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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 September 30, 1995
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 October 31, 1995
------------------------- -------------------------------------
$0.10 par value 16,051,157
Page 1 of 27
MasTec, Inc.
INDEX
PART I FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Statements of Income
for the Three Months and Nine months Ended
September 30, 1995 and 1994 . . . . . . . . . . . . . . 3
Consolidated Condensed Balance Sheets as of
September 30, 1995 (Unaudited) and
December 31, 1994 . . . . . . . . . . . . . . . . . . . 5
Unaudited Condensed Consolidated Statements
of Cash Flows for the Nine months
Ended September 30, 1995 and 1994 . . . . . . . . . . . 7
Notes to Condensed Consolidated
Financial Statements (Unaudited) . . . . . . . . . . .12
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial Condition . . .20
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . .26
Page 2 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
-------- --------- --------- ---------
Revenue $ 46,642 $ 36,056 $120,439 $ 77,711
--------- --------- --------- ---------
Costs and expenses
Costs of revenue (exclusive of
depreciation and amortization
shown Separately below) 36,296 26,780 89,210 58,517
--------- --------- --------- ---------
Gross profit 10,346 9,276 31,229 19,194
General and administrative
expenses 4,772 3,928 12,234 8,821
Depreciation and amortization 1,878 1,631 4,766 3,585
--------- --------- --------- ---------
Operating income 3,696 3,717 14,229 6,788
-------- -------- --------- ---------
Other expense (income)
Interest expense-
Borrowings 1,124 1,099 3,217 2,268
Notes to stockholders 0 66 135 191
Interest and dividend income (925) (330) (1,761) (789)
Interest on notes from stockholders (48) (81) (241) (229)
Special charge-real estate
write-down 15,386 0 15,386 0
Other, net (102) (373) (1,761) (559)
--------- --------- --------- ---------
15,435 381 14,975 882
--------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes,
equity in earnings (losses) of
unconsolidated joint ventures
and minority interest (11,739) 3,336 (746) 5,906
Equity in earnings (losses) of
unconsolidated joint ventures (158) 53 (169) 190
Provision (benefit) for income taxes (4,409) 1,253 (290) 1,340
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
Page 3 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
--------- --------- --------- ---------
Income (loss) from continuing
operations before minority
interest (7,488) 2,136 (625) 4,756
Minority interest 50 0 86 0
--------- --------- --------- ---------
Income (loss) from continuing
operations (7,438) 2,136 (539) 4,756
Discontinued operations (Note 8):
Income (loss) from discontinued
operations of General Products
Segment (net of applicable income (353) 470 109 1,035
taxes)
Gain on disposal of General Products
Segment, net of a provision of $5,547
to write-down related assets to
realizable values and including
operating losses during phase-out
period (net of applicable income
taxes) 1,904 0 3,356 0
-------- --------- --------- ---------
NET INCOME (LOSS) $ (5,887) $ 2,606 $ 2,926 $ 5,791
======== ========= ========= =========
Weighted average shares outstanding 16,047 16,054 16,043 16,052
======== ========= ========= =========
Earnings (loss) per share
Continuing operations $ (0.46) $ 0.13 $ (0.03) $ 0.30
Discontinued operations $ 0.10 $ 0.03 $ 0.21 $ 0.06
Net income (loss) $ (0.37) $ 0.16 $ 0.18 $ 0.36
The accompanying notes are an integral part of these financial statements.
Page 4 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1995 1994
(Unaudited) (Audited)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,147 $ 5,612
Accounts receivable-net and unbilled
revenue 43,175 33,122
Notes receivable 26,300 715
Inventories 2,233 4,111
Deferred and refundable income taxes 1,214 1,368
Theatre assets held for sale 0 7,414
Net assets of discontinued operations 5,560 0
Investment in preferred stock 9,000 0
Real estate held for sale 15,487 0
Other 1,145 700
----------- -----------
Total current assets 106,261 53,042
----------- -----------
Property and equipment 47,799 46,204
Accumulated depreciation (8,927) (6,102)
----------- -----------
Property - net 38,872 40,102
Investment in preferred stock 0 9,000
Notes receivable from stockholders 1,770 3,570
Real estate investments 0 34,604
Other assets 4,980 2,134
----------- -----------
TOTAL ASSETS $ 151,883 $ 142,452
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 5 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1995 1994
(Unaudited) (Audited)
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 19,745 $ 8,229
Current portion of notes payable
to stockholders 0 1,000
Accounts payable 12,511 8,512
Accrued insurance 3,346 4,227
Accrued compensation 2,224 2,193
Accrued interest 906 631
Accrued income taxes 3,939 0
Other 6,842 5,966
----------- -----------
Total current liabilities 49,513 30,758
----------- -----------
Deferred income taxes 7,611 17,938
----------- -----------
Accrued insurance 7,341 6,893
----------- -----------
Other liabilities 0 33
----------- -----------
Long-term debt:
Long-term debt 21,245 15,206
Notes payable to stockholders 0 1,500
Convertible subordinated debentures 12,250 19,250
----------- -----------
Total long-term debt 33,495 35,956
----------- -----------
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 134,122 134,094
Retained earnings 9,198 6,272
Accumulated translation adjustments (4) 0
Treasury stock (92,036) (92,135)
----------- -----------
Total stockholders equity 53,923 50,874
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 151,883 $ 142,452
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 6 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 2,926 $ 5,791
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest in consolidated
joint ventures (86) 0
Depreciation and amortization 4,766 3,585
Equity in (earnings) losses of unconsolidated
joint ventures 169 (190)
Special charge - real estate write-down 15,386 0
Gain on sale of discontinued operations (3,771) 0
Gain on sale of assets (7) (365)
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable-net and unbilled
revenues (13,740) (8,100)
Inventories and other current assets (737) (130)
Other assets (1,184) (319)
Accounts payable and accrued expenses 5,469 (125)
Accrued and refundable income taxes 3,968 374
Other-current liabilities 252 (1,553)
Deferred taxes (9,371) 2,168
Other liabilities 454 721
----------- -----------
Net cash provided by
operating activities 4,494 1,857
----------- -----------
Cash flows in investing activities:
Cash acquired from acquisitions 148 6,585
Cash paid for acquisitions (1,750) (1,850)
Distribution from unconsolidated
joint ventures 79 75
Net proceeds from sale of discontinued
operations 21,090 0
The accompanying notes are an integral part of these financial statements.
Page 7 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
----------- -----------
(Unaudited)
Proceeds from notes receivable 35 0
Proceeds from sale of assets 2,426 670
Repayment of loans to stockholders 1,800 0
Capital expenditures (8,014) (2,318)
Investments in unconsolidated joint
ventures 0 (140)
Investment in note receivable (25,000) 0
Cash of discontinued operations (191) 0
Loans to stockholders 0 (3,570)
--------- ---------
Net cash (used in) investing
activities (9,377) (548)
--------- ---------
Cash flows from financing activities:
Proceeds from Term Loan 12,000 1,000
Proceeds from Equipment Loan 4,653 0
Proceeds from Revolver 20,025 0
Debt repayments (22,367) (1,356)
Debt repayments - Revolver (10,000) 0
Repayment of loans from stockholders (2,500) (500)
Financing costs (516) 0
Net proceeds from common stock
issued from treasury 123 0
--------- ---------
Net cash provided by (used in) financing
activities 1,418 (856)
--------- ---------
Net increase (decrease) in cash and
cash equivalents (3,465) 453
Cash and Cash Equivalents -
Beginning of period 5,612 8,930
-------- --------
Cash and Cash Equivalents - End of period $ 2,147 $ 9,383
========== ==========
The accompanying notes are an integral part of these financial statements.
Page 8 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---------- ---------
(Unaudited)
Supplemental disclosures
of cash flow information:
Cash paid during the period:
Interest $ 3,077 $ 2,167
Income taxes $ 5,690 $ (23)
Supplemental schedule of non-cash
investing activities:
Acquisition of ULM
Fair value of assets acquired:
Accounts receivable $ 167
Other current assets 67
Property 2,688
Other assets 50
---------
Total Non-cash assets 2,972
---------
Liabilities 71
Long-term debt 93
---------
Total liabilities assumed 164
---------
Net non-cash assets acquired 2,808
Cash acquired 148
---------
Purchase price $ 2,956
=========
Note payable issued to ULM stockholders 800
Cash paid for acquisition 1,750
Contingent Consideration 406
---------
Purchase price $ 2,956
=========
The accompanying notes are an integral part of these financial statements.
Page 9 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---------- ---------
(Unaudited)
Sale of Lectro:
Assets sold:
Accounts receivable $ 2,158
Inventories 1,770
Other current assets 22
Property 1,832
Other assets 4
--------
Total non-cash assets 5,786
Liabilities 1,878
Long-term debt 343
--------
Total liabilities 2,221
--------
Net non-cash assets sold $ 3,565
========
Sale Price $ 12,350
Transaction costs (521)
Note receivable (450)
--------
Net cash proceeds $ 11,379
========
Reverse acquisition of Burnup:
Fair value of net assets acquired:
Accounts receivables $ 18,274
Inventories and other current assets 7,524
Investment in preferred stock 9,000
Property and equipment 40,685
Real estate investments and other assets 32,645
----------
Total non-cash assets $ 108,128
----------
Liabilities 49,559
Long-term debt 31,776
----------
Total liabilities assumed $ 81,335
----------
Net non-cash assets acquired 26,793
Cash acquired 6,362
---------
Net value of assets acquired $ 33,155
---------
Purchase price $ 33,155
==========
The accompanying notes are an integral part of these financial statements.
Page 10 of 27
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---------- ---------
(Unaudited)
Acquisition of DTI:
Fair value of assets acquired:
Accounts receivables $ 2,878
Inventories and other current assets 389
Property 1,270
Real estate investments and other assets 550
---------
Total non-cash assets 5,087
---------
Liabilities 1,988
Long-term debt 471
---------
Total liabilities assumed 2,459
---------
Net non-cash assets acquired 2,628
Cash acquired 223
---------
Purchase price $ 2,851
========
Note payable issued to DTI's stockholders $ 1,851
Cash paid for acquisition 1,000
---------
Purchase price $ 2,851
=========
Acquisition of assets of Buchanan:
Fair value of assets acquired $ 3,828
Liabilities assumed 2,978
---------
Cash paid for acquisition $ 850
=========
Property acquired:
Through financing arrangements $ 7,901 $ 651
========= ==========
Through capital leases $ 0 $ 2,186
========= ==========
The accompanying notes are an integral part of these financial statements.
Page 11 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
MasTec, Inc. 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 financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1994. 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, Inc. Certain prior year amounts
have been reclassified to conform to current presentation. The 1994 income
statement has been restated to reflect the discontinuation of the Company's
General Products Segment, which was acquired as part of the Burnup
Acquisition. (See Note 8.)
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 "Burnup Acquisition")
through an exchange of stock by Burnup & Sims, Inc. ("Burnup"), a Delaware
public company. Immediately following the Burnup Acquisition, the name of
Burnup was changed to MasTec, Inc. ("MasTec" or the "Company") and its
fiscal year end was changed to December 31.
Under generally accepted accounting principles, the Burnup Acquisition was
accounted for as a purchase by the CT Group and, therefore, the 1994
financial statements presented are those of the CT Group during such period
and the operations of Burnup during the period March 11, 1994 through
September 30, 1994 as well as those of Designed Traffic Installation
Company ("DTI") for the period June 22, 1994 through September 30, 1994
(collectively referred to as the "Acquisitions").
The following information presents the unaudited pro forma condensed
consolidated results of operations for the nine months ended September 30,
1994 of MasTec as if the Acquisitions had occurred on January 1, 1994.
Adjustments have been made related to purchase accounting and other matters
related to the Acquisitions. Additionally, the information has been
restated to reflect the discontinuation of the General Products Segment.
(See Note 8.)
Page 12 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 Acquisitions occurred on January 1, 1994.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 ACTUAL AND 1994 PRO FORMA
(In Thousands Except Per Share Amounts)
(Unaudited)
ACTUAL PRO FORMA
1995 1994
Revenue $ 120,439 $ 97,077
Income (Loss) from continuing
operations (539) 2,228
Earnings (Loss) per
share $ (0.03) $ 0.14
Revenue for the nine months ended September 30, 1995 is $23.4 million
higher than pro forma 1994 revenue primarily due to an increase in revenue
from new and existing utilities services contracts.
The 1995 results reflect an improvement of $7.3 million from 1994 pro forma
income from continuing operations excluding the special charge regarding
the real estate write-down of $15.4 million recorded in the third quarter
of 1995. (See Note 7.) The improved results are directly related to an
increase in revenue, improved efficiencies in core contract areas as a
result of cost reductions and enhanced productivity, and an $844,000
favorable settlement of litigation, net of tax.
2. Related Party Transactions
Notes receivable from stockholders bear interest at the prime rate plus 2%
(10.75% at September 30, 1995). On June 30, 1995, the Company collected
notes receivable from stockholders of $1.8 million plus accrued interest
thereon of $467,000. In addition, the stockholders paid the Company
$233,000, representing travel and other advances which were outstanding
prior to the Burnup Acquisition. Further on such date, the Company paid
notes payable to stockholders of $2.5 million plus accrued interest thereon
of $259,000.
Page 13 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Debt
Debt is summarized as follows
(in thousands): September 30, December 31,
1995 1994
------- -------
Revolver, at LIBOR plus 2.25%
(8.2% at September 30, 1995) $ 10,025 $ 0
Term Loan, at LIBOR plus 2.5%
(8.4% at September 30, 1995) $ 10,400 $ 0
Term Loan, at 7.7% fixed 761 1,144
Equipment Loan, at LIBOR plus 2.5%
(8.4% at September 30, 1995) 4,653 0
Other notes payable for equipment, at
interest rates from 6.0% to 9.5% due in
installments through the year 2000 7,727 3,899
Other notes payable, at 7% due in four
semi-annual installments through July
1996 958 1,851
Other notes payable, at 7% due in eight
quarterly installments through
July 1, 1996 378 796
Other notes payable, at 8%, due in 48
monthly installments through June 1999 757 0
Term Loan, at prime rate plus 0.5%
(9% at December 31, 1994) 0 8,294
Term Loan, at prime rate plus 0.5%
(9% at December 31, 1994) 0 1,000
Notes payable to stockholders, at prime
rate plus 2% (10.5% at December 31, 1994) 0 2,500
Capital leases, at interest rates from
6% to 12% due in installments
through the year 2000 0 3,826
Real estate mortgage note, at 8.53%,
monthly installments of $12.5 commencing
February 1996, with a final installment of
$2.2 million in the year 2001 2,070 0
Real estate mortgage note, at 9.5%
quarterly installments through November
1996 636 0
12% Convertible Subordinated Debentures
due in year 2000 14,875 21,875
----------- -----------
Total debt 53,240 45,185
Less current maturities (19,745) (9,229)
----------- -----------
Long Term Debt $ 33,495 $ 35,956
=========== ===========
Not included in the preceding table at September 30, 1995 is approximately
$2.2 million in capital leases related to discontinued operations (see Note 8).
The 12% convertible subordinated debentures (the "Debentures") require an
annual payment to a sinking fund, which commenced on November 15, 1990,
calculated to retire 75% of the issue prior to maturity. The Company has
Page 14 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 an adjusted conversion price of $16.79 per share. At
September 30, 1995, approximately 886,000 shares were reserved for
conversion. The terms of the Debentures include certain restrictions on
the payment of dividends. On April 17, 1995, the Company redeemed $7.0
million of the outstanding balance.
The Company maintains a $40.0 million credit facility with Shawmut Capital
(the Shawmut Credit Facility ). The Shawmut Credit Facility is comprised
of three sub-facilities: a $12.0 million term loan (the "Term Loan")
secured by certain equipment, a $15.5 million revolving loan (the
"Revolver") collateralized by receivables and inventory and a $12.5 million
equipment revolver term loan (the "Equipment Loan") secured by new or used
equipment purchased under the Equipment Loan facility. The Company used a
portion of the proceeds of the Term Loan to repay $10.5 million in term
loans outstanding at December 31, 1994. The remaining portion of the Term
Loan was used primarily to finance new equipment purchases and expenses
associated with obtaining the Shawmut Credit Facility.
Interest on the Term Loan and Equipment Loan accrue, at the Company's
option, at the rate of prime or 2.5% over LIBOR. Interest on the Revolver
accrues, at the Company's option, at the rate of prime or 2.25% over LIBOR.
The Shawmut Credit Facility required the Company to pay a commitment fee of
$162,500 and an unused line fee at an annual rate of one quarter of one
percent of the amount of the unused facility amount less $6,000,000. The
Term Loan is payable in quarterly installments based upon a ten year
amortization. The Equipment Loan is payable in quarterly installments
based on a four year amortization commencing January 1996. The Shawmut
Credit Facility expires in January 2000.
In October 1995, the Company borrowed $2.0 million to finance the
acquisition of equipment and the assumption of two BellSouth master
contracts from Sealand. Also in October 1995, the Company borrowed $6.6
million to finance the acquisition of Supercanal. Both of these borrowings
were made under the Shawmut Credit Facility. (See Note 6 for a description
of these acquisitions.)
As a result of borrowings subsequent to September 30, 1995, the Company had
$1.4 million available under the Shawmut Credit Facility at November 13,
1995.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the observance of certain financial covenants.
The Company has letters of credit outstanding totaling $3.7 million. These
letters of credit were issued as security to the Company's insurance
administrators as part of its self-insurance program.
4. 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 is anti-dilutive or not material.
Page 15 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 1995 the Company had 50,000,000 shares of $.10 par value
common stock (the "Common Stock") authorized and 16,049,698 shares
outstanding, and 5,000,000 shares of authorized but unissued preferred
stock.
5. Contingencies
In 1990 and 1993 purported class action and derivative complaints were
filed against the Company, members of its Board of Directors and the
Company's then largest stockholders. The 1993 complaint also named CT and
CTF. The complaints generally alleged, among other things, that the
defendants breached their fiduciary duties in connection with certain
corporate transactions which occurred prior to the Burnup Acquisition and
certain other matters which allegedly could have impacted the terms of the
Burnup Acquisition. The 1993 complaint also claims derivatively that each
member of the Board of Directors engaged in mismanagement, waste and breach
of his fiduciary duties in managing the Company's affairs.
On November 29, 1993, plaintiff filed a motion for an order preliminarily
and permanently enjoining the Burnup Acquisition. On March 10, 1994, the
court denied plaintiff's request for injunctive relief. The actions
currently are in the discovery stage. No trial date has been set.
The Company believes that the allegations in these complaints are without
merit, and intends to vigorously defend these actions.
In 1990, Trilogy Communications, Inc. filed suit against Excom Realty,
Inc., a wholly owned subsidiary of the Company, for damages and declaratory
relief. The Company counterclaimed for damages. On May 1, 1995, the
Company settled its counterclaim for $1.3 million which is recorded as
other income in the accompanying consolidated financial statements.
The Company is also a defendant in other legal actions arising in the
normal course of business. The Company believes, based on consultations
with its legal counsel, that the amount provided in the financial
statements of the Company are adequate to cover the estimated losses
expected to be incurred in connection with these matters.
6. Acquisitions
Domestic Acquisitions
ULM
On July 17, 1995, the Company purchased for $2.96 million the outstanding
stock of Utility Line Maintenance, Inc. ("ULM"), a company engaged in the
utility right of way clearance business using customized machinery for its
operations. The stockholder of ULM received $1.75 million at closing, a 48
month 8% note payable for $800,000 with the balance of the purchase price
to be paid over the next four years based on future pre-tax earnings of
ULM.
Page 16 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sealand
On October 10, 1995, the Company purchased from Sealand Construction and
Engineering Systems, Inc. and Triduct Corporation (collectively referred to
as "Sealand") certain machinery and equipment and the right under two
master contracts with BellSouth Telecommunications, Inc. ("BellSouth")
covering the Huntsville and Decatur, Alabama area for approximately $2.1
million. The Company financed its acquisition by borrowing under the
Shawmut Credit Facility. (See Note 3.)
Latin American Investments
In October 1995, the Company formed a new business segment devoted to
acquiring, developing and operating telecommunications systems in selected
markets in Latin America and the Caribbean. The new business segment,
which will operate through a new wholly-owned subsidiary known as LatLink
Corporation ("LatLink"), will seek opportunities through equity investments
and strategic alliances in several related telecommunications fields,
including CATV operations; international voice, video and data reception
and switching; cellular telephone, wireless messaging and personal
communications services; and public pay telephone networks.
To date, LatLink has made the Supercanal, TPP and teleport investments
described below. In addition, the Company has made the Devono Loan, which
is part of its international strategy.
Supercanal
On October 19, 1995, LatLink acquired a 33 1/3% interest in two Argentine
cable television companies. LatLink also acquired a 33 1/3% interest in a
magazine and a newspaper and a 20% interest in a radio station
(collectively referred to as "Supercanal"). The total purchase price was
$13.6 million, $6.6 million of which was paid at closing and $7.0 million
of which is payable over 24 months at 8% interest. In addition, LatLink
may be required to contribute $2.1 million to the capital of the newspaper
over the next twelve months in proportion to contributions by other
shareholders. The Company financed the acquisition by drawing upon its
existing Shawmut Credit Facility. (See Note 3.)
TPP
In November 1995, LatLink entered into a Memorandum of Understanding with
Telecommunicaciones Publicas y Privada, S.A. ("TPP"), a Mexican public pay
telephone distributor, servicer and operator, to purchase 28.6% of TPP's
outstanding capital stock for $6.0 million, with an option to purchase an
additional 21.4% for $4.5 million. The transaction is subject to the
execution of definitive agreements. In anticipation of closing the
acquisition, LatLink has committed to provide $1.0 million of the $6.0
million purchase price to finance the purchase of 1,000 pay telephones for
delivery to TPP.
Page 17 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Teleport
Also in November 1995, LatLink purchased an FCC-licensed international
long-distance teleport facility for the reception and retransmission of
voice, data and video from Latin America and the Caribbean to the United
States. The purchase price for the teleport facility, which is located on
four acres in Miami, Florida, was approximately $750,000. An additional
investment of $1.2 million in telecommunications and other equipment will
be necessary to operate the facility.
Devono Loan
On July 14, 1995 the Company made a term loan to Devono Company Limited, a
British Virgin Islands corporation (the "Borrower"), whereby the Company
lent the Borrower $25.0 million at an annual interest rate of 15% for a
term of 180 days (the "Devono Loan"). The Company financed the Loan
through $5.0 million of working capital and $20.0 million from the
Company's existing Shawmut Credit Facility, of which $10.0 million was
repaid with the proceeds from the Lectro sale. (See Note 3 and 8.) The
Borrower may extend the term of the Devono Loan at an annual interest rate
of 17.5% for two additional ninety day periods. The Devono Loan is non-
recourse to the Borrower, and, in the event of a default, the Company's
sole recourse will be to its security interest in 40% of the outstanding
and issued shares of the common stock of an Ecuadorian company which owns a
52.6% interest in Consorcio Ecuatoriano de Telecomunicaciones, S.A.
("Conecell"), a company operating a cellular phone network and an
international teleport system in the Republic of Ecuador.
7. Special Charge-Real Estate Investment Write-down
In the third quarter of 1995, the Company decided to accelerate the pace of
its disposal of non-core real estate assets by selling the majority of
these assets in a bulk sale. Primarily as a result of the Company's
decision, the Company recorded a special charge of $15.4 million to adjust
the carrying values of its real estate investments to estimated net
realizable value. The amount of the adjustment was based on offers
received by the Company to dispose of certain real estate in a bulk
transaction. The original value assigned to the real estate investments
contemplated the disposition of the properties on an individual basis and
no consideration had previously been given to a bulk sale.
8. Discontinued Operations
In the third quarter of 1995, the Company determined to concentrate its
resources and better position itself to achieve its strategic growth
objectives. By disposing of all of the General Products Segment, which the
Company acquired as part of the Burnup Acquisition. (See Note 1.) The
General Products Segment includes the operations and assets of Southeastern
Printing Company, Inc. ("Southeastern"), Lectro Products, Inc. ("Lectro")
and Floyd Theatres, Inc. ("Floyd"). The disposal of the General Products
Segment is anticipated to be completed in four separate transactions, two
of which have been consummated. In March 1995, the Company sold the assets
of Floyds' indoor theatre chain for approximately $11.5 million of which
$1.8 million was used to satisfy liabilities not assumed by the buyer and
Page 18 of 27
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
transaction costs incurred. A gain of $1.5 million net of tax, resulted
from this transaction in the first quarter. A portion of the proceeds
($7.0 million), was used to repay the Debentures. In August 1995, the
Company sold the stock of Lectro for $11.9 million in cash and a note
receivable (the "Note") of $450,000. Proceeds, net of transaction expenses
were $11.3 million. A gain of $5.9 million, net of tax was recorded in the
third quarter. The proceeds were used to repay $10.0 million borrowed to
finance the Devono Loan (see Note 6). A portion of the Note ($250,000) is
subject to adjustment based on ultimate collectability of Lectro's accounts
receivable as of June 30, 1995. Any changes in proceeds as a result of any
adjustments are not expected to be material.
The remaining outdoor theatre operations of Floyd Theatres are currently
being marketed for sale as either operating facilities or for the
underlying real estate value. In the third quarter, the Company recorded a
provision of $3.2 million, net of tax, related to Floyds' real estate to
reflect a bulk sale value and estimated losses during the phase-out period.
(See Note 7.) The Company has signed a letter of intent with Southeastern's
management to sell Southeastern in a employee stock ownership plan
transaction. Based on the estimated sale price, a loss on disposal of
$951,000, net of tax, has also been recorded in the third quarter. Based on
its current negotiations with Southeastern management, the Company anticipates
financing a portion of the sale with a note for approximately $2.0 million
which would be payable after seven years with accrued interest at a stated
market rate. Accordingly, $2.0 million of the estimated net realizable
value of the General Products Segment has been reflected in Other Assets at
September 30, 1995. Prior year results of operation have been restated to
reflect the discontinuation of the General Products Segment. Net assets of
discontinued operations at September 30, 1995 have been segregated in the
Consolidated Balance Sheet with the exception of $2.0 million as previously
described. Disposal of the net assets is anticipated to be completed by
June 1996.
Summary operating results of discontinued operations, excluding net gains
on disposal and estimated loss during the phase-out period, are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
-------- ------- ------- --------
Revenue $ 3,048 $9,724 $19,267 $ 21,842
======== ======= ======== ========
Earnings (loss) before income
taxes $ (611) $ 727 $ 123 $ 1,600
Provision (benefit) for income
taxes $ (258) $ 257 $ 14 $ 565
------- ------- -------- --------
Net income (loss) from
discontinued operations $ (353) $ 470 $ 109 $ 1,035
======= ======= ======== ========
Page 19 of 27
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Condensed Consolidated
Financial Statements and notes thereto included elsewhere herein. As
discussed in Notes 1 and 8 to the Condensed Consolidated Financial
Statements, the 1994 results of operations have been restated to reflect the
discontinuation of the Company's General Products Segment, which was
acquired as part of the Burnup Acquisition.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 vs. Three Months Ended September 30,
1994.
The following table sets forth certain historical consolidated earnings
data as a percentage of revenue for the periods indicated.
THREE MONTHS
ENDED SEPTEMBER 30,
1995 1994
------- -------
Revenue 100.0 % 100.0 %
Costs of revenue 77.8 % 74.3 %
Gross margin 22.2 % 25.7 %
General and administrative expenses 10.2 % 10.9 %
Depreciation and amortization 4.0 % 4.5 %
Interest expense 2.4 % 3.2 %
Interest and dividend income and other, net 2.3 % 2.2 %
Special charge - real estate write-down 33.0 % 0.0 %
Income (loss) from continuing operations -16.0 % 5.9 %
Revenue for the three months ended September 30, 1995 was $46.6 million, an
increase of $10.6 million or 29% compared to revenue for the three months
ended September 30, 1994 of $36.1 million. The increase resulted primarily
from an expansion into new contract areas.
Costs of revenue as a percentage of revenue increased from 74.3% in 1994 to
77.8% in 1995. The decrease in gross margin to 22.2% in 1995 from 25.7% in
1994 is primarily due to the expansion into new contract areas. The
Company experienced reduced margins at the commencement of these new
contracts resulting from mobilization and startup costs, as well as costs
incurred in recruiting and training of new personnel. In addition, the
Company experienced reduced revenue under certain contracts with
historically higher margins due to customer delays in approving budgets under
which work orders were to be issued.
Page 20 of 27
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General and administrative expenses for the quarter ended September 30,
1995 were $4.8 million or 10.2% of revenue, compared to $3.9 million or
10.9% of revenue for the same period in the prior year. Although general
and administrative expenses have decreased as a percentage of revenue, the
amount of such expenses has increased. As the Company continues to
evaluate and pursue growth opportunities and business development in the
United States and abroad, certain general and administrative costs have
been incurred without current economic benefit. During the three months
ended September 30, 1995, the Company incurred approximately $600,000 in
costs related to exploring investment opportunities in Latin America and
elsewhere abroad primarily related to investments made by LatLink. In
November 1995, the Company formed a new business segment devoted to
acquiring, developing and operating telecommunications systems in selected
markets in Latin America and the Caribbean. The new business segment,
which will operate through a new wholly-owned subsidiary known as LatLink
will seek opportunities through equity investments and strategic alliances
in several related telecommunications fields, including CATV operations;
international voice, video and data reception and switching; cellular
telephone, wireless messaging and personal communications services; and
public pay telephone networks. See Note 6 to the Condensed Consolidated
Financial Statements for a discussion of investments made to date.
Depreciation and amortization expense was $1.9 million for the three months
ended September 30, 1995, or 4% of revenue, compared to $1.6 million or
4.5% of revenue for 1994. The increased expenses are primarily a result of
increased equipment capital expenditures for new contract areas as well as
scheduled fleet replacements.
Interest expense was $1.1 million for 1995 compared to $1.2 million for the
three months ended September 30, 1994. The decrease is due primarily to
the repayment of $7.0 million of the Debentures in April 1995 offset by
borrowings for equipment and for the Devono Loan. (See Note 3 and 6 to the
Condensed Consolidated Financial Statements.)
Interest and dividend income increased from $411,000 in 1994 to $973,000 in
1995 primarily due to interest of $553,000 accrued on the Devono Loan.
Results for the third quarter include a special charge of $15.4 million to
reflect certain real estate holdings at their estimated net realizable
value based primarily on the Company's present intention to dispose of
certain real estate in a bulk sale. The Company had contemplated disposal
of the real estate investments on an individual basis and no consideration
had previously been given to a bulk sale. (See Note 7 to the Condensed
Consolidated Financial Statements.)
Page 21 of 27
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Discontinued operations
As discussed in Note 8 to the Condensed Consolidated Financial Statements,
during the third quarter of 1995, the Company determined to dispose of all
of its General Products Segment. The income from operations of the
discontinued General Products Segment includes the results of Floyd
Theatres, Southeastern and Lectro. The nine months ended September 30,
1995, includes a gain of $1.5 million, net of tax, related to the disposal
of Floyd's indoor theatre chain and a gain of $5.9 million, net of tax,
related to the sale of Lectro. The Company estimated a loss of $4.0
million, net of tax, from operations and a write-down to net realizable
value through the disposal date of the remaining businesses in the segment.
Nine Months Ended September 30, 1995 vs Nine Months Ended September 30,
1994
The following table sets forth certain historical consolidated earnings
data as a percentage of revenue for the periods indicated.
NINE MONTHS
ENDED SEPTEMBER 30,
1995 1994
------ -----
Revenue 100.0 % 100.0 %
Costs of revenue 74.1 % 75.3 %
Gross margin 25.9 % 24.7 %
General and administrative expenses 10.2 % 11.4 %
Depreciation and amortization 4.0 % 4.6 %
Interest expense 2.8 % 3.1 %
Interest and dividend income and other, net 3.1 % 2.0 %
Special charge-real estate write-down 12.8 % 0.0 %
Income from continuing operations -0.4 % 6.1 %
The results for the nine months ended September 30, 1994 include nine
months of operations of the CT Group and operating results of Burnup for
the period March 11, 1994 through September 30, 1994 and of DTI for the
period June 22, 1994 through September 30, 1994. (See Note 1 to the
Condensed Consolidated Financial Statements.)
Revenue for the nine months ended September 30, 1995 increased by
approximately $42.7 million or 55% from $77.7 million in 1994 to $120.4
million in 1995, primarily resulting from the inclusion of revenue
generated by acquired companies and the expansion into new contract areas.
Page 22 of 27
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Costs of revenue as a percentage of revenue decreased from 75.3% in 1994 to
74.1% in 1995 primarily due to improved margins resulting from the
Company's renegotiation of certain unprofitable contracts assumed as part
of the Burnup Acquisition, improved operating efficiencies and improved
productivity due to the use of more modern equipment.
General and administrative expenses increased by approximately $3.4 million
due primarily to the impact of the Burnup Acquisition as the 1994 results
exclude the results of operations (including general and administrative
expenses) for Burnup from January 1 to March 11, 1994. Additionally, the
Company has spent $950,000 through September 30, 1995 related to investment
opportunities abroad primarily related to investments made by LatLink. See
quarterly discussion for further information.
Depreciation and amortization decreased as of percentage of revenue from
4.6% in 1994 to 4.0% in 1995, primarily as a result of an increase in
revenue. Depreciation expense increased from $3.6 million to $4.8 million
primarily due to a fleet replacement program and an increase in capital
expenditures resulting from expansion into new contract areas.
Interest expense increased from $2.5 million for 1994 to $3.4 million for
1995 primarily due to debt assumed as a result of the Burnup Acquisition
and the incurrence of indebtedness to stockholders pursuant to the Burnup
Acquisition and new borrowings for equipment purchases and investments (see
Statement of Cash Flows - Supplemental Schedule of Non-cash Financing and
Investing Activities).
The increase in interest and dividend income resulted from the preferred
stock investment acquired as part of the Burnup Acquisition and the
interest accrued on the Devono loan.
Other income includes $1,350,000 related to the favorable settlement of the
Trilogy litigation described in Note 5 to the Condensed Consolidated
Financial Statements.
See Note 7 to the Condensed Consolidated Financial Statements for a
discussion of the special charge for the write-down of certain real estate.
Upon consummation of the Burnup 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 $436,000 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 31, 1994 to September 30, 1994 at an effective tax rate of 37.5%.
See quarterly discussion regarding discontinued operations and also Note 8
to the Condensed Consolidated Financial Statements.
Page 23 of 27
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity during the nine months ended
September 30, 1995 was cash flow from operations, borrowings under credit
facilities and proceeds from the sale of discontinued operations. In the
nine months ended September 30, 1995, cash of $4.5 million was generated
from operations compared to $1.9 million for the nine months ended
September 30,1994. The increase in 1995's operating cash flows represents
improved results in the Company's core utilities services segment.
As of September 30, 1995, working capital was approximately $56.7 million
compared to working capital of approximately $22.3 million at December 31,
1994. The Company's cash position was $2.1 million at September 30, 1995
compared to $5.6 million at December 31, 1994. Included in working capital
at September 30, 1995 are the net assets of the discontinued operations and
real estate and preferred stock held for sale. The Company anticipates disposal
of these assets by June 1996. Proceeds from the sale of these assets will be
used to further the Company's growth strategy.
The Company, as a result of obtaining new contracts and continuing a fleet
replacement program, increased capital expenditures for equipment to $12.9
million, an increase of approximately $9.5 million during the first nine
months of 1995 compared to the first nine months of 1994. The Company
financed approximately $9.8 million of its investment in equipment of which
$4.7 million was financed under the Shawmut Credit Facility. Additionally,
the Company has invested $3.3 million in real estate for its corporate
headquarters and other operating facilities, of which $2.7 million has been
financed.
It is anticipated that an additional $5.0 million will be invested in
machinery and equipment for the balance of the year. This includes the
recent acquisition of certain machinery and equipment of Sealand, a master
contractor in the state of Alabama (See Note 6 to the Condensed
Consolidated Financial Statements). Through November 1995, the Company has
acquired approximately $2.2 million of equipment related to this
acquisition, the financing of which was provided by the Company's existing
Shawmut Credit Facility.
A portion of the net proceeds ($7.0 million) from the sale of the theatre
assets was used to repay the Debentures on April 17, 1995. The reduction
in the outstanding balance of the Debentures reduced interest cost. On
November 15, 1995 the Company is required to make a sinking fund payment of
$2.6 million related to the Debentures. The Company anticipates the
payment to be funded by cash flow from operations and existing credit
facilities, as necessary. (See Note 3 to the Condensed Consolidated
Financial Statements.)
Page 24 of 27
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On July 14, 1995, the Company entered into the Devono Loan. (See Note 6 to
the Consolidated Financial Statements.) In connection therewith, the
Company used $5.0 million of working capital and borrowed $20.0 million
under the Shawmut Credit Facility, $10.0 million of which was repaid with
proceeds from the sale of Lectro.
Debt agreements to which the Company is a party contain, among other
things, restrictions on the payment of dividends and require the observance
of certain financial covenants. Pursuant to such covenants, the Company is
currently prohibited from declaring or paying dividends. (See Note 3 to the
Condensed Consolidated Financial Statements.)
Continuing its diversification strategy, in October 1995, MasTec through
LatLink acquired a 33 1/3% interest in two Argentine cable television
companies in Mendoza, Argentina, as well as interests in a newspaper,
magazine and radio station. The purchase price was $13.6 million, $6.6
million of which was paid at closing and $7.0 million of which is payable
over 24 months at 8% interest. The Company financed the acquisition by
drawing upon its existing Shawmut Credit Facility. The Company may be
required to contribute up to $2.1 million to the capital of the newspaper
over the next 12 months in proportion to contributions by other
shareholders. In addition, LatLink has entered into a Memorandum of
Understanding to acquire up to 50% of a Mexican pay telephone operator for
$10.5 million and has purchased and is equipping an FCC-licensed teleport
facility in Miami, Florida for approximately $2.0 million in the aggregate.
See Note 6 to the Condensed Consolidated Financial Statements.
As the Company pursues its growth strategy, it continues to evaluate
certain domestic acquisitions that would augment its current utilities
services segment by providing a broader geographical reach and more
diversified customer base. The Company also continues to analyze
opportunities to acquire, develop and operate telecommunications systems in
Latin America and the Caribbean. The Company anticipates that these
investments, as well as operating cash requirements, capital expenditures
and debt service, will be funded from cash flow generated by operations,
sale of non-core assets, investment income and external sources of
financing.
Page 25 of 27
MasTec, Inc.
PART II - OTHER INFORMATION
September 30, 1995
Item 1. Legal Proceedings
See Note 5 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Results of Votes of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Article 5 - Financial Data Schedule
(b) Reports on Form 8-K.
None
Page 26 of 27
MasTec, Inc.
SIGNATURES
FORM 10-Q
Pursuant to the requirement 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: November 14, 1995 /s/ Carlos A. Valdes
----------------------------
Carlos A. Valdes
Sr. Vice-President - Finance
(Principal Financial Officer)
and
Authorized Officer of the
Registrant
Page 27 of 27