS 142 or upon the value of the company, hopefully, would be to get the stock price in excess of our book value, such that FAS 142 becomes a less-asked question.

If I can ask one final question. I know you haven't given us any growth estimates for next year, but obviously with Project 2100 and what might be perceived as a potential pickup in Capex, especially in the cable industry in '03, what kind of expectations are you having for '03 in terms of your growth?

Well, first of all, with the Capex going toward the cable market next year, Ram, we have maintained even with our Project 2100 equipment from previous levels of $250 million run rate plus in the cable market anticipating some of the changes that are about ready to incur. So we don't see a large Capex increase on growing for that opportunity in the cable TV market. That's the same thing that kind of impacted some of our margins here in the last couple quarters, as well, but it won't affect next year going forward at all.

So Austin, do you have any thoughts about what '03 could be like for the company in terms of revenue growth overall or earnings growth?

At this time, we're in the middle of our budget processes with all of our team members and we're finishing up, of course with the Project 2100, and we're going to combine those two issues and we will be giving guidance, and I will tell you, early in December.

Okay, and then, Austin, the last question, one of your peers looks like they got an investment from what looks like a sophisticated investment entity, you know to try to fund the growth or remedy or whatever balance sheet issues they have. Do you have any thoughts on what Mastec might do going forward if it needs funds for growth, you know, is it available from within the company or existing financial resources, or would you have to look to outside sources?

At this time, given Mastec’s liquidity, we haven't had, nor have we projected, any crimp that would limit our ability to take advantage of what we see in the market realm, Ram. You know, frankly, the deal that our peer did, I will tell you between Austin and I and others within the company, we probably get, no exaggeration, 15 calls a week about what is the opportunity for someone to come in and invest at these levels. You know, again, with everything we're doing, we continue to be very encouraged about the business, (inaudible), committed to improving the bottom line, and we believe that as that materializes that will further enhance our liquidity and give us more financing options. But at this time, we have an excellent bank group. You know, we’ve worked closely with the bank group as the year has materialized. They've been very supportive of our business so from a financial side on the fixed-income environment, we're very comfortable. At this time, we don't see any need for an equity offering, so at this point, again, we feel comfortable and we feel good about where we are.

At this time, we have reached our time limit for the question and answer session. Mr. Shanfelter, I will turn it back over to you for final and closing remarks.

Thank you very much. We appreciate all of you joining us on the call today. We look forward to talking to you openly and candidly in the near future about where Mastec is going. Rest assured, we will be cutting back the cost. It will be done and completed in the fourth quarter, and we will be moving forward in a positive direction in '03. We've had very positive results in this quarter, and we feel very focused and we remain so going forward. Thank you very much for the call today, and have a nice day.

Thank you. That does conclude today's conference. Thank you for your participation.