MasTec Inc (MTZ) 2004 Q1 法說會逐字稿

Good day, everyone. Welcome to MasTec's January 5, 2005, earnings conference call. Let me remind everyone that today's call is being recorded. At this time I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning. Welcome to the MasTec's earnings conference call. Today we will be discussing the first 9 months of 2004. With us today we have Austin Shanfelter, MasTec's President and Chief Executive Officer; and Bob Campbell, our new Executive Vice President and Chief Financial Officer; and Michael Nearing, MasTec's Executive Vice President and General Counsel.

The format for the call will be opening remarks by Austin, followed by a few comments from Bob on the financials. Financial discussions will be generally limited to GAAP-based financial items and their derivatives. These discussions will be followed by a Q&A period; and we expect the call to last approximately 1 hour.

Before we begin our General Counsel will read the General Safe Harbor statement. Michael.

Thank you, Marc. The following statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we may make certain statements that are forward-looking, such as statements regarding MasTec's future results and plans, and anticipated trends in the industry and economies in which MasTec operates.

These forward-looking statements are the Company's expectations on the day of the initial broadcast of this conference call, and the Company will make no efforts to update these expectations based on subsequent events or knowledge.

These forward-looking statements are based on MasTec's current expectations and are subject to a number of risks, uncertainties, and assumptions, including that our revenue may differ from that projected; that we may be further impacted by slowdowns, postponements, or cancellations in our clients' businesses, or deterioration in our clients financial condition; that our targeted service markets may not expand as we expect; and that our reserves 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 costs associated with realigning our business, or may be unsuccessful in those efforts.

Should 1 or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from the results expressed or implied in any forward-looking statements made by the Company in these communications.

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. Austin?

Thank you, Michael, and good morning. Welcome to our call. I am pleased that we are up-to-date on all of our SEC filings. Despite the delay, we have a number of positive items to report. I want to start by highlighting the accomplishments of the first 9 months of 2004, and then along with Bob talk about some items in detail.

The appointment of Bob Campbell as CFO has been great for the Company. Bob hit the ground running and has already been instrumental in recruiting and beefing up our financial, managerial, and accounting staff and capabilities. He brings with him a long career of success, and we are fortunate to have him on board. Bob and our Corporate Controller Gene Fraser (ph) have worked tirelessly with their staff in getting our financial reporting process up-to-date and back on a timely filing basis.

Our liquidity position continues to improve, and we ended the year with $54 million of liquidity. A number of highly qualified Board members have joined us in recent months, and we believe that we will have an exceptionally strong and engaged Board for our future.

Another positive change has been having BDO Seidman as our new outside auditing firm.

MasTec has completed the shutdown of our Brazilian operations. We have applied for adjudication of bankruptcy; and the Brazilian courts have placed our Brazilian subsidiary into the equivalent of Chapter 7 liquidation in November of 2004. We expect the Brazilian operation to have little future impact on our operations or our cash flow.

We have been actively implementing and testing internal control systems for Sarbanes-Oxley compliance. We have developed a new internal audit function in order to assist with future financial reporting and compliance.

MasTec continues to provide quality support to our customer base and their networks. Year-to-date revenues has grown compared with 2003 despite the wind-down on our cable, upgrade cycle for a major customer, and the elimination of Brazilian operations.

As many as you are aware, major opportunities exist in the fiber network upgrades for some of our customers. We are well prepared to take advantage of this market. In fact, we're already installing fiber to the premise in multiple states. Our installed in the home business for video delivery to customers continues to grow.

Additionally, as part of our effort to include improve financial performance, we are closely evaluating every division, office, contract, and manager to see that the Company's policies, procedures, and financial expectations are met.

Finally the changes we have made in the last year should drive improvements in performance. A number of items give me confidence for 2005 and beyond.

First, our extensive preparation work over the last 18 months for Sarbanes-Oxley compliance has enabled us to develop a best practice across the organization and strengthen our operational policies and procedures. Our new internal audit group will continue to assist the Company with this process.

Second, we have made significant upgrades in our financial reporting and operational personnel over the last few months.

Third, we have fully returned to our core business that has made MasTec successful in the past.

Fourth, our liquidity position continues to improve, and we are actively working on ways to reduce our letter of credit needs for collateral and to free up more cash and availability in the future on our credit facility.

Finally, we have a strong credit-worthy client base, with long-term relationships. There are numerous growth opportunities within the universe of the clients we serve.

I would now like to turn the call over to Bob so he can discuss the initial observations and some of the financial details of the quarter. Bob?

Thank you, Austin. It is a real pleasure to be talking today with MasTec investors. I hope I will have the opportunity to meet with many of you in the near future. Additionally, I hope our ongoing communications meet all of your needs and all of your expectations.

I have a few comments I would like to share with you before I get into the numbers. First, I want you to know that I am personally committed to improving the timeliness of our financial reporting. As Austin mentioned, we have already started beefing up the MasTec financial function, so that in the future we can file and report on time. We have added additional finance and accounting people in my short tenure here; and we're in the process of strengthening both the corporate and field finance functions.

Second, you should know that my decision to come to MasTec was one that I did not take lightly, and I did thorough due diligence before accepting the position. I was getting ready to extend my contract with my prior employer. I was in a business that had already been restructured, and we had a strong finance team. In short, I was in a position where I was very comfortable.

Before I made the decision to come to MasTec I spent considerable time validating this opportunity. I talked to current and past Board members, our prior auditors. I looked at the books. And of course I talked extensively with management.

The conclusions of my due diligence were twofold. 1, I believe that MasTec has a good core business and a quality customer base that we can grow with. 2, I believe that strengthening the MasTec finance team and financial reporting is something that Austin and I can certainly do.

So I finished the due diligence, accepted the position, and now I have been here a little over 2 months. You should know that there have been no real surprises for me. The MasTec opportunity and the MasTec challenges are no different than what I expected to find. I continue to believe that we have a good core business which should do well over time, and that financial management at MasTec can and will be strengthened.

Now let me turn to the numbers. Revenue for the first quarter of 2004 was 200 million, a 14 percent increase over the 175 million in 2003. Revenue increased primarily due to increased work for our 2 largest cable and satellite customers.

The net loss for the first quarter was 46.1 million, compared to a loss of 1.8 million a year ago. The increased loss can be attributed primarily to 4 items. First, as Austin mentioned, we had a $20 million charge to discontinue our Brazilian operation. Second, we had a $9.9 million increase in insurance expense.

Third, we experienced compressed margins, which were compounded by 3.7 million in loss accruals and charges for unprofitable contracts. Fourth, G&A expenses were up 4.1 million. And finally, in the quarter we had $900,000 in charges for inventory obsolescence and the impairment of certain assets.

The insurance increase in Q1 was the result of increased claims and adverse development in the quarter, which caused us to adjust our actuarial assumptions relative to our insurance cost. Like many large companies, we use an independent actuary to assist us in developing insurance cost estimates.

The increase in G&A in Q1 included 1.3 million in bad debt expense and 3.6 million in increased professional audit and legal fees, including significant dollars for ongoing litigation and for Sarbanes-Oxley work by one of the big 4 accounting firms.

Moving to the second quarter of 2004, revenue increased 15 percent to 231 million compared to 201 million a year ago. The net loss for Q2 was 740,000 compared to net income of 2 million in the second quarter of '03.

The second quarter was impacted by continued increases in professional audit and legal fees, and by loss accruals on certain projects. Also, bad debt expense increased by 1.3 million. The increase in professional audit and legal fees was $3 million compared to last year, and primarily reflects higher litigation and Sarbanes-Oxley costs. The second quarter included 1.4 million in loss accruals related to unprofitable contracts that we are winding down.

The third quarter was clearly a much better quarter for MasTec. Our revenue and operating margins improved, and we had a lesser impact from professional and legal fees. Revenue for Q3 was 250 million, a 6 percent increase over the 237 million last year. The revenue increase included increased install to the home business, work in Florida repairing infrastructure damaged by last year's hurricanes, and initial fiber to the home deployments.

Net income for Q3 was 4.2 million, compared to 2.3 million a year ago. That is an increase of 83 percent. Basic and diluted EPS was 9 cents compared to 5 cents in the third quarter a year ago. G&A expense increased 3.4 million, including a 1.3 million bad debt expense, and we had an increase of 1.4 million for professional audit and legal fees, which includes the cost of our Sarbanes-Oxley efforts. MasTec did not need to book any loss accruals on projects in Q3 either in the '04 quarter or in the '03 quarter.

Although we only have 1 reporting segment due to the similarity of services and products, we generated revenue from the following industries for the 9 months ended September 30, 2004, as follows. Telecom, 189 million of revenue, 28 percent of the total. Broadband, 261 million, 38 percent of the total. Energy, 131 million, 19 percent of the total. And our ITS group, government group, 100 million for 15 percent of the total.

As of September 30, North American accounts receivable DSO was 83 days. That is the average Days Sales Outstanding of our accounts receivable, and it includes contractual retainage and is calculated based upon 90-day revenue trends. Frankly, 83 day DSO is just too high, and one of my goals is to lower this.

DSO reduction is a team effort and will require even more effort by both our finance and operations groups, including Austin, our group presidents, and me. Also, as we focus on customer profitability and customer cash flow, I expect to see DSO improvement coming from improvements in customer mix and customer quality.

As Austin mentioned, liquidity has improved as we closed out the year. At the end of Q1, our liquidity was 22 million. At the end of Q2, it was 37 million. At the end of Q3, it was 24 million, and we closed out the year with 54 million. We are defining liquidity as bank cash on hand, plus availability on our revolving credit facility.

As we noted in our Q3 press release, we are in compliance with our amended bank covenants, and we very appreciate the continued support of our bank group.

For the first 9 months of the year some of our largest customers, in alphabetical order, were BellSouth, DIRECTV, Comcast, Florida DOT, Florida Power & Light, Encore, TXU, Progress Energy, Qwest, US West, Sprint, and Verizon. Our customer base continues to be diversified in terms of both size and geography.

For the first 9 months of '04, our top 20 customers were approximately 71 percent of our revenue, and our largest customer was 19 percent of the total. For the third quarter of 2004 alone, the top 5 customers were DIRECTV, 21 percent of the total; Comcast, 10 percent; BellSouth, 6 percent; Sprint, 5 percent; and Verizon, 4 percent.

We intend to withdraw our SEC Form S-3 that was filed in January of last year; and we will continually review the markets to see if a transaction could make sense at some future time. When conditions permit we expect to file an S1 to seek additional capital to support our expected growth. At this point, I will give the floor back to Austin.

Thanks, Bob. Here are a few key points I wanted to leave you with prior to Q&A. Our MSA model, which focuses on these well-capitalized customers, continues to deliver a stable revenue base for MasTec. Our challenge is to manage these revenues more efficiently and bring acceptable margins to the bottom line. Towards that end, we have made a number of structural and personnel changes.

Across all divisions we see opportunity for profitability growth. Our end-user install to the home offering continues to grow and has already replaced the declining revenues as major cable customers' network upgrade programs are completed.

Fiber to the premise is now being deployed in large quantities, and customer timelines continue to be aggressive. We believe that the potential scope of this work will be significant for our sector, and that MasTec will continue to get a market share with acceptable margins.

In recent weeks we have obviously been focused on getting our SEC filings up-to-date. However, we believe that we will be in a position to give forward guidance on 2005 sometime before we file our 10-K in 2004, which we expect to be on time.

Finally, I would like to offer a few words of thanks related to the obstacles that we have overcome in the last 9 months. Our team members, we thank them and congratulate them for their hard work in 2004. Many of you have worked tirelessly to get financial reporting and business issues behind us. We would like to thank our loyal customers who continue to believe in us and whose trust was repaid by quality work all during the year.

We would also like to thank our financial partners, making working capital, security capacity, and insurance coverage available to support our business. And finally we would like to thank our shareholders for their continued support.

In order to ensure that we have enough time for Q&A session I will now turn the call back over to the conference operator, so that we can devote the remaining time of our call to our listeners.

(OPERATOR INSTRUCTIONS) Alex Rygiel, Friedman, Billings, Ramsey.

Gentlemen, welcome back. It's good to hear your voices again. A couple quick questions with regards to fiber to the premise, fiber to the node, fiber to the curb. Can you break down each one of the major RBOCs, Verizon, BellSouth, SBC? Update us on your activity or involvement with those 3; and then maybe help us to better understand what the future opportunity for those 3 could be for MasTec?

First of all, Alex, let's kind of go through the history of MasTec. MasTec has got a long-term history with all the RBOCs in providing the MSA (ph) agreement work for them, some dating back as many as 50 years when you look at our companies.

So the bottom line is our customers -- the customers in the RBOC world are very familiar with MasTec, number 1; and also MasTec's capabilities and capacity, number 2.

The bottom line is that Verizon has been the only company that has really gone out there at this point and really started work. Without going into the details of that work, MasTec has been able to obtain work in 4 states presently, being Florida, Texas, California, and Pennsylvania.

We expect to have a lot more clarity exactly what the volumes of those work is going to be in '05 and really the next coming months. Probably in the next 2 to 3 weeks, to be precise. We continue to be able to fulfill their needs and do work that they have let out to multiple contractors over the last literally 4 or 5 months.

We absolutely saw growth in our Verizon revenues Q-over-Q from Q2 to Q3, and we're seeing it in Q4 right now. As you notice from our announcement here today, that Verizon, which was not a top 10 customer in previous quarters, became 1 of our top 5 customers in this quarter, indicating the work levels that we're seeing.

As for BellSouth and SBC, those processes are ongoing. Conversations and discussions are taking place, and we believe there will be significant opportunities for those clients in the '05 years.

Great. 1 other question. I don't know if you have it available or if you are ready to disclose it yet, but talk a little bit about backlog.

Our backlog number remains consistent with what we have reported out there. What we have reported out there is 1.1 billion. We will be fine-tuning that process in the next couple weeks for the year-end close and announcing that either with the 10-K or prior to the 10-K information. But our review of it at this particular point remains very consistent with previous announced numbers.

Since your last conference call, clearly your largest customer has shifted to become DIRECTV, a pretty sizable customer in the most recent quarter. Can you generally talk about the profitability in the home install model, versus some of your other lines of business, that gives us a sense as to where operating margins could eventually fall out at in the coming future?

Without going into the actual detail, which I'm not going to be able to do, Alex, today, of what exact profitability are in any specific customer, let me kind of go through the issue.

MasTec set a course late in '03 to really try to take advantage of the market that is out there to do installation to the home product. We believe we built a very large model for DIRECTV, and we also continue to service cable clients as well in that marketplace. We think that is a market that can absolutely continue to grow, and that MasTec will be a market leader in that market as we look forward into '05.

But the bottom line is for us, from a margin projection, is we historically -- and I don't see any reason to dispel the historical information that we have rolled out -- but we have historically said that our cable and our broadband offerings were our highest-margin business. And secondly behind that would be the telecom business; and then thirdly behind that would be the energy; and lastly would be the government work.

So that is about as much as I'm prepared to give some real details. But this work and increase in this work is definitely one of our higher-margin businesses.

Great. Thank you very much, gentlemen, and welcome back.

Liam Burke, Ferris, Baker Watts.

Austin, how are you today? I had a question on gross margins. Directionally as I go through the year, they are getting stronger. Obviously first quarter was a throwaway, since you had write-downs and whatnot. So you are about 88 percent here at the end of the third quarter.

What can we expect with the mix of business that you have, how gross margins will settle into the end of the year, and how you are set for next year?

What I would like to say is that we're absolutely focused on improving gross margins. I think that the first quarter and second quarter absolutely included items that were one-time in nature and those type of items.

Without -- I think third quarter was more of a generalized model for people to expect from MasTec going forward, and we are going to be looking for areas of improvement across the Company for improvement. I think the fact that we're out of some of our customers and some of our areas that we were not successful in -- i.e., Brazil -- that we don't have anything drawn away from our core business and its performance.

So we are going through some financial models here right now. Being delayed of going through those historically, which we went through in November and December and previous years, we're doing now. I am going to be able to offer more detailed information on the Company. We will be, really, in the next coming weeks and month or so, and I would rather wait to give you that detailed information at that point.

Great. Thanks, Austin. Just another question on the telecom space in the third quarter. You had about 16 percent revenue growth year-over-year. How much was that fiber to the home versus hurricane repair? Generally; I know you cannot give me a specific breakdown. But was it more hurricane or fiber to the home?

It was more fiber to the home. Let me kind of go through the hurricane. Even though it had a little bit of impact for us, I think it's very important for our shareholders to understand that our number 1 market that we serve is Florida. When these 4 hurricanes hit down here and literally shut down our ongoing day-to-day business operations -- and those included telecom, cable, satellite and DOT, you know, government contracts -- it literally -- this state got shut down.

Of course what was of benefit to us is that we did have resources in the energy business; and eventually we got out there to do some repair work in both DOT, satellite, and cable. But it really did not impact us that greatly of a benefit during that period of time. We lost so much normal business that we were fortunate enough to get back the emergency business; but at the end of the day it was a small positive impact.

The real strong impact to us in our telecom group was absolutely the emergence of fiber to the home and the Verizon contracts that we received.

Okay, thank you.

Mark Bishop (ph), The Boston Company.

A few questions. First of all on expenses, if you adjust out the one-times, it looks like your expenses got down to about 14 million in the second quarter and then popped up to 16 in the third. I am just wondering what is a good go-forward level for expenses, maybe on an annualized basis going forward. And are there future cuts that you can make there? Then I have a couple other ones.

Let me address the future cuts first. It's absolutely a process we're going through right now. This kind of relates to just my earlier comments here, that we are going to evaluate every single cost that goes out of this business here in the next, really, 30 days. There is absolutely areas that we can reduce costs. I think we can reduce costs in professional fees. I think we can reduce costs in legal fees. I think we can reduce costs in many, many areas that have affected our first 3 filings of this year, and we will attack those.

But also let me kind of repeat, too. Right now at this particular point, it is imperative that MasTec take the real detailed approach with the new CFO and this new financial team to really analyze every single one of our businesses and get you folks a real clear understanding of where we can go in the future. And that is going to take us another 25 to 30 days.

Is there some sort of seasonality to expenses that bumps it up in Q3 or not?

That is -- not really, (indiscernible). I don't think you'll find that to be the case.

Okay. Is there any significant gig-BE (ph) work? Have you won any of that, or is there any work reflected?

It's been very minimal. It is not even a -- it has been very minimal. The work that we expected probably last year to come out in that marketplace has been more sporadic small projects rather than large pieces of work at this point.

Is that still a significant potential big deal for you, or not really?

I think that if they -- it is a potential deal for the Company, yes.

When you say liquidity is 54 million at the end of the year, that is all available? You could take that out in cash right now. Or is some of that in use for letters of credit or something?

That is all available, right. That is after deducting outstanding letters of credit.

Is there a seasonal working capital use at the end of the year? Or would you expect to be able to generate some working capital, cash? Generate some cash from working capital in the first couple of quarters of next year?

We expect to continue to generate cash, I think from 2 perspectives. Number 1, which is a real big swing, is the customer mix issue. Number 2 is that we're definitely got our hands all around the DSO collections perspective. Third, we are managing our business a lot better and tighter. We don't have the losses in our business that we had previously.

Okay. Finally on your CapEx, can your CapEx remain in the 10 to 15 -- I think your filing said it could be 10 to 15 million for the next couple of years. Is it likely to ramp up again to the neighborhood of -- it used to be much, much higher, like 50 million. Is it likely to ramp up to 30 to 40 or 50 million any time in the next 4 years?

You know, here again the question is going to be, is how rapid does the opportunity of fiber to the home come out and what CapEx is going to be needed to meet those needs. And secondly, with our growth in installation to the home model that we have seen, exactly what the need of CapEx is going to be there.

The difference going forward compared to the past is that for MasTec to outfit 100 vans to do home installations, compared to in the old days when we were working to buy $1 million directional drilling machine to service the CLEC industry, is vastly different. We can have a lot more -- probably a better rate of return on our current CapEx than we did maybe in our past; and a lot more safe and secure investment in our current opportunities than in our past.

So right now we have not determined, without having our budgets totally completed for '05, exactly what CapEx will be. But it could grow in this year as the opportunities exist, as the opportunities come up with fiber to the home and with opportunities in the install to the home model.

Okay, thank you.

Derek Coppel (ph), Everest Capital.

Now that your finances are out on the table, have you guys seen an improvement in business picking up? Now that everybody sees that the books are open and everything is going a lot better for you guys?

Let me kind of put this in perspective. I think that our team numbers in this Company did an incredible job, while somewhat under attack by our competitors and also by the uncertainty of our customers, in communicating to our customers exactly where MasTec stood. And many times actions speak a lot louder than words or attacks by others.

The bottom line is that MasTec did not see any reduction in its current customer base; as a matter of fact saw some wonderful increases of opportunities with our customers.

Do I believe that the fact that these things are filed now and are out, it will clear up a lot of opportunities for us to discuss even deeper with our customers where MasTec can go and what it can accomplish? I believe that to be absolutely true.

But I think that once again we did a great job during these difficult times to continue our strong relationship with long-term clients, and we will continue to build off of that.

Thanks.

Bill Hevron (ph), Regimen (ph) Capital.

A lot of my questions have been answered, but 1 more. Do you have a breakout between the accounts payable and accrued expenses as of last quarter? They are lumped together in the line item on the balance sheet.

Let me turn that over to Bob.

Just give me a moment.

I can hope off if you want to go onto the next question.

Yes, we will come back and answer that. Thank you, Bill.

Alase Amad (ph), Babson (ph) Financial.

Could you just give me a breakdown of your liquidity, as in how much is cash and how much is bank revolver availability?

The cash right now is 24 million, and the revolver availability is 29.

29? Now would you by any possibility have numbers for your fourth quarter? Like any kind of expectations for what it is going to be like?

You know I expect to see the revenue trends be consistent with this year, that we have seen in previous quarters. But then at the end of the day we went to finalize our number before we guide anything on a bottom-line perspective.

This might be something that I might be doing wrong, but just like your last 2 fourth quarters have been like negative gross profit. Now is that correct? Or am I just doing something wrong there?

I believe you're correct.

What is the reason for that? Why have they been so lopsided in that sense?

Historically there has been a lot of seasonality in the MasTec's customer mix and in the areas that we serve. We have divisions up in the Northwest and out in the mid Northwest that really are affected by strong seasonable effects.

I don't know if you recall, but if you look back into last year, there was a massive amount of rainfalls in Q3 and Q4 of last year; and the snowfall was a lot greater than it has been in the past. It's an issue where we have got a situation where it's been seasonality for the last couple of years.

I think that this year it is going to be different, or in the future it will be different for us because of, number 1, our customer mix. As you come away from pure construction that is affected a lot by the weather everyday, and move into a more installation to the home model, where those jobs get done whether it's rain, sleet, or snow, I think that that will help flatten out some of our seasonality in the future.

The bottom line is, too, the last couple of years we have had a number of onetime charges in both quarters (multiple speakers) I think you'll find.

So would you say you're looking at a positive EBITDA for the fourth quarter?

Here again on I am not going to guide the fourth quarter's bottom line.

All right. Thank you.

Cade (ph) Capital Management, Macon Rudisell (ph).

Just looking at the history of the Company, while it is not a completely cyclical business, there is a cyclical spin to a large number of your customers, and particularly the telecom customers that are moving up as a higher percentage of revenue. When you look at 1999, where you earned $1.20 or $1.19; and 2000 when you earned $1.67; and 2001 where the Company earned 94 cents, there were clearly cyclical type spins that were driving these numbers.

As you have evaluated fiber to the premise, fiber to the curb, fiber to the home, the estimates are pretty impressive by at least what is being said for the CapEx budgets for these customers. 10 billion on the low end, and 3 to 5 years anywhere from 10 to $20 billion. It is a big opportunity if it indeed comes through, and the timeliness will be difficult and it will be lumpy.

But I guess my question is, when you go after this business, what -- who -- type of a market share -- I guess first of all, what type of work on that percentage would be considered construction-type environment? Would it be 30 percent of the CapEx numbers or 40 percent of the CapEx numbers as far as what could be business bid on by MasTec?

Secondly who do you, other than Dycom and other companies that will be -- can you talk a little bit about what type of market share you would like to take and who you will see? Who you will really be competing with to get some of this business?

Okay. The bottom line is that for MasTec in terms of which RBOC we are talking about -- because they all have a little bit different plans out there -- but in general, the numbers that been announced you are looking at labor portions of those budgets anywhere from 30 to 50 percent.

That is not only dependent upon the exact customer or the RBOC. It is also dependent on the region of the country you're working in to some extent, from cost. But for an average we look at anywhere from 30 to 50 percent of it is going to be spent on labor.

The bottom line is that this is the first time in really 4 years that there is an industry trend to go back out and spend money on their networks. I think that the FCC has come out with rulings that finally allow the RBOCs to really take notice and decide that they're going to spend money. I think we have heard pretty solid commitment from all the major players out there that they are going to. We are actually seeing some of that being spent out there in the field.

I think that there will be some bumps in the road where certain quarters are up better than other quarters on amount of work. But at the end of the day, there is going to be enough work out there for the good companies to truly be successful in this marketplace. MasTec because it's got a strong footprint in many of these markets -- and it goes to our geographic coverages -- believes it will get a very strong first share of this type of work.

I think it's very important to understand that our industry has really been ravaged with quality people over the last 4 years. You take a MasTec that at the end of 2001 had over 10,000 people performing work everyday; and our numbers are down to 7,500 at this particular point; and that is a buildup from 6,500 at the beginning of '03.

It is going to be a challenge for each one of us to bring back the teams and the people that are capable of performing these amounts of work. I think that is a very good industry trend and a real positive for firms that do our type of work.

But the bottom line is that we are an established Company, a branded Company, and people know who we are, where we are. And we have the ability to grow that not only from a recruitment base but from a training base and from a quality base of doing work for our customers.

The other thing that's probably a benefit from a trend perspective is that if you look back 4 years ago there were not larger companies to service these needs in our industry. We were not known that well and companies weren't -- our clients were not looking to just (ph) large companies to get large pieces of work done. That has been a real paradigm shift in our industry over the last couple years, where I think our customers do realize our capacity, our capability.

And the fact that they have continued to hire us through thick and thin, and we continue to see long-term relationships grow, not constrict, I think we've got an absolute strong opportunity to continue to improve our market share in those opportunities over the next years to come.

So in regards to that, if you looked at BellSouth, SBC, and Verizon specifically, BellSouth has historically had -- you have historically had a really good relationship with. You said you were in discussions with them. Would it be out of our expectations to see them show up here in mid to late 2005?

With a customer like that, that you have had closer relationships to and where proximity seems to benefit, would 20 percent, 30 percent market share of their CapEx be a reasonable expectation?

Let me answer it this way. I would tell you that MasTec does have a very strong relationship with BellSouth. But the bottom line is that companies like BellSouth, SBC, and we see it in Verizon, are going to look to companies that can get the job done. That come in there, give them a commitment, make the deliverables happen on a regular basis, and get the product dug.

We have a long history of proving that we can do that and that we can meet our customer needs. Do I have strong confidence that as a BellSouth project rolls out that MasTec will be a significant player in that opportunity? The answer is absolutely yes.

Just final question. Ex-telecom related business over the next several years, can you talk a little bit about energy and government and what types of cycles they are in? What type of opportunities, that the rest of the business that may not be so exciting? What are you seeing in those industries?

First of all, what I would say about the energy and the ITS and government businesses are both those businesses are very good businesses. They have strong potential for growth. They are businesses that are synergistic to the rest of things we do as a Company. And their customer bases are a strong customer base. Working for the federal government or state government is a very safe client base; and working for a utility company is a safe, strong client base.

We have to do a lot of work internally to tweak those models and to tweak the divisions that have not provided us performance that we expect them to do over the last couple of years. But we definitely believe that we have made some management changes, structural changes to enhance those performances in both those divisions.

But the bottom line for us is that they are a very attractive business because our customers -- it's large barrier to entry in both those industries. Our customer absolutely knows MasTec's capacity and capability, also is very aware of our quality.

MasTec when these storms did hit was one of the first line companies that called. We brought literally city after city back up over many, many months. Those are issues that just showed us that our customer leans to us for services over the future.

I think that energy is more of a slow-moving industry. They are more methodical in their approach of what companies they are going to work with in the future. But the industry itself has consolidated quite strongly over the last really 3 years.

What we're noticing is that the utilities are working more with larger firms, like a MasTec, in comparison to the mom-and-pop type of firm that they worked with in the past. Because number 1, they exist; and numbers 2 is because they have been successful in offering their services.

Thank you. I know I have stolen the floor here, but from an international perspective, given your relation, where you are, has there ever been a -- the buildouts going out in Iraq and with this hurricane -- has there ever been the thought process of staffing a division to tackle what is going to be a multibillion dollar spend in these areas?

At the risk of being curt, been there, done that. MasTec has not had a real successful history of going out and doing work in other countries. At the beginning I think we did very well. But the dynamic changes that are out there and with some of the new rules -- and I think this is 1 of the effects of some of the new things we have got to deal with in SOX -- MasTec is not going to be a risk taker in those foreign markets at this point.

So yes, the opportunities have come to us. Yes, they have been vast. But I think that there's a better opportunity here locally. I think as we are shoring up all of our reporting structures and really improving the business as it stands, we're going to look at the domestic markets here and really look for growth and dependability there.

Thank you.

Bob would like to come back. There was an earlier question asked about AR accruals. Bob, if you wanted to answer that?

The question was the split out between accounts payable and accrued expenses. The line in the Q is really an Accounts Payable line which grew from 100 million, 117 million, between December and September pretty much following the growth in the business and the growth in receivables.

The other current liabilities includes the accrued expenses, which is predominately payroll and insurance liabilities. And the drop, the predominant drop in those liabilities has been a drop-off of Brazilian liabilities. I believe Bill had that question.

Operator, if you take the next call, please?

Alan Mitrani of Copper Beech Capital.

Welcome back as well. First of all I was glad, Austin, glad to hear your answer regarding Iraq. After seeing Spain and Brazil the last years and seeing what's going on in Iraq, all we need is guys roaming around in Iraq from you. So am I am glad you are sticking to domestic stuff.

Which division is not performing? The way you have talked about it, you keep referring to a division or businesses that are not performing. Can you tell us which of your 4 divisions are not performing in your mind up to snuff, or which may be using capital?

I'm not going to go the (indiscernible) to the point of using capital; but I will say to you that we have talked very publicly I think over the last literally 9 months or better that our government business needs to be improved and we need to make some changes in how we go at that. We have made some change in the leadership. We made some changes in financial staff.

We're looking to improve that business. It is a strong business. It is absolutely fixable, and we just need to put some more checks and balances on it to make sure and ensure that the profitability that we have seen really from '98, '99, 2000, 2001, and 2002 comes back into the business.

From an EBIT perspective is it profitable now?

We're not breaking those pieces down like that, Alan. Hopefully in the near future we can get you some more details.

I want to say thank you, guys; I appreciate the further disclosure. I am always for more disclosure in general. I think giving us the top 5 customers is good. I would love to see that in the Qs; or if you even have that data. Bob, do you have that data for the first 2 quarters you can give us, of '04? For the top 5 customers by quarter?

It is not available for this call today, but will take under consideration for the future.

I appreciate that. Anything you can do for that. With the government sector, with that, I know the government sector takes a lot of bonding. It's normally a heavily -- like you said, big barriers to entry. I noticed you started putting those in the Qs in terms of the amount of bonding.

It looks like the bonding that you have been using, at least from the second to the third, dropped from 165 down to 143. Is that you deemphasizing the government business to some degree? Is that what I can read into those numbers?

I think what you can read into it is that we are going to be very disciplined in our bidding approach. The bottom line is we're not going to be aggressive bidders on projects, and we are going to be very resolute to make sure that anything we do bid and do use security capacity for are contracts that we absolutely believe are going to be profitable contracts for us in the future.

Good. The other thing, I have a couple of balance sheet questions too. Bob, can you talk about, you said the insurers -- do you expect increased insurance accruals going forward? I know you have the 9 9, which is sort of a catch-up for a couple of years and extras. But do you expect the accrual for insurance reserves to be elevated versus where they were in the third quarter, or to be versus last year on a quarterly basis?

I think first of all, that would go along with a lot of the earnings guidance that we are not prepared to provide at this point. Having said that, we watch our insurance costs, which are of course -- the basic process is an estimate of ultimate loss till the end of the day on all of your claims.

We disclosed that we saw some trends, and we booked in Q1 obviously a large charge that reflected the impact of those trends. The only thing I will say is factually that kind of increase did not continue in Q2 and Q3. The rest will be simply a result of the growth in the business and our success with our safety and claim management efforts. But I will say this, there is a higher level of resolve today to deal with safety and claims management issues at MasTec.

To add to Bob's comments, Alan, I think that you're going to hear a lot more from MasTec in the quarters to come about our efforts to take aggressive steps to reduce our exposures and our risk and to get these numbers back to an acceptable level.

That is really the question. There's 2 questions I have really, and it relates to the new auditors. I know BDO Seidman is looking at your books; I assume they need to do basically almost a reaudit, I assume, not that they are going to the audit. So there's 2 issues that I have that I wonder if they have a different opinion on or what you can say.

One is the issue of goodwill. You guys have had about 151 million in goodwill for a while. You took down the amount from Brazil because it went bankrupt. But is there a look -- now that you've gotten out of many of the sectors that you entered in the late '90s -- is there a relook at goodwill in terms of the carrying basis?

And second of all, you have about 50 million of accrued insurance short-term and long-term; and you have 70 million of LCs, which means roughly you keep about -- assuming all the LCs are for insurance; I know there's some for legal stuff -- but you are keeping roughly a dollar -- your insurance carriers have basically $1.40 to cover what you're accruing on your books for every dollar of risk.

So either -- to me this is what I still can't get. Either the insurance guys, 1, like you said are making you -- are very, very nervous and they want $1.50 or $1.40 because they think you're under accruing. Or there is something that I am not understanding. Can you just explain those 2 things relative to your new auditors?

Let me do our best. First of all, goodwill. We have an obligation as a Company to evaluate goodwill every single quarter and every single year. We will continue that process in a detailed process. That will go through a process with BDO. But I don't see that the change in auditors having any different opinion on that practice or that evaluation.

We will use a third party that comes in there and works with us to do that. We will either substantiate a reduction or no reduction based on those data points. But you can absolutely consider that that has taken place throughout this year. It has been an area that we have had a lot of focus on.

As far as the insurance piece, without going down the full path let me kind of break down something for you. The actual LCs, the insurance carriers, is around $60 million. This is an estimate; it is not a precise number. We also have $10 million of LCs pledged to our security company to back up our surety needs, therefore making them strong long-term visibility for us on our surety capacity.

We expect to do the right things for the business, to review some of those LCs when it comes to surety in the year 2005. The bottom line is that your assessment of the way the insurance companies are presently working -- I would concur with you that they just have the ability right now at these points to literally have collateral that is above and beyond the actual need.

That is something that we are working on through not only discussions and conversations with our current and past carriers; but we are also looking at third parties. We mentioned in our dialogue to look at other alternatives, to pull that collateral off and do other methodologies for that. Things like loss portfolio transfers, type of products like that.

Great. I appreciate that. Last question, just related to you talked about the customers. DIRECTV and Comcast at least for the third quarter looked to be about 90 percent of your broadband business. Do you have what Comcast was so far for the year-to-date basis?

I know I think last year -- I wasn't sure if the numbers were restated or not -- but last year in your K it said Comcast was about 117 million year-to-date. If they were the same second-largest customer in each of the quarters, roughly about 98 million. So call it close to on par with last year, assuming fourth quarter is somewhat decent.

What I am wondering is 2 things. What is Comcast year-to-date, if there's 98 million, right? 2, how much of that business, similar to Dycom, where they saw a drop off, Comcast has said basically they're going to be finished by the end of this year. How much of the Comcast business do you expect to come back in '05?

First of all, I think your numbers are quite accurate. Year-to-date it is right around $100 million. We're seeing a definite decline in Comcast, especially September, October, and November as we are trending out of the projects and getting them completed.

Going forward to next year, the opportunities with Comcast of course are not the rebuild opportunities; or even with any cable customer. They're going to be in the installation to the home and the general system maintenance.

Depending on what takes place with the potential Adelphia sale or purchase by another entity, and depending on that entity, would there be some possible upgrade work to receive? The answer is yes on that. But we don't have that defined at this point.

But we definitely knew the decline was coming with the rebuilds. We talked openly about that, and so does everyone else in the marketplace. That is why we have been really working hard to replenish those with opportunities of installed to the home opportunities.

Okay, great. Thank you.

This will be our last question.

Keith Levesque (ph), Smith (ph) Management.

What is your anticipated tax position going into 2005?

Anticipated tax?

You will be paying cash taxes?

We've got a large NOL at this point.

Have you exhausted all your carrybacks for income tax refunds?

No, we have not.

Do you expect an income tax refund for 2004?

No, we don't.

The last question is, in your annual meeting in November, fiber to the home was referred to as the Holy Grail of the business. I was wondering if you could elaborate a little bit on that.

I think the bottom line is that in the industry we serve, as -- I think when fiber rolled out, years ago, people started talking about fiber to the home. The bottom line is putting glass to the curb or to the home. We have seen how it has helped the cable industry. We have seen how it is going to help Verizon.

But the bottom line is to have that pipe that can go to your home, that can offer bundled services, is the Holy Grail of whoever gets it there. It's a potential Holy Grail for anybody.

The bottom line is, what we are seeing is that when you do offer a bundled package you have customer retention, you have quality of service, you have lack of interruption to service. It is really the purest of backbones to support any one of our customers' needs.

Even when you look at the wireless applications in-home or outside of the home, at the end of the day there's still a fiber or co-ax or copper line that exists to support that and connect those parts and pieces. Our belief is that the final -- there's millions and millions of miles of copper, millions and millions of miles of coax that still exist out there on a network. As the customers start talking and contemplating and actually delivering fiber to the home, it's a massive opportunity for companies like MasTec.

Thank you very much.

That is all the time we have for questions. I will turn it back over to our speakers for any additional or closing comments.

We would like to thank everyone for joining us on the call today; and especially like to thank our team for getting through this last 9 months, and everyone's patience. We look to be absolutely on time in the future with the reporting, and of course communicating with our investors on a lot more regular basis here in the coming weeks and months to come.

Thank you very much for joining us on our call. Look forward to talking to you folks in the future.

This does conclude today's conference call. We thank you for your participation. You may now disconnect at this time.