MasTec Inc (MTZ) 2002 Q4 法說會逐字稿

Good day, everyone. Welcome to the Mastec Incorporated fourth quarter earnings release conference call. Today’s call is being recorded. The following statement is made pursuant to the safe harbor for forward looking statements described 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 ob Mastec's current expectations and are subject to a number of risks, uncertainties and assumptions, including that our revenue may differ from that projected, that we may be further impacted by slow downs in our client’s businesses or deterioration on our client's financial condition, that our reserve and allowances may be inadequate or the carrying value of our assets may be impaired, that the outcome of pending litigation may be adverse to us and that we may experience increased cost associated with realigning our business or maybe unsuccessful in those efforts. Should one of more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect actual results may differ significantly from results expressed or implied in any forward looking statements made by the company on this conference call. These and other 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 reflect future events or circumstances. I would now like to turn the call over to Marc Lewis, Mastec's Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning. I'd like to welcome you to Mastec's 2002 fourth quarter conference call. With us today we have Austin Shanfelter, Mastec’s President and CEO, and Donald Weinstein, the company's Executive Vice President and CFO. The format of the call will be opening remarks by Austin followed by a detailed financial summary of the quarter and year by Don. These discussions will be followed by a question and answer period. We expect the call to last approximately 45 minutes.

Thank you, Marc, and good morning. Welcome to Mastec's 2002 fourth quarter call. Before we discuss the financial details of the fourth quarter, I thought I would spend a few moments reviewing the actions that Mastec has taken in 2002 to position the company for the future.

2002 was a challenging year for the economy, for Mastec and our customers. We began 2002 with a lot of work to be done. We built a new management team, focused on turning the business around in a tough environment that we faced. We identified quality, credit worthy customers and focused on building our business around their needs.

In a difficult environment we negotiated a new five-year, $125 million credit facility. That facility was amended as of December, 2002 to give us more flexibility. We began a large Oracle conversion project and we will be among the first in our industry to complete the enormous task of back office system conversion. The standardized reporting platform will enable us to run our business more efficiently.

Finally and most importantly, as part of our Project 2100 we took some very important actions in the fourth quarter of 2002 to position Mastec to improve operational results. Project 2100 re-enforced that our challenge in 2002 was not top line revenues but bottom line profitability. We spent the last half of 2002 addressing the bottom line and making a number of significant changes that will position Mastec for improved operating performance in 2003 and beyond.

As mentioned in our third quarter call, Project 2100 was designed to give us a detailed fresh look at our business. We scrubbed our business model from top to bottom, which highlighted inefficiencies and cost saving opportunities. Based on Project 2100 [inaudible], we downsized, closed and consolidated 21 offices and field locations in the fourth quarter. We outsourced a large portion of our information technology function providing a lower cost, increased efficiencies and greater accountability. We consolidated processing centers to provide for more efficient operations and we are well on our way to having the information platform company wide. We've already gone from 15 to 5 back office processing centers in our communication and broadband groups alone.

Even though it was extremely difficult, we decreased our team member count by approximately 500 people in the fourth quarter to more closely align our staff size to the market realities in project demands. Our U.S. employee count now stands below 7,000 people. We also look closely at existing customer contracts and identified those that were not providing adequate margins and either beginning renegotiation or terminating them. As a result of all these efforts we made a conscience decision to eliminate service offerings that were not our core strengths.

Our 2003 business model will be focused on the following areas, telecom, broadband, intelligent traffic systems and energy. While new CAPEX spending in the telecom industry was curtailed during most of 2002 our telecom group saw only a modest decline in revenue base which is heavily weighted towards maintenance contracts. Even in this environment we continue to pursue new opportunities.

While we continue to add new businesses we also continue to evaluate existing relationships. In Colorado, for example, we recently exited contracts due to unacceptable margins. Additional spending is expected in [inaudible] as operators upgrade these systems for high speed data. Mastec continues to be well positioned in this area.

In our broadband group, industry spending was delayed as a result of issues surrounding Adelphia, the closing of the AT&T, ComCast acquisition, the proposed DirecTV, Echostar merger, and certain other companies specific concerns. Most of these delays have ended. We have also seen a reentry into the market by several cable industry pioneers. Mastec should be a beneficiary and these and other changes in the industry. For example, as ComCast has said publicly we are one of the two principle contractors for their upgrade work. We are currently working or planning the upgrade mobilization in the San Francisco Bay area, Sacramento, Monterey, Baltimore, Chicago, Salt Lake City, Denver, South Florida, Jacksonville, and the Florida Keys and South Bend, Indiana. We also are working on various other markets under normal maintenance contracts.

New projects have materialized in 2003 for several of our other cable MSO customers as we expand successfully our installation maintenance and engineering models. We have recently booked new contracts and engineering work with Adelphia in Florida and California along with underground construction work for Cox in Virginia.

Continuing to provide services on a quality and timely basis positions the company for additional work with new and long-standing customers. In ITS we see growth opportunities from the TEA 21 spending and new homeland security expenditures. Homeland security spending is expected to increase 10% in 2003. And will not only include highway, evacuation planning but border in port security systems that also offer growth potential.

During December, January, and February, our ITS group had booked approximately $58 million in new business in Florida, Texas, North Carolina, South Caroline, Illinois, and Tennessee. We expect additional contracts in the next 60 days. Our ITS business is currently qualified in 28 states and is looking to be qualified in all the states by year's end.

Our energy group has identified new opportunities and is expecting growth and margin improvement. Presently some contracts are being renegotiated to enhance margin. Businesses that do not meet our rate of return objectives are being terminated. We have had several successes in the recent weeks with companies like Gulf Power and a number of municipal energy companies.

Finally our Brazilian operation which is relatively small continues to generate positive cash flow and nominal contribution to profitability. In the fourth quarter it represents less than 3% of sales. In short, we are focused on providing high quality service to our core customers at an attractive rate of return. I am now going to turn the call over to Don Weinstein and he'll give you a detailed financial summary of the quarter and year just ended.

Thank you Austin and good morning everyone. As Austin said we had a very tough market in 2002 and that carried through the fourth quarter. We had poor weather in November and December in many areas which impacted our operations and as a result total revenues of $838 million were slightly below our previous estimate. However the actions taken by the company, principally in the fourth quarter, to position the company for improved profiting cash flow margin is the main opportunity.

As Austin mentioned, our Project 2100 efforts were designed to increase the efficiency and profitability of our company. While that effort has been substantially completed, the financial impact will continue to grow throughout the year. Let me give you an example.

The company's already taken the steps required to enhance our risk management program, but the impacts on SG&A will only be felt later this year. As a part of this process, we recorded $93.6 million of reserves in incremental expenses in the fourth quarter. In addition, the company recorded $79.7 million of impairment to goodwill. The fourth quarter pretax income was impacted by $173.3 million of unique charges and reserves. Now reconciling reported net income for the one-time charges leaves a loss from operations of $4 million or 5 cents a share.

Now while the reserves and expenses impact year over year comparative reporting results which I'll summarize in a minute I first wanted to provide more detail on the reserves and expenses themselves. These included about $15.6 million from the reduction of the book value of assets held to sale, to their current fair value, $5 million from the reduction of the value of inventory to its fair value, a $15 million increase in the allowance for doubtful accounts. Approximately $30 million on losses for closed operations, $1 million in severance costs, about $2.6 million of reserves related to exiting certain lease arrangements and then the balance of the reserves and expenses include the consulting cost for Project 2100 increase in litigation cost to settle old claims and other expenses.

Now, turning to the comparative comments, on the income statement, revenue was $189.5 million for the three months ended December 31, 2002, compared with $252.9 million for the comparable quarter of 2001. The net loss was $108.5 million or $2.26 per share for the three months ended December 31, 2002, compared with a loss of $18.2 million or 38 cents a share for the same period in 2001.

Now our costs of revenue were $201 million for the three months ended December 31, 2002, compared with $202.7 million of costs for the same period in 2001. Margin 2002 were negatively impacted by underutilization of personnel and equipment, by ongoing de-mobilization and redeployment cost as we adjusted to lower revenue, and the costs associated with exiting various markets and contracts.

On the positive side DSOs improved to 81 days from the previous quarter and we would have seen an improvement in DSOs regardless of the incremental reserve we booked.

General and administrative expenses were $56.9 million for the three months ended December 31, 2002, compared to $63.5 million for the same period in 2001. Now included in general and administrative expense in 2001 are expenses of $37.5 million, which included a provision for bad debt to provide for receivables from clients who filed for bankruptcy in some previously disclosed one-time severance charges in 2001.

The fourth quarter of 2002 included certain nonrecurring charges that I discussed earlier. Depreciation was $8.8 million for the three months ended December 31, 2002, verses $12.6 million for the same period in 2001. Now we've reduced depreciation expense in the three months ended December 31, 2002, by aggressively managing capital expenditure, and continuing to dispose of excess equipment.

Looking at capital expenditures for the year for a moment, Mastec did limit its capital spending of $19 million. Of this $19 million, the amount was materially offset by about $14 million recovered by converting excess and non-core assets into cash. EBITDA, normalized for the expenses and reserves discussed previously, was about $13 million in the fourth quarter. Interest expense, net of interest income, was $4.6 million for the three months ended December 31, 2002, compared to $5 million for the same period in 2001. We had no outstanding balances on the credit facility at the end of the fourth quarter of 2002, although we do continue to incur interest expense from our long-term debt and periodic credit line borrowings to meet working capital needs and also to support various letters of credit. As of December 31, 2002, we amended our credit facility, which now provides more financial flexibility to the company.

Specifically, our two financial covenants which are tangible net worth and the fixed charge coverage [inaudible] were amended as of December of 2002 and going forward. In December, the amendment adjusts for the charges in the fourth quarter.

Looking forward and looking now at the two individual financial covenants, the tangible net worth covenant is set at approximately $10 million below our reported North American tangible net worth. Our fixed charge coverage ratio drops from the previous two times test to no covenant test in January and February increasing to 1.1 for March, April and May, increasing again to 1.25 for June, July and August, then to 1.5 times for September, October, November, 1.75 for December, and then 2 times from January 2000 and forward. These are the principal changes involved in the amendment. It is important to note that Mastec has and continues to be in compliance with its financial covenants.

Now, before I continue with the comparative financial results, let me also comment on another critical source of credit and that's surety capacity. Mastec has very strong relationships with its surety providers and currently maintains capacity equal to twice the highest level of bonds outstanding at any point in 2002.

Now, looking back to the numbers for the three months ended December 31, 2002, our effective tax rate was approximately 38.9% compared to 43.4% in 2001. We did receive a federal tax refund of approximately $22 million in the first quarter of 2003. And you should continue to expect that we will continue to carefully manage this important cost area.

For the quarter, some of our largest customers were in alphabetical order, BellSouth, ComCast, DirecTV, the Sandwich Islands Communication Company, Sprint, TXU, Verizon, U.S. West and various states EOT. Mastec's customer base continues to be diversified by region and client, importantly with no one customer making up 9% of sales during the quarter. Further evidence of customer diversity is that for the year the top ten customers comprised only 40% of total revenue.

And finally, regarding revenue, Mastec has been a strong top line performer which we attribute to the strength and predictability of our master service agreement arrangements or MSA model. In the fourth quarter of our top ten customers, four were telecom MSA customers, three were energy MSA customers and two were broadband MSA customers.

Now during the last quarter, revenues by service offering were as follows. Telecom accounted for 41.5% of revenue or $78.9 million. Energy accounted for 20.2% of revenue or $38.3 million, cable and our broadband business was 19.5% of revenue or $36.8 million. The ITS or government work was 16% or $30.3 million and Brazil was about 2.8% or $5.2 million.

Now, we want to be able to provide some guidance on how to financially model Mastec. Now, continuing with revenue, on a go forward basis, reported revenue for the entire year ended 2002 includes approximately $77 million of revenue from operations which were closed, sold, or in the process of being sold. Our financial guidance that we provided in our press release is conditioned on a number of factors, many of them external. We have forecasts based on the economy remaining at least level for the next few quarters. In telecom weather can be a big factor. Also as we have seen, many of our customers manage their cash flow and CAPEX budgets extremely closely.

In ITS quarter to quarter revenue and profits are impacted by weather and are highly dependent on project start times which can be more unpredictable in the public sector. Energy and broadband, weather seems continues to be the most difficult to predict. We expect the first quarter of 2003 to be relatively tight due to the bad weather we experienced in January and February and therefore forecast revenue between $170 and $180 million of revenue, with EPS between break even and a 3 cent loss. For the year, revenue is expected to range between $750 million and $850 million and EPS is expected to range between 18 cents and 28 cents. As an organization, we feel confident that the 2003 numbers can be achieved even if quarter to quarter variances can be expected.

I'd like to reinforce what Don just said. Looking forward to 2003 you should expect measurable improvement in the financial performance for the company, particularly in the last three quarters of the year. We have right sized our business and have preserved the company's best talent to continue servicing our customers with high quality work that they have come to expect.

The broadband group should show significance improvement as we wrap up our upgrade work and develop new revenues from expanded installations, home audit and adjacent type of work in the broadband customer industry. Intelligent traffic systems should also show growth in 2003 as evidenced by our recent bid success in backlog growth.

We also see opportunities in our energy service offering. We should also have margin improvement in this sector as we aggressively review our contract portfolio and eliminate contracts that do not meet our rate of return objectives. We believe that maintenance spending in telecom has bottomed out. We continue to push hard to increase our profitability in the market share in all of our operational areas. While not a significant percentage of the business model, Brazil is expected to be a stable operation and continue positive cash flows. In short 2003 looks good for measurable improvements in several of our key markets and as we see lower costs structured [inaudible] to improve margins.

Finally, I'd like to say a word to our team members. The last year was a challenging as we went through the pain of downsizing and consolidation. I want to thank you all of you for your support in 2002. We are now right sized for profitability and efficiency. The entire management team is looking forward to 2003 and we want you to know that you are a critical element to our continued success. In order to assure that we have enough time for Q&A session I'd like now to turn the call back over to the conference operator so we can devote the remaining time of our call to listener’s questions.

Thank you gentlemen. Today's question and answer session will be conducted electronically. If you would like to ask a question please press the star key followed by the digit one on your touchtone telephone. We will proceed in the order that you signal. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, if you would like to ask a question at this time, please press star one now. We will take our first question from Mark Hughes with SunTrust Robinson Humphrey. Please go ahead.

Thank you very much, good morning Could you talk about the receivables in the quarter? What did the DSOs look like at the end of the period.

Mark, good morning. As I mentioned, receivables were or the DSOs on receivables were about 81 days.

Okay. I'm sorry, I missed that. Then how about letters of credit under the credit facility. Could you talk about that? Then the current availability?

Sure. As indicated in the past, the bulk of the letters of credit outstanding relate to providing support for our casualty program. I believe we have about $45 million of letters of credit outstanding. Our availability today in terms of total liquidity for the company is about $42 million.

Gotcha. Did you give a backlog number for the company?

Backlog is about $1.2 billion.

What was the comparison last quarter?

It's up about $100 million.

And then do you have a 12-month number for that?

Well the backlog number I just provided is a an 18-month number.

Okay.

You can prorate it.

Exactly. Then very quickly, the list of expenses that you broke out starting with the $15.6 change in the valuation of assets for sale, could you run through those numbers very quickly again? I want to make sure that I've got those.

Sure. Again it was $15.6 million reduction of the book value of assets held for sale. It was a $5 million reduction of the value of inventory. And, again, those two are valuation adjustments to fair value. We increased the allowance for doubtful accounts by $15 million so it was approximately $30 million for losses on operations that were closed, the $1 million in severance, $2.6 million reserves related to exiting certain lease arrangements, and then the balance was made up of Project 2100 consulting costs, an increase in litigation costs to settle old claims and other miscellaneous one-time items.

Just so I make sure I've got it clear, that balance total, do you have a number there?

It would be the difference between the $93.6 million and the specifics I just provided.

Okay. Great. Then one final question, when do you think the ComCast business is going to kind of hit its peek and really hit full stride? What quarter do you think that will be?

I think ComCast is well on their way to hitting their projections of where they need to be. As for Mastec what we're seeing is that March will show significant ramp up compared to January and February and then I think it will be in full run you know, right around June.

Gotcha, thank you very much.

We'll take our next question from Romeo Reyes (ph) with Jeffries and Company. Please go ahead.

Good morning, gentlemen, how are you?

Good morning.

What was your EBITDA for the quarter?

Again if you normalize out for the one-time items that Mark was just asking about you have an EBITDA number of about $13 million.

What's EBITDA for the first quarter based on the numbers that you guys are providing the EPS number and also for full-year '02?

I'm sorry, for first quarter for which year?

First quarter of '03 and also full year '03 based on the EPS numbers, what's the corresponding EBITDA guidance?

The guidance we provided relative to EBITDA is that the company is targeting approximately a 10% EBITDA margin for its business operations in '03. And based on a revenue guidance of $750 million to $850 million, would result in an EBITDA guidance of approximately $75 to $85 million.

What's your CAPEX for the first quarter of '03 and for full year '03?

For the full year of '03 our CAPEX budget is going to be between $15 and $20 million. It will be very light for the first quarter of this year.

Is there anything associated with Project 2100? Are all the expenses basically done with Project 2100.

Yes they are.

What about the Oracle work?

Oracle-- we're completed with about 65% of our integration at this point, we'll be completed with the rest of it by June of this year.

Do you expect to pay taxes this year?

Not at this time, no.

What else? Anything going on with the litigation with -- related with Syntel (ph). Is that basically wrapped up? Is there anything coming back? I remember reading in the 10-Q that there was something about a $77 million bond of some sort. Can you talk a little bit about that? What the update is there?

That piece of litigation is absolutely behind us. We will be announcing a lot of this information in our annual report but we believe that the Syntel matter is basically at the point of being closed.

Great. Thanks very much.

Just for clarity with no financial exposure to Mastec.

We'll take our next question from Ramkrishna Kasargod with Morgan Keegan, please go ahead.

Good morning, this is actually Ajay Kasargod. Couple quick question. Very quickly I think you went over the EBITDA margin already, can you give us what your expectations will be for gross profit for 2003? I'm trying to understand the normalized number. The second question is you talked about increasing the credit quality of your customer base. What percentage of your customers are currently rated investment grade versus junk? Do you have a number for us?

Let me do the gross profit question first.

Okay.

The reason that we focus on EBITDA margin is to allow our investors to do comparative analysis between Mastec and its peer group. When you look at our peer group there are classification differences between how some of our peers present gross profit -- in terms of what is included in SG&A versus what is included in cost of sales, therefore, when you look at our peer group to utilize a gross profit margin calculation you end up getting a little bit of apples and oranges which is why we think for clarity focusing at the EBITDA margin is easier. In terms of the specifics of what portion of our receivable base is credit, 100%, investment grade verses non-investment grade, I don't actually have that information at my fingertips. I will tell you, you know, approximately 75% of our top ten customers are investment grade.

Okay.

The balance would not be investment grade. Generally are not investment grade because they might not have public debt outstanding, or not rated.

Okay. Thanks a lot.

We'll go next to Barry Poternak (ph) with Penseco Capital, please go ahead.

On the increase in receivable allowance was that related to specific accounts or was it a general increase?

It was related to two basic specific accounts, Touch America, we are taking a reserve on that and also the Adelphia receivable we are taking a reserve on that. The rest of it would be on small other customers that we're no longer doing business with in the future.

Okay. Are you fully reserving those or like 50%?

We did a specific account by account review and so it's somewhat different for each account.

I mean just on the Touch America and Adelphia.

On Adelphia we reserved the portion we believe to be at risk which is not 100% and it's the same answer for Touch.

Okay. And on the write down of the book value of the assets, the $15.6 million, was that due to the fact that the market value of these assets has declined or due to the fact that they weren't depreciated quickly enough or some other reason?

No, it's really more due to the economic environment we're in now. Essentially when we took these assets out of operations you then need to mark to market those assets and, you know, as you've seen the economy is still somewhat slow and, therefore, the market value of some of these assets, therefore, is less than we had as a carrying value.

One of the examples would be in the large directional drilling machinery that's out there today. The prices of that equipment on the market, on the used market has gone down significantly. The jobs do not -- are not out there to support that type of equipment right now and those are one of the issues or examples that you might want to use.

Okay. Is that -- is that directional drilling machinery used in cable or which part of the business?

It's used in telephony, in cable sometimes, as well, but also energy but it's a big bores and the pricing of that business has come down significantly from a year ago to two years ago. And it just doesn't support the cost of the equipment.

Okay. In terms of exiting of low margin business, what -- what specific business could you comment on that? Are you exiting?

We talked about one of the ones that we exited for example, we're not going to go down through everyone we exited at this point, Qwest out in Colorado was an issue where the prices were driven down to such levels that Mastec could no longer stay in that area, even though it had been in that area for ten years, so we moved out of that business out there but we're watching each market on its face and every customer in each area to make sure that if the numbers don't hold up for us and our model that we'll exit that location.

Okay. Was the bulk of the sequential increase in the backlog from ComCast?

No, it wasn't. What you've seen is when we talked about our announcement here today you see a large increase in backlog in the ITS business. From the TA 21 spending. We've increased our state coverage in that business, you know, qualifying in more states now so we had significant backlog in ITS increases, significant backlog increases in broadband and we have a consistency of backlog in telecom and energy.

Okay. Would you expect ComCast to be a 10% customer next quarter?

I think they will be growing to those levels. I think that might be more in the second and third quarter.

Okay. Thank you.

We'll take our next question from Bill Heffrin (ph) with Regiment Capital (ph), please go ahead.

Two questions, actually one is a clarification. You say you had about a $10 million cushion right now in the net worth covenant?

Yes. Again that would be $10 million after tax dollars.

Okay. And secondly, on the cash flow from operations this year, was about $57 million. How much of that came from the tax refund that you received during 2002?

About $53 million.

All right. So what's our expectation from cash flow operations going forward? Do you have more room to get that [inaudible] DSO down?

Yes, we do.

Absolutely.

Again, our DSO level today is about 81. We've really targeted mid 70s.

Mid 70s is the target?

Yes.

All right. Thank you.

We'll take our next question from Allen Metroni with [inaudible], please go ahead.

Hi, thank you. I actually had to jump off for a minute, do you mind repeating just a couple quick data’s. What were your new orders this quarter.

We just announced backlog for $1.2 million for the last 18 months?

How about for the next 12 months?

Again for a 12-month period of time you can prorate our backlog.

Prorate, so if it's $1.2 billion for 18 months just prorate it down to 12?

That's fair.

And New orders?

By new orders, Allen, are you meaning --

Meaning if you win new business, if you win new master service agreement, all of a sudden an ITS contract comes. I didn't realize if you hadn't recorded them, I'm sorry most construction companies reports new orders and backlog.

We're in the process now of securing up some of our MSAs right now and you should expect announcements in the next 30 to 60 days on those opportunities. We continue to maintain our relationship with our existing customer base, both on the energy and the telecom side and the cable side, of course, needless to say we've announced some new job locations with ComCast, with Adelphia, with Cox and the ITS business in multiple states we've been successful in being awarded and we said we -- that award is $58 million in the last three months.

Okay. Just to understand, your new net worth covenant cushion is what?

The tangible net worth cushion is approximately $10 million.

Has that changed from $180 million or is that --

Remember, let's look at it in two pieces. One is as of December. tangible net worth adjustment or we had an amendment to the covenant such that the charges in the fourth quarter are adjusted for to compute tangible net worth. On a go forward basis through 2003 and beyond, the covenant is then set at about $10 million below the reported North American tangible net worth amount.

I'm not sure I followed that. Let me tell you where I'm approaching it and maybe see if you can help me and everybody else understand it. Originally it was $180 million, correct?

Yes.

If I just take—the way I would do net worth maybe is I take your shareholder’s equity of 273.748 --

Stop right there, Allen.

Okay.

Our financial or our credit facility is North American only.

I understand.

And you're in the same place a lot of folks are.

I understand, what I would do is take the shareholders equity, take away the intangibles of 150 and add back whatever Brazil was you know, whatever Brazil detracted from you. Is that not the right way to do it?

That is the right way to do it.

If I just take your shareholder equity and take away your intangibles on your balance sheet as of now I get to $122.5, let's call it $123. How much is Brazil a drag on you? In the past you would use a number of $40 million?

I would say Brazil and international is about a little more than $50 million.

Okay. So that gets you to about $175 let's say if it's $52.

Round it up to about $180.

Okay. My question now is, is the covenant still $180 or is it now dropped down? According to this then you're basically at the covenant.

No it has now dropped down by $10 million.

So it's roughly $170 million.

Fair enough.

That's what I'm looking for. And I missed the conversation so far on ComCast. Are you not seeing what Dycom (ph) is seeing?

We are definitely seeing an increase and let me go back just so everybody can hear it one more time. We are seeing a definite ramp up in multiple locations. Let me kind of go over the list locations where we're seeing those. That would be in -- we see it in the Florida Keys, Jacksonville, South Bend, Indiana, we see it in Salt Lake City, in Denver, in Chicago, Baltimore, San Francisco Bay area, Sacramento, and Monterey. The jobs have definitely started. For the most part the projects have got started. We're starting to do a ramp up process and like we said earlier in the call we should be at full run in the middle of the second quarter. But we're definitely on a couple of these jobs got significant impact on the weekly production rates right now.

So my last question is the certain project delays by customers can you highlight again who that is and why?

First of all I think we've got to come back to some of the weather impacts that we had at the beginning of this year, November December, and even in January and February. We had snow of two foot down in the Baltimore, Maryland, area, down in south Virginia -- all throughout the west that really impacted the business to get started. Mastec does a lot of its work as an underground contractor and you don't dig underground construction when the frost line is two feet deep, three foot deep and you've got two foot of snow on top of it. We have a lot of project delays due to weather not customer delays. Secondly the project delays have been in ITS and some of the telecom work that we're doing for the IUS customers [inaudible].

Okay. Have you run through your top customers yet.

Yes, we did.

I'll get it offline. Thank you.

We'll take our next question from [inaudible] with Financial Management Advisors, please go ahead.

Good morning. I want to clarify the charges that you took. Can you just tell us what of these charges shows up in the cost of goods line or the cost of revenues line?

Yeah, for the quarter the GNA has about $42 million, cost of sales has about $68 million of these expenses associated with closed operations.

That's $110 but you said there was $93.6 million in reserves taken on the fourth quarter.

But I was netting out again from that the cost of the closed operation, also had some revenue associated with it so there was some net in plus -- I guess those would be the biggest adjustments.

I'll call you and try to get a little more detail on that. The other question I had was in terms of the letter of credits and the bank availability you said it was availability was $42 million but you said LSU is $45 and it's $125 million facility. Why is there such a gap?

The credit facility of $125 million credit facility. Our availability under that credit facility is based upon our availability or is based on a calculation of availability given account receivable and fixed assets.

Okay.

So there are limitations against that which limit our total availability and again for clarity, the liquidity of Mastec or at currently is about $42 million.

So you're including the cash balance when you're saying liquidity at $42 million?

Yes.

Okay. And then in terms of these charges you took in the fourth quarter, any of them that still need to be paid out during 2003 in terms of cash expenses?

Yeah, there's about $6 million of accruals and reserves which are going to impact '03 in terms of cash. It would be things like the exiting of the lease arrangement you know, there are certain cash obligations there.

Okay. Then in terms of just any other cash needs, what's the earn out expected for '03?

At this point it's zero.

Are there any other cash expenses that, you know, other than, you know, your typical interest expense and CAPEX we should be thinking about for '03?

No.

Great, thank you.

We'll take our next question from Russell Wilder (ph) from HL Capital Group, please go ahead.

Good morning, gentlemen. I think in the early part of the conversation, make sure I have my notes right here, you closed or consolidated or downsized 21 offices in Q4?

That is correct.

And I know you made the statement that you're the right size so at this point there's no other operations being considered for closure?

We will definitely continue to evaluate where else we can consolidate and close down back office operations. As the Oracle platform comes on completion, we think it's going to be showing us ability to continue to downsize some of the operations.

What's the projected completion of the Oracle installation.

We will have it into all our units by the middle of the year.

Okay. And there's been a loft discussion about the ComCast contracts and talked about ramping up starting in March, I guess, the big increase in the work actually that's already let out. Are you still seeing an increase in, you know, contract proposals they want bids on for the year?

I think it's very important to understand that ComCast is very clear and decisive on the way they want to build out their systems and get their work done. We have had the ability to talk with them very -- in quite detail about the markets they'd like us to get into and penetrate and to do a job in but I think the biggest important issue is Mastec's ability that we show in the past to ramp up and to produce these jobs on time or ahead of schedule. And the more that we do that, and complete that I think the more opportunity that we'll grow -- opportunity for Mastec and the ComCast projects. You know, once again I've listed the markets that we believe that we know that we're either in or will be in, we have people on the ground and most if not all of these markets and that we're getting prepped to start the projects or we're well within the starting of the project and well on the project scheduled.

Great, thank you. I have nothing else, gentlemen.

Thank you.

We will take a follow-up question from Mark Hughes with SunTrust Robinson Humphrey, please go ahead.

I think you had suggested in an answer to a question earlier that's there’s a $42 million component from G&A and $68 from cost of services. That $108 million and I think you had said that the lost revenue from closed locations was also included in that. Could you expand on that just a little bit? Just trying to figure out what that number --

Sure, Mark, all I was trying to do was reconcile between the $93.6 million of reserves and incremental expenses in the fourth quarter and that number is net of certain other revenues from closed operations. Relative to the total of about $110 million in G&A and cost of revenue associated with accruals charges and incremental expenses associated with the realignment of the business and those same closed operations.

Right. So to get from the $108 to the $93.6 million, what are you talking out? What's the delta there?

Excuse me?

What is the delta between the $93.6 and the $110?

Again, that's in part some of the revenue from the closed operations. And they are also below the line expenses.

Okay. Okay. Thank you.

We will take our last question from Min Cho with Friedman, Billings, Ramsey, please go ahead.

Sorry about that. I have one quick question. Of the ComCast markets you stated are any of them new to Mastec?

Yes, many of them are new. San Francisco is a new market to us, Chicago is a new market to us, the projects really in all of California are fairly new projects to us.

Great, thank you.

Thank you very much. We appreciate you joining our call. Look forward to talking to you in the near future.

That does conclude today's conference call. We do thank you for your participation and you may disconnect at this time.