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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------- to -------
Commission file number 0-3797
MasTec, Inc.
- - -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
-------------------------------------- ---------------
State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
8600 N.W. 36th Street, Miami, FL 33166
---------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(305) 599-1800
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - -----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such report), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--------------- -----------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class of Common Stock Outstanding as of June 30, 1994
- - ------------------------------ -------------------------------
$ .10 par value 16,027,592
Page 1 of 21
MasTec, Inc.
Form 10-Q
June 30, 1994
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements
of Income for the Three and Six Month Periods Ended
June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Balance Sheet
as of June 30, 1994 and Condensed
Combined Balance Sheet as of December 31, 1993 . . . . . . . . . . 4
Unaudited Condensed Consolidated Statements
of Cash Flows for the Six Month Period
Ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 6
Unaudited consolidated statement of Shareholders'
Equity for the Six Month Period Ended June 30, 1994. . . . . . . . 8
Notes to Condensed Consolidated
Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 20
Signature Page. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Page 2 of 21
Part I - Financial information
Item 1. Financial Statements
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
--------- --------- --------- ---------
Revenues $ 36,616 $ 14,427 $ 53,773 $ 28,156
Costs and Expenses
Costs of Revenues (exclusive
of depreciation and amortization
shown separately below) 27,985 8,702 41,175 17,631
General and Administrative 4,245 2,023 6,352 3,103
Depreciation and Amortization 1,709 185 2,262 369
Interest Expense -
Borrowings 895 41 1,222 81
Notes to Shareholders 60 0 120 0
Interest and Dividend Income (474) (41) (609) (103)
Other (88) (50) (192) (54)
--------- --------- --------- ---------
Total Costs and Expenses 34,332 10,860 50,330 21,027
--------- --------- --------- ---------
Income Before Income Taxes, 2,284 3,567 3,443 7,129
Equity in Earnings (Losses) of
Unconsolidated Joint Ventures and
Minority Interest
Provision for Income Taxes 793 0 395 0
--------- --------- --------- ---------
Income Before Equity in Earnings 1,491 3,567 3,048 7,129
(Losses) of Unconsilidated Joint
Ventures and Minority Interest
Equity in Earnings (Losses) of
Unconsolidated Joint Ventures 92 (500) 137 (1,000)
Minority Interest 0 (3) 0 (6)
--------- --------- --------- ---------
NET INCOME $ 1,583 $ 3,064 $ 3,185 $ 6,123
========= ========= ========= =========
Unaudited Pro Forma Data:
Income Before Income Taxes 3,064 6,123
Provision for Income Taxes 1,180 2,357
--------- --------- --------- ---------
Net Income $ 1,583 $ 1,884 $ 3,185 $ 3,766
========= ========= ========= =========
Average Shares Outstanding 16,051 10,250 16,056 10,250
Earnings Per Share $ 0.10 $ 0.18 $ 0.20 $ 0.37
The accompanying notes are an integral part of these financial statements.
Page 3 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, 1994 DECEMBER 31, 1993
----------- -----------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 5,961 $ 8,930
Accounts Receivable-Net and Unbilled Revenues 27,163 6,751
Notes Receivable from Shareholders 3,570 0
Inventories 4,694 0
Deferred and Refundable Income Taxes 5,088 0
Other 1,200 186
----------- -----------
Total Current Assets 47,676 15,867
----------- -----------
Investments in Preferred Stock and
Long-Term Notes Receivable 11,403 0
----------- -----------
Property-At Cost 55,467 6,066
Accumulated Depreciation (3,533) (1,434)
----------- -----------
Property-Net 51,934 4,632
----------- -----------
Real Estate Investments and Other Assets 28,182 826
----------- -----------
TOTAL ASSETS $ 139,195 $ 21,325
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 4 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30, 1994 DECEMBER 31, 1993
----------- -----------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Maturities of Debt $ 5,540 $ 508
Current Portion of Notes Payable to Shareholders 1,000 500
Accounts Payable 6,681 2,265
Accrued Insurance 4,056 818
Accrued Compensation 1,534 241
Accrued Interest 582 0
Accrued Income Taxes 1,082 0
Other 6,602 2,443
----------- -----------
Total Current Liabilities 27,077 6,775
----------- -----------
Other Liabilities 30,723 28
----------- -----------
Long-Term Debt 11,055 1,079
Notes Payable to Shareholders 2,000 2,500
Convertible Subordinated Debentures 21,875 0
----------- -----------
Total Long-Term Debt 34,930 3,579
----------- -----------
Shareholders' Equity
Common Stock 2,643 1,025
Capital Surplus 134,064 0
Retained Earnings 1,990 9,918
Treasury Stock (92,232) 0
----------- -----------
Total Shareholders' Equity 46,465 10,943
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 139,195 $ 21,325
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 5 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1994 1993
--------- ---------
Cash Flows from Operating Activities:
Net Income $ 3,185 $ 6,123
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 2,262 369
Minority Interest in Earnings of Consolidated
Joint Venture 0 6
Equity in (Earnings) Losses of Unconsolidated
Joint Ventures (137) 1,000
Changes in Assets and Liabilities Net of Effect
of Reverse Acquisition of Burnup & Sims:
Accounts Receivable-Net and Unbilled Revenues (5,702) (1,447)
Inventories and Other Current Assets 512 (295)
Accounts Payable and Accrued Expenses (394) 621
Interest and Income Taxes (1,007) 0
Other Current Liabilities (750) (449)
Other Assets 202 83
Other Liabilities (149) 197
--------- ---------
Net Cash Provided (Used) by Operating Activities (1,978) 6,208
--------- ---------
Cash Flows from Investing Activities:
Cash Acquired in Reverse Acquisition 6,291 0
Capital Expenditures (2,197) (1,363)
Investments in Unconsolidated Joint Ventures (140) (660)
Loans to Shareholders (3,570) 0
Investment in Unconsolidated Subsidiary (1,000) 0
Proceeds from Sale of Assets 93 0
Distributions from Unconsolidated Joint Ventures 75 65
--------- ---------
Net Cash Provided (Used) by Investing Activities (448) (1,958)
--------- ---------
Cash Flows from Financing Activities:
Debt Borrowings 0 0
Proceeds from Note Payable 0 989
Debt Repayments (543) (702)
--------- ---------
Net Cash Provided (Used) by Financing Activities (543) 287
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (2,969) 4,537
Cash and Cash Equivalents - Beginning of Period 8,930 10,190
--------- ---------
Cash and Cash Equivalents - End of Period $ 5,961 $ 14,727
--------- ---------
Cash Paid (Refunded) During the Period:
Interest $ 1,682 $ 79
Income Taxes (30) 0
The accompanying notes are an integral part of these financial statements.
Page 6 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Supplemental Disclosure Of Non-Cash Investing and Financing Activities
Fair Value Of Assets Acquired
Accounts Receivables $ 17,941
Inventories And Other Current Assets 7,066
Investments 11,403
Property 48,029
Real Estate Investments And Other Assets 23,754
---------
Total Non-Cash Assets 108,193
---------
Liabilities 46,341
Long-Term Debt 35,098
---------
Total Liabilities Assumed 81,439
---------
Net Non-Cash Assets Acquired 26,754
Cash Acquired 6,291
---------
Purchase Price $ 33,045
=========
Property Acquired with Notes Payable $ 142
=========
Note Payable for Purchase of Unconsolidated
Subsidiary $ 2,244
=========
The accompanying notes are an integral part of these financial statements.
Page 7 of 21
MasTec, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands)
(Unaudited)
Common Capital Retained Treasury
Stock Surplus Earnings Stock Total
Balance December 31, 1993 $ 1,025 $ 0 $ 9,918 $ 0 $ 10,943
Net Income 3,185 3,185
Equity Acquired in Reverse
Acquisition 1,618 122,951 (92,232) 32,337
Retained Earnings transferred
to Capital Surplus 11,113 (11,113) 0
------ ------- -------- -------- --------
Balance June 30, 1994 $ 2,643 $134,064 $ 1,990 $(92,232) $ 46,465
====== ======= ======== ======== ========
The accompanying notes are an integral part of these financial statements.
Page 8 of 21
MasTec
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 (Unaudited)
1. CONSOLIDATION AND PRESENTATION
On March 11, 1994, Church & Tower, Inc. ("CT") and Church & Tower of Florida,
Inc. ("CTF" and, together with CT, "CT Group"), privately held corporations
under common control, were acquired (the "Acquisition") through an exchange of
stock, by Burnup & Sims Inc. ("Burnup"), a Delaware public company. Immediately
following the Acquisition, the name of Burnup was changed to MasTec, Inc.
("MasTec" or the "Company") and its fiscal year end was changed to December 31.
The accompanying unaudited condensed consolidated financial statements of MasTec
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form 10-Q and
Rule 10-01 of Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited combined financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1993. The financial information furnished
reflects all adjustments, consisting only of normal recurring accruals which
are, in the opinion of management, necessary for a fair presentation of the
financial position and results of operations for the periods presented. The
results of operations are not necessarily indicative of future results of
operation or financial position of MasTec.
Under generally accepted accounting principles, the Acquisition was accounted
for as a purchase by the CT Group and, therefore, the 1993 financial statements
presented are those of the CT Group only. In addition, the results for the six
months ended June 30, 1994, include the operations of the CT Group during such
period and the operations of Burnup during the period March 11, 1994, through
June 30, 1994.
The following information presents the unaudited pro forma condensed results
of operations for the six months ended June 30, 1994 and 1993 of MasTec as if
the Acquisition had occurred on January 1, 1993. Adjustments have been made
related to purchase accounting and other matters related to the Acquisition.
These results are presented for informational purposes only and are not
necessarily indicative of the future results of operations or financial position
of MasTec or the results of operations or financial position of MasTec had the
Acquisition occurred on January 1, 1993.
PRO FORMA RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30
(In Thousands Except Per Share Amounts)
1994 1993
----------- -----------
(Unaudited) (Unaudited)
Revenues $ 74,041 $ 98,360
Net Income (Loss) 107 (2,404)
Income (Loss) Per Share $ 0.01 $ (0.15)
Page 9 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 (Unaudited)
Pro forma revenues in 1994 decreased by $24.3 million mainly as a result of the
completion in the latter part of 1993 of a construction project, an offshore
utilities services contract, which was substantially completed in 1993, a
reduction in the type of work performed in the first half of 1993 in Dade County
as a result of Hurricane Andrew and divestiture of subsidiary in 1994 (See
Note 8).
The net pro forma result for the comparable period improved by approximately
$2.5 million from a net loss of $2.4 million to a net income of $107,000 mainly
due to the restructuring and closing during early 1994 of Burnup's unprofitable
utilities services areas of operation and the write-off of tangible assets
related to these areas.
The most significant adjustments to the balance sheet resulting from the
Acquisition are disclosed in the supplemental schedule of non-cash investing
activities in the statement of cash flows. The purchase price "paid" by the CT
Group consisted of the market value of Burnup stock not acquired by CT Group
shareholders in the merger of $32,355,000 (5,777,592 shares outstanding at a
market value of $5.60 per share) and $690,000 in acquisition costs incurred
by the CT Group, resulting in a total purchase price of $ 33,045,000.
2. Related Party Transactions
Notes Receivable from shareholders bear interest at the prime rate plus 2%
(9.25% at June 30, 1994). See Note 4 regarding amounts payable to shareholders.
3. Other Liabilities
Other Liabilities are summarized as follows (Dollars in Thousands):
June 30, December 31,
1994 1993
Deferred Income Taxes $ 21,704 $ 0
Accrued Interest - Non-Current 2,072 0
Accrued Insurance 6,919 0
Minority Interest in Consolidated
Joint Ventures 28 28
--------- --------
$ 30,723 $ 28
========= ========
Page 10 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 (Unaudited)
4. Debt
Debt is summarized as follows (Dollars in Thousands):
June 30, December 31,
1994 1993
Term Loan payable to Bank, at
prime plus 1/2% (7.75% at
June 30, 1994, due June 1995) $ 8,778 $ 0
Term Loan payable to Bank, at 7.7% 1,353 1,587
Notes Payable to Shareholders, at
prime plus 2% (9.25% at June 30,1994) 3,000 3,000
Capital Leases and Other, at Interest
Rates from 7% to 13% due in
installments through the year 2000 1,595 0
Other, 7% due in four semi-annual
installments through July 10,1996 2,244 0
12% Convertible Subordinated Debentures
due 2000 24,500 0
--------- ---------
Total Debt 41,470 4,587
Less Current Maturities (6,540) (1,008)
--------- ---------
Non-Current Debt $ 34,930 $ 3,579
========= ==========
The 12% convertible subordinated debentures (the "Debentures") require an annual
payment to a sinking fund, which commenced November 15, 1990, calculated to
retire 75% of the issue prior to maturity. The Company has the option to
redeem all or part of the Debentures prior to the due date by paying the
principal amount at face value. The Debentures are convertible into Common
Stock at a conversion price of $16.79 per share. At June 30, 1994,
approximately 1,459,000 shares were reserved for conversion.
The Company is negotiating with its lender the refinancing of its Term Loan.
Accordingly, although the Term Loan is scheduled to mature during the next
twelve months, the Company will not be required to use working capital during
the ensuing year for the repayment of the Term Loan.
Debt agreements contain, among other things,restrictions on the payment of
dividends and require the maintenance of certain financial covenants.
5. Earnings Per Share and Capital Stock
Earnings per share is based on the weighted average number of common shares
outstanding. Fully diluted earnings per share is not presented as the
effect of common stock equivalents is anti-dilutive or not material. Earnings
per share for the six months ended June 30, 1993, gives retroactive effect to
the 10,250,000 shares received by the former stockholders of the CT Group.
At June 30, 1994, the Company had 50,000,000 shares of $.10 par value common
stock (the "Common Stock") authorized and 16,027,592 shares outstanding, and
5,000,000 shares of authorized but unissued preferred stock.
Page 11 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1994 (Unaudited)
6. Stock Option Plans
Options to purchase 163,100 shares of Common Stock under the Company's 1976 and
1978 Stock Option Plans (the "1976 and 1978 Plans") were exercised on
March 11, 1994, as well as stock appreciation rights with respect to 55,965
shares. These plans were replaced by the 1994 Stock Incentive Plan (the "1994
Plan"). Approximately, 32,800 options remain outstanding under the 1976 and
1978 Plans and may be still exercised in accordance with the terms of plans.
In connection with the Acquisition, the Company's stockholders approved the 1994
Stock Option Plan for Non-Employee Directors (the "Directors' Plan") and the
1994 Plan. The Directors' Plan authorized options to purchase up to 400,000
shares of the Company's common stock issuable to the non-employee members of the
Company's Board of Directors. Options to purchase 30,000 shares have been
granted to Board members, none of which are exercisable at June 30, 1994. The
options permit the non-employee director to exercise for a period of up to ten
years from the date of grant at an exercise price equal to the fair market value
of such shares on the date the option is granted.
The 1994 Plan authorized options to purchase up to 800,000 shares of the
Company's Common Stock of which 200,000 shares may be awarded as restricted
stock. At March 11,1994, options to purchase 125,500 had been granted. Options
become exercisable over a five year period in equal increments of 20% per year
beginning the year after the date of grant and must be exercised at an exercise
price no less than the fair market value of the shares at the grant date. At
June 30, 1994 none of shares are exercisable.
7. Income Taxes
The CT Group had elected to be treated as an S Corporation under the Internal
Revenue Code and, therefore the results of operations for the six months ended
June 30, 1993, do not include a provision for income taxes, as the income of
the CT Group passed directly to the stockholders.
On March 11, 1994, the CT Group's election to be treated as an S Corporation
was terminated. The income tax provision for the six months ended June 30, 1994,
includes the operations of the CT Group and Burnup for the period from
March 11, 1994, (date of Acquisition) through June 30, 1994. The effect of
recognizing a net deferred tax asset of approximately $435,000 at
March 11, 1994, in connection with the change in tax status, is included in the
provision for income taxes for the six months ended June 30, 1994.
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income taxes
reflect the net effects of (a) temporary differences between carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating loss and tax credit carryforwards.
The tax effects of significant items comprising the Company's net deferred tax
liability as of June 30, 1994 are as follows (in thousands of dollars):
Page 12 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1994 (Unaudited)
Tax Effect of Taxable Temporary Differences:
Differences between book and tax basis of property $ 21,673
Other 2,405
----------
24,078
----------
Tax Effect of Deductible Temporary Differences:
Reserves not currently deductible (5,163)
Operating loss carryforwards (603)
Tax credit carryforwards (112)
----------
(5,878)
----------
Valuation allowance 615
----------
Net deferred tax liability $ 18,815
==========
There was no change in the valuation allowance for the period ended
June 30, 1994.
8. Contingencies
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was filed
on December 1990 by a stockholder of the Company in the Court of Chancery of
the State of Delaware in and for New Castle County against the Company, the
members of the Board of Directors, and against National Beverage Corporation
("NBC"), as a purported class action and derivative lawsuit. In May 1993,
plaintiff amended its class action and shareholder derivative complaint (the
"Amended Complaint"). The class action claims allege, among other things, that
the Board of Directors, and NBC as its then largest stockholder, breached their
respective fiduciary duties in approving (i) the distribution to the Company's
stockholders of all of the common stock of NBC owned by it (the "Distribution")
and (ii) the exchange by NBC of 3,846,153 shares of Common Stock for certain
indebtedness of NBC held by the Company (the "Exchange") (the Distribution and
the Exchange are hereinafter referred to as the "1991 Transaction"), and
allegedly placing the interests of NBC ahead of the interests of the other
stockholders of the Company. The derivative action claims allege, among other
things, that the Board of Directors had breached its fiduciary duties by
approving executive officer compensation arrangements, by financing NBC's
operations on a current basis, and by permitting the interests of the Company to
be subordinated to those of NBC. In the lawsuit, plaintiff seeks to rescind the
1991 Transaction and to recover damages in an unspecified amount.
The Amended Complaint alleges that the Special Transaction Committee that
approved the 1991 Transaction was not independent and that, therefore, the 1991
Transaction was not protected by the business judgment rule or conducted in
accordance with a settlement agreement (the "1990 Settlement") entered into in
Page 13 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1994 (Unaudited)
1990 pertaining to certain prior litigation. The Amended Complaint also makes
other allegations which involve (i) further violations of the 1990 Settlement
by the Company's engaging in certain transactions not approved by the Special
Transaction Committee; (ii) the sale of a subsidiary of the Company to a former
officer of the Company, (iii) the timing of the 1991 Transaction and (iv) the
treatment of executive stock options in the 1991 Transaction. In November 1993,
plaintiff filed a class action and derivative complaint, Civil Action 13248,
(the "1993 Complaint") against the Company, the members of the Board of
Directors, CT, CTF, Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas (CT, CTF,
Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas are referred to as the "CT
Defendants"). In December 1993, plaintiffs amended the 1993 Complaint ("1993
Amended Complaint"). The 1993 Amended Complaint alleges, among other things,
that (i) the Board of Directors and NBC, as the Company's largest stockholder
at the time, breached their respective fiduciary duties by approving the
Acquisition Agreement and the Redemption (as defined in the Proxy Statement
dated February 10, 1994) which, according to the allegations of the 1993
Complaint, benefits Mr. Caporella at the expense of the Company's stockholders,
(ii) the CT Defendants had knowledge of the fiduciary duties owed by NBC and
the Board of Directors and knowingly and substantially participated in their
breaches thereof, (iii) the Special Transaction Committee of the Board of
Directors which approved the Acquisition Agreement and Redemption was not
independent and, as such, was not in accordance with the 1990 Settlement, (iv)
the Board of Directors breached its fiduciary duties by failing to take an
active and direct role in the sale of the Company and failing to ensure the
maximization of stockholder value in the sale of control of the company, and (v)
the Board of Directors and NBC, as the Company's largest stockholder at the
time, breached their respective fiduciary duties by failing to disclose
completely all material information regarding the Acquisition Agreement and
the Redemption.
The 1993 Complaint also claims derivatively that each member of the Board of
Directors engaged in mismanagement, waste and breach of their fiduciary duties
in managing the Company's affairs. On November 29, 1993, plaintiff filed a
motion for an order preliminarily and permanently enjoining the Acquisition and
the Redemption. On March 7, 1994, the court heard arguments with respect to
plaintiff's motion to enjoin the Acquisition and Redemption and on
March 10, 1994, the court denied plaintiff's request for injunctive relief.
The Company believes that the allegations in the complaint, the Amended
Complaint, the 1993 Complaint and the 1993 Amended Complaint are without merit,
and intends to vigorously defend these actions.
William C. Deviney, Jr. v. Burnup & Sims Inc., et al., Civil Action No. 152350
was filed in the Chancery Court of the First Judicial District of Hines County,
Mississippi on May 3, 1993. The plaintiff in this action filed suit seeking
specific performance of alleged obligations of the Company pursuant to a stock
purchase agreement and related agreements entered into in 1988. Pursuant to the
agreements, the Company sold to plaintiff a minority interest in a utilities
services subsidiary and granted to plaintiff an option to purchase the remaining
stock if certain conditions were satisfied. On July 5, 1994 a final judgement
was entered for the plaintiff, and in satisfaction thereof, the following
Page 14 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1994 (Unaudited)
transactions occurred on July 15, 1994: (1) the ownership in the utilities
services subsidiary was transferred to the plaintiff in consideration of
$400,000, representing the initial investment of the Company; (2) an
assignment of master contracts was executed; (3) various intercompany
receivables were settled resulting in a $580,000 payment by the plaintiff to
Company; and (4) $200,000 of attorneys fees was paid to the plaintiff. The
Company has accounted for this transaction as a purchase accounting adjustment,
accordingly, the settlement will have no adverse effect on the current financial
position of the Company. Included in accounts receivable at June 30, 1994 is
$780,000 representing the net amounts due from the plaintiff, which were
subsequently paid.
Jorge Gamez, as Personal Representative of the Estate of Jorge A. Gamez,
deceased, vs. Church & Tower, Inc., a Florida Corporation, et al., Civil
Action 93-07318 CA 20, filed in the Circuit Court of the 11th Judicial Circuit
in and for Dade County, Florida on March 22, 1993, and amended on
April 20, 1994, to include MasTec, Inc. The claim alleges that a CT Group
employee was negligent in the operation of a truck and trailer combination which
resulted in a death. Although no amounts are stated in the preliminary case
filings, the plaintiff has made a demand for $7.2 million.
Federal, state and local laws and regulations govern the Company's operation of
underground fuel storage tanks. The Company is in the process of removing,
restoring and upgrading certain tanks, as required by the applicable laws, and
has identified these tanks and surrounding soil which will require remedial
cleanups. At June 30, 1994, $630,000 had been accrued for site remediation and
is reflected in the accompanying Consolidated Balance Sheet as part of "Other
Current Liabilities."
The Company is also a defendant in other legal actions arising in the normal
course of business.
Management believes, based on consultations with legal counsel, that the amount
reserved in the accompanying financial statements is adequate to cover the
estimated losses expected to be incurred in connection with these matters.
Page 15 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1994 (Unaudited)
9. Acquisition
On June 22, 1994, the Company acquired all of the outstanding shares of Designed
Traffic Installation Company ("DTI"), a Florida corporation, for $1,000,000
in cash and a promissory note in the amount of $2,244,417 ("the DTI
Acquisition"). The Company will pay an additional contingent amount based on
certain specific percentages of net pretax earnings earned by DTI over the next
four years. The DTI Acquisition was accounted for as a purchase effective
July 1, 1994 and therefore, the results of DTI's operations for the eight days
ended June 30, 1994 have been excluded from the accompanying consolidated
financial statement as the impact for such period is considered immaterial.
The cost of the DTI acquisition will be allocated to the fair value of the
assets acquired and liabilities assumed. The Company has not finalized the
allocation of the purchase price but believes that a substantial portion
ultimately will be allocated to machinery and equipment. The additional
contingent consideration based on earnings is not currently determinable and has
therefore not been recorded in the accompanying financial statements.
Included in Real Estate and Other Assets is the investment in DTI of $3.2
million. Pro forma financial information is currently not available and will
be filed no later than 60 days from July 6, 1994, the date on which a Form 8-K
was filed regarding the DTI Acquisition.
On July 26, 1994, the Company purchased from Buchanan Contracting Company
("Buchanan") machinery and equipment, the rights to two master contracts
covering the Montgomery, Alabama and Memphis, Tennessee areas, with Bell South
Telecommunications, the name "Buchanan Contracting Company Incorporated" and
certain leases for $850,000 in cash, a promissory note of $1,045,000 and an
assumption of debt related to the equipment purchased of $1,476,449. The
acquisition will be accounted for as a purchase.
Page 16 of 21
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1994
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
- - ------------------------------------------------------------------------------
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and related notes thereto.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1994 vs. Three Months Ended June 30, 1993
- - ----------------------------------------------------------------------
The results for the quarter ended June 30, 1993 include three months of
operations of the CT Group only. (See Note 1 to the Condensed Consolidated
Financial Statements.)
Revenues for the quarter increased by approximately $22.2 million primarily
resulting from the inclusion of the Burnup revenues (approximately $26.6
million) coupled with an increase in utilities services revenue of $3 million
related to a new contract, offset by a $4 million decrease in revenues from the
Company's construction services segment due to the completion of a project
included in last year's results and by a $4.6 million decrease in telephone
master contract revenues due to the decline in post Hurricane Andrew related
activities.
Costs of revenues as a percentage of revenues increased from 60% in 1993 to
approximately 76% in 1994, due to lower margins realized on certain Burnup
contracts.
General and administrative expenses increased by approximately $2.2 million
due primarily to the impact of the Acquisition. However, as a percent of
revenue, expenses decreased from 14% in 1993 to 12% in 1994, as a result of
enhanced administrative efficiencies and economies of scale.
Depreciation and amortization increased as a percentage of revenues from 1% in
1993 to 5% in 1994, primarily as a result of adjustments in asset values made
in connection with the Acquisition and additional depreciation expense resulting
from a fleet replacement program implemented by the CT Group in the latter part
of 1993.
Interest expense increased due to debt assumed and the incurrence of
indebtedness to shareholders pursuant to the Acquisition.
The increase in interest and dividend income results from the Acquisition.
Other income increased due to the rental of certain equipment to third parties.
Equity in earnings of unconsolidated joint ventures increased due to estimated
losses incurred during the first six months of 1993 resulting from the
nonpayment of certain change orders, of which certain claims were subsequently
settled.
Page 17 of 21
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1994
The provision for income taxes approximates 34% of pretax income for the three
months ended June 30, 1994 was affected by state income taxes and preferred
stock dividends. The CT Group was not subject to taxation in 1993.
Six Months Ended June 30, 1994 vs Six Months Ended June 30, 1993
- - -------------------------------------------------------------------------------
The results for the six months ended June 30, 1994 include six months of
operations of the CT Group and operating results of Burnup for the period
March 11, 1994 through June 30, 1994. (See Note 1 to the Condensed Consolidated
Financial Statements.)
Revenues for the six months ended June 30, 1994 increased by approximately $25.6
million primarily resulting from the inclusion of Burnup revenues (approximately
$37.2 million), offset by an $8.6 million decrease in revenues from the
Company's construction services segment as mentioned in the second quarter
discussion.
Cost of revenues as a percentage of revenues increased from 63% in 1993 to 77%
in 1994, due to lower margins realized on certain Burnup contracts.
General and administrative expenses increased by approximately $3.2 million due
primarily to the impact of the Acquisition.
Depreciation and amortization increased as of percentage of revenues from 1% in
1993 to 4% in 1994, primarily as a result of the Acquisition and additional
depreciation expense resulting from a fleet replacement program implemented in
the latter part of 1993.
Interest expense increased due to debt assumed and the incurrence of
indebtedness to shareholders pursuant to the Acquisition.
The increase in interest and dividend income resulted from the Acquisition.
Upon consummation of the Acquisition, the CT Group's election to be treated as
an S Corporation was terminated and, accordingly, the Company recognized a net
deferred tax asset of approximately $435,000 related to deductible temporary
differences. This benefit was reduced by a provision for the results of
operations of the consolidated group for the period March 11, 1994 to
June 30, 1994 at an effective tax rate of 35%. The CT Group was not subject to
tax in 1993.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
June 30, 1994 vs. December 31, 1993
- - -------------------------------------------------------------------------------
The Company's cash position decreased to approximately $6 million at
June 30, 1994 from $8.9 million at December 31, 1993. Cash of $2 million was
used by operating activities due primarily to changes in various components of
working capital, particularly an increase in accounts receivable. This increase
Page 18 of 21
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1994
in receivables was primarily the result of an increase in services rendered by
the Company of approximately $4 million under a contractual arrangement with a
certain utility which provided for payments to be made only upon the completion
of specific stages under the contract which are yet to be completed. In
June 1994, the Company successfully negotiated with the customer to modify the
contract to provide payment at earlier stages of completion; thus it is
anticipated that collections will be accelerated. Also included in accounts
receivable is $780,000 due from the settlement of the Deviney litigation as
described in Note 8 to the Condensed Consolidated Financial Statements which was
received on July 18, 1994. Cash of $400,000 was used in investing activities,
including $6.3 million provided by the Acquisition, $3.6 million used for loans
to shareholders, and $1 million used for the DTI Acquisition discussed in Note 9
to the Condensed Consolidated Financial Statement. Cash of $500,000 was used
during the six months ended June 30, 1994 for debt repayments.
Significant adjustments to the balance sheet were recorded as a result of the
Acquisition, (see Note 1 to the Condensed Consolidated Financial Statements) as
more fully detailed in the supplemental schedule of non-cash investing
activities of the Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 1994.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants. (See
Note 4 to the Condensed Consolidated Financial Statements.)
The Company anticipates that operating cash requirements, capital expenditures,
and debt service will substantially be funded from cash flow generated by
operations, as well as, trade and external financing. The Company is currently
negotiating the refinancing of certain existing debt and the extension of new
credit facilities. As discussed in Note 9 to the Condensed Consolidated
Financial Statements, on July 26, 1994, the Company purchased from Buchanan
machinery and equipment, the rights to two master contracts covering the
Montgomery, Alabama and Memphis, Tennessee areas, with Bell South
Telecommunications, the name "Buchanan Contracting Company Incorporated" and
certain leases for $850,000 in cash, a promissory note of $1,045,000 and an
assumption of debt of $1,476,449. The Company borrowed $1 million to finance
this acquisition The acquisition will be accounted for as a purchase. The
Company currently has no additional material commitments for capital
expenditures; however, it is continuously evaluating the need for fleet
improvements.
Page 19 of 21
MasTec, Inc.
PART II - OTHER INFORMATION
JUNE 30, 1994
Item 1. Legal Proceedings
See the description under Note 8 to the Condensed
Consolidated Financial Statements which is hereby incorporated by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Item 27. Article 5 - Financial Data Schedule.
(b) Reports on Form 8-K.
On July 6, 1994, the Company filed Form 8-K reporting
information under Item 2 thereof regarding the acquisition by the
Company on June 22, 1994 of Designed Traffic Installation, Co.
No financial statements were filed with this report. Financial
statements will be filed no later than 60 days from July 6, 1994.
Page 20 of 21
MasTec, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: August 5, 1994 /s/ Carlos A. Valdes
-----------------------------
Carlos A. Valdes
Sr. Vice-President - Finance
(Principal Financial Officer)
and
Authorized Officer of the
Registrant
Page 21 of 21