SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-3797
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Title of each class
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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The number of shares of Common Stock outstanding as of March 20, 1997 was
25,665,205. The aggregate market value of the voting stock held by
non-affiliates of the registrant computed by reference to the closing price of
the registrant's Common Stock on the New York Stock Exchange on March 20, 1997
was $389,706,081. Directors, officers and 10% or greater stockholders are
considered affiliates for purposes of this calculation but should not
necessarily be deemed affiliates for any other purpose.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders to be held on May 21, 1997, which will be filed with the Commission
on or before April 30, 1997, are incorporated by reference into Part III.
Certain statements included in this Annual Report are forward-looking, such
as statements regarding the future prospects of the telecommunications
construction industry and the Company's growth strategy. These forward-looking
statements are based on the Company's current expectations and are subject to a
number of risks and uncertainties that could cause actual results in the future
to differ significantly from results expressed or implied in any forward-looking
statements included in this Annual Report. These risks and uncertainties
include, but are not limited to, uncertainties relating to the Company's
relationships with key customers and implementation of the Company's growth
strategy. These and other risks are detailed in this Annual Report and in other
documents filed by the Company with the Securities and Exchange Commission.
1. BUSINESS
General
MasTec, Inc. is one of the world's leading contractors specializing in
the build-out of telecommunications infrastructure. The Company's principal
business is the design, installation and maintenance of the outside physical
plant for telephone and cable television communications systems ("outside plant
services"), including the installation of aerial, underground and buried copper,
coaxial and fiber optic cable networks and the construction of wireless antenna
networks for telecommunications service companies such as local exchange
carriers, competitive access providers, cable television operators,
long-distance carriers, and wireless phone companies. The Company also installs
central office switching equipment and designs, installs and maintains
integrated voice, data and video local and wide area networks inside buildings
("inside wiring"). The Company believes it is the largest independent contractor
providing telecommunications infrastructure construction services in the United
States and Spain and one of the largest in Argentina, Chile and Peru.
The Company is able to provide a full range of infrastructure services
to its telecommunications company customers. Domestically, the Company provides
outside plant services to local exchange carriers such as BellSouth
Telecommunications, Inc., U.S. West Communications, Inc., SBC Communications,
Inc., United Telephone of Florida, Inc. (a subsidiary of Sprint Corporation) and
GTE Corp.. MasTec currently has 20 exclusive, multi-year, multi-million dollar
service contracts ("master contracts") with regional Bell operating companies
("RBOCs") and other local exchange carriers to provide all of their outside
plant requirements up to a specific dollar amount per job and within certain
geographic areas. Internationally, the Company provides outside plant services,
turn-key switching system installation and inside wiring services primarily to
Telefonica de Espana, S.A. ("Telefonica") under multi-year contracts similar to
those in the U.S.
The Company also provides outside plant services to competitive access
providers such as MFS Communications Company, Inc., Sprint Metro and MCI Metro
(the local telephone subsidiaries of Sprint Corporation and MCI Communications
Corporation), cable television operators such as Time Warner, Inc., Continental
Cablevision, Inc. and Media One, long distance carriers such as MCI and Sprint,
and wireless communications providers such as PCS Primeco and Sprint Spectrum,
L.P. The Company provides inside wiring services to large corporate customers
such as First Union National Bank, IBM, Smith Barney, Inc., and Dean Witter
Reynolds, Inc., and to universities and government agencies. The Company also
provides design, installation and maintenance services (similar to those
provided to telecommunications companies) to public utilities and the traffic
control and highway safety industry.
Company strategy
The telecommunications industry is undergoing fundamental changes in
most markets throughout the world. The Telecommunications Act of 1996 in the
United States, agreements among participating countries in the European Union
and privatization and regulatory initiatives in Latin America are removing
barriers to competition. In addition, growing customer demand for enhanced
voice, video and data telecommunications have increased bandwidth requirements
and highlighted network bandwidth limitations in many markets.
The Company believes that these industry trends will create increased
demand for telecommunications infrastructure services in four ways:
o Increased customer demand for bandwidth will compel telecommunications
service providers to continue upgrading existing networks to broadband
technologies such as fiber optic cable.
o Competitive pressures will force existing service providers to attempt to
reduce their cost structures, leading to increased outsourcing of outside plant
services to lower cost independent contractors.
o New service providers entering previously monopolistic markets will
ultimately require their own infrastructure.
o Deployment of more powerful multimedia computers in business will
increase the demand for inside wiring services to install communications
networks with greater bandwidth capacity.
The Company believes that it is well positioned to capitalize on these
trends and is pursuing a strategy of growth in its core business through
internal expansion and strategic acquisitions. The Company believes that the
volume of business generated under existing contracts will increase as a result
of the increase in demand for its services. The Company intends to continue
providing services to its existing customers under its present contracts and, if
possible, to extend the exclusivity period under these agreements beyond their
current terms. In addition, the Company believes that its reputation for quality
and reliability, operating efficiency, financial strength, technical expertise,
presence in key geographic areas and ability to achieve economies of scale
provide competitive advantages in bidding for and winning new contracts for
telecommunications infrastructure projects. The Company intends to pursue
aggressively the larger, more technically complex infrastructure projects where
its competitive advantages will have the greatest impact.
The Company also plans to continue to make strategic acquisitions. In
April 1996, MasTec acquired Sistemas e Instalaciones de Telecomunicacion, S.A.
("Sintel"), the largest telecommunications infrastructure contractor in Spain,
from Telefonica. This acquisition has positioned the Company to take advantage
of increased competition anticipated in Europe and the rapid upgrading of
telecommunications services expected in Latin America. In the United States, the
Company is continuing to pursue opportunities to acquire selected operators that
will enable the Company to expand its geographic coverage and customer base
without the risks and expense of start-up operations and to acquire additional
management talent for future growth. Since January 1996, the Company has
completed five domestic acquisitions.
Services, customers and markets
The Company's principal domestic and international business consists of
outside plant and inside wiring services for telecommunications providers and
private businesses. Outside plant services consist of all of the services
necessary to design, install and maintain the physical facilities used to
provide telecommunications services from the provider's central office,
switching center or cable head-end to the ultimate consumer's home or business.
These services include the placing and splicing of cable, the excavation of
trenches in which to place the cable, the placing of related structures such as
poles, anchors, conduits, manholes, cabinets and closures, the placing of drop
lines from the main transmission lines to the customer's home or business, and
the maintenance and removal of these structures.
Inside wiring services consist of designing, installing and maintaining
local and wide area networks linking the customers' voice communications
networks at multiple locations with their data and video services. This type of
work is similar to outside plant construction; both involve the placing and
splicing of copper, coaxial and fiber optic cables. Inside wiring is less
capital intensive than outside plant construction but requires a more
technically proficient work force. The Company also provides turn-key design,
installation and maintenance services to the wireless communications industry,
including site preparation, design and construction of communications towers,
placement of antennas and associated wiring, and construction of equipment huts.
Services rendered to the Company's local exchange customers are
performed primarily under master contracts. Each master contract contemplates
hundreds of individual construction and maintenance projects valued generally at
less than $100,000 each. These contracts typically are awarded on a competitive
bid basis. The Company also has contracts similar to master contracts with
certain other customers. In addition to services rendered pursuant to master
contracts, the Company provides construction services on individual projects
awarded on a competitive bid basis. While such projects are generally
substantially larger than the individual projects covered by master contracts,
they typically require the provision of services similar to those rendered under
master contracts.
Domestically, the Company is capable of providing telecommunications
construction services nationwide, although its principal current operations are
in the southeastern and southwestern United States.
Internationally, the Company is the principal provider of
telecommunications infrastructure services to Telefonica and its affiliates in
Spain, and one of the principal providers of these services to Telefonica's
affiliates in Argentina, Chile and Peru. Telefonica is currently the sole
provider of local and long distance telephony in Spain. Through its affiliate,
Telefonica Internacional, S.A., Telefonica owns interests in the telephone
companies of Argentina, Chile and Peru.
The Company provides both outside plant and inside wiring services to
Telefonica and its affiliates. These services are substantially similar to those
provided by the Company in the United States. The Company also installs
Telefonica telephone equipment in residences and businesses. Outside plant
services are provided under multi-year, multi-million dollar contracts similar
to master contracts in the United States. Telefonica also awards the Company
individual construction projects through a competitive bidding process.
The Company provides infrastructure construction services to public
utilities and to the traffic control and highway safety industry, which services
are substantially similar to the outside plant services provided to
telecommunications companies.
The Company derives a substantial portion of its revenue from the pro-
vision of telecommunication infrastructure services to Telefonica and to
BellSouth. See Note 11 to the Consolidated Financial Statements.
The Company's customers supply the majority of the raw materials and
supplies necessary to carry out the Company's contracted work. The Company is
not dependent on one supplier for any raw materials or supplies that the Company
obtains for its own account.
The Company's telecommunications construction business is subject to
some seasonality at different times of the year, primarily in the first quarter.
The Company has experienced a reduction in revenue in some years during January
and February relative to other months. This reduction is due mostly to delays by
the Company's telecommunications customers, particularly Telefonica and the
RBOCs, in gearing up construction projects at the beginning of their budgetary
years and to severe winter weather conditions. The Company also has experienced
some reduction in domestic revenue in December of some years as a result of
reduced expenditures and work order requests by RBOCs at the end of their
budgetary years.
Competition
The Company competes with other independent contractors in most of the
markets in which it operates. Most companies engaged in the same or similar
business tend to operate in a specific, limited geographic area, although larger
competitors may bid on a particular project without regard to location. Although
the Company believes it is the largest provider of telecommunications
infrastructure services to the telecommunications industry in the United States
and Spain, neither the Company nor any of its competitors can be considered
dominant in the industry on a national or international basis. The Company also
faces competition from the in-house construction and maintenance departments of
RBOCs, which employ personnel who perform some of the same types of services as
those provided by the Company.
Employees
The Company has approximately 5,800 employees, 3,000 of whom are
employed in domestic operations and 2,800 of whom are employed by Sintel.
Substantially all of the Sintel employees are unionized. The Company believes
that its relations with its domestic employees are good. Sintel has suffered
strikes and work stoppages in the past, none of which has had a material adverse
effect on Sintel. Sintel currently is negotiating a new labor agreement with its
unionized employees.
2. PROPERTIES
The Company's corporate headquarters are located in a 60,000 square
foot building in Miami, Florida owned by the Company. The Company also has
regional offices located in Tampa, Atlanta, Austin and Charlotte. The Company
also leases executive offices in Madrid, Spain.
The Company's principal operations are conducted from field offices,
equipment yards and temporary storage locations, none of which the Company
believes is material to its operations because most of the Company's services
are performed on the customers' premises or on public rights of way. In
addition, the Company believes that equally suitable alternative locations are
available in all areas where it currently does business.
Certain of the Company's properties, equipment and vehicles are
encumbered pursuant to loan agreements. See Note 6 to the Consolidated Financial
Statements regarding the Company's credit facilities.
3. LEGAL PROCEEDINGS
The following is a summary of material legal proceedings involving the
Company.
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors and National Beverage
Corporation ("NBC"), the Company's then-largest stockholder. The complaint
alleges, among other things, that the Company's Board of Directors and NBC
breached their respective fiduciary duties in approving certain transactions,
including the distribution in 1989 to the Company's stockholders of all of the
common stock of NBC owned by the Company and the exchange by NBC of shares of
common stock of the Company for certain indebtedness of NBC to the Company. The
lawsuit seeks to rescind these transactions and to recover damages in an
unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative
complaint against the Company, the then-members of its Board of Directors,
Church & Tower, Inc. and Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the
principal shareholders of Church & Tower, Inc. The 1993 lawsuit alleges, among
other things, that the Company's Board of Directors and NBC breached their
respective fiduciary duties by approving the terms of the acquisition of the
Company by the Mas family, and that Church & Tower, Inc. and its principal
shareholders had knowledge of the fiduciary duties owed by NBC and the Company's
Board of Directors and knowingly and substantially participated in the breach of
these duties. The lawsuit also claims derivatively that each member of the
Company's Board of Directors engaged in mismanagement, waste and breach of
fiduciary duties in managing the Company's affairs prior to the acquisition by
the Mas family.
Each of the foregoing lawsuits is in discovery and no trial date has
been set. The Company believes that the allegations in each of the lawsuits are
without merit and intends to defend these lawsuits vigorously.
The Company is involved in a lawsuit filed in November 1995 by
BellSouth arising from certain work performed by a subcontractor of the Company
from 1991 to 1993. The amount claimed against the Company in this lawsuit
approximates $800,000. The Company has filed a counterclaim against BellSouth
for unpaid invoices related to this work. The Company believes that the
allegations asserted by BellSouth in the lawsuit are without merit and intends
to defend the lawsuit vigorously.
All of the claims asserted in the lawsuits described above, with the
exception of the second lawsuit filed by Albert Kahn, arise from activities
undertaken prior to March 1994, the date of the consummation of the acquisition
of the Company by the Mas Family.
The Company is a party to other pending legal proceedings arising in
the normal course of business, none of which the Company believes is material to
the Company's financial position or results of operations.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no vote of security holders during the fourth quarter of the
last fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive
officers of the Company, indicating all positions and offices with the Company
held by each such person, and each such person's principal occupation or
employment during the past five years. The executive officers hold office for
one year or until their successors are elected by the Board of Directors. Jorge
Mas is the son of Jorge L. Mas. There are no other family relationships among
the directors or officers of the Company.
Present principal position and
Name Age office with the Company
Jorge L. Mas 57 Chairman of the Board of Directors
Jorge Mas 34 President and Chief Executive Officer
Ismael Perera 48 Senior Vice President-Operations
Edwin D. Johnson 40 Senior Vice President-Chief Financial Officer
Ubiratan Simoes Rezende 49 Senior Vice President-International Operations
Carlos A. Valdes 33 Senior Vice President-Business Development
Jose M. Sariego 42 Senior Vice President-General Counsel
Carmen M. Sabater 32 Corporate Controller
Nancy J. Damon 47 Corporate Secretary
Jorge L. Mas has been Chairman of the Board of Directors of the Company
since March 1994. Mr. Mas has been the President and Chief Executive Officer of
Church & Tower of Florida, Inc., one of the Company's principal operating
subsidiaries, since 1969. Mr. Mas serves on the Board of Directors of First
Union National Bank of Florida, N.A.
Jorge Mas has been President and Chief Executive Officer of the Company
since March 1994. Prior to that time and during the past five years, Mr. Mas
served as the President and Chief Executive Officer of Church & Tower, Inc. In
addition, Mr. Mas is the Chairman of the Board of Directors of Neff Corporation,
Atlantic Real Estate Holding Corp., U.S. Development Corp. and Santos Capital,
Inc. (all private companies controlled by Mr. Mas) and, during all or a portion
of the past five years, has served as the President and Chief Executive Officer
of these corporations.
Ismael Perera has been Senior Vice President - Operations of the
Company since March 1994. Prior to that time, he served as the Vice President -
Operations of Church & Tower, Inc. from August 1993 until March 1994. From 1970
until July 1993, Mr. Perera served in various capacities in network operations
for BellSouth Telecommunications, Inc., including most recently as a Senior
Director of Network Operations from 1985 to 1993.
Edwin D. Johnson has been Senior Vice President - Chief Financial
Officer of the Company since March 1996. During the 10 years prior to joining
the Company, Mr. Johnson served in various capacities with Attwoods plc., a
British waste services company, including chief financial officer and member of
the board of directors during the final three years of his employment with
Attwoods.
Ubiratan Simoes Rezende has been Senior Vice President - International
Operations of the Company since March 1996. From August 1995 to March 1996, Mr.
Rezende was Dean of Graduate Studies and International Programs at La Roche
College. From 1991 to 1993, Mr. Rezende was visiting professor of the Paul Nitze
School of Advanced International Studies at Johns Hopkins University, and from
1979 to 1992 he was a professor at the Center of Social and Economic affairs at
the University of Santa Catarina in Brazil. Mr. Rezende also has served as Chief
of Staff of the Organization of American States and as Executive Vice President
of the holding company for the Perdigao Group, the second largest food
processing company in Brazil.
Carlos A. Valdes has been Senior Vice President - Business Development
since March 1996. Prior to that time, Mr. Valdes was Senior Vice President -
Finance of the Company from March 1994 to March 1996 and Chief Financial Officer
of Church & Tower, Inc. from 1991 to 1994.
Jose M. Sariego has been Senior Vice President - General Counsel since
September 1995. Prior to joining the Company, Mr. Sariego was Senior Corporate
Counsel and Secretary of Telemundo Group, Inc., a Spanish language television
network, from August 1994 to August 1995. From January 1990 to August 1994, Mr.
Sariego was a partner in the Miami office of Kelley Drye & Warren, an
international law firm.
Carmen M. Sabater has been Corporate Controller since April 1994. Prior to
joining the Company, Mrs. Sabater was a Senior Manager (1993-1994) and Manager
(1989-1993) with Deloitte & Touche LLP.
Nancy J. Damon has been Corporate Secretary since March 1994. Prior to
that time, Ms. Damon served as a paralegal at the Company from February 1990
until March 1994.
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock currently is listed on the New York Stock
Exchange under the symbol MTZ. Prior to February 14, 1997, the Common Stock was
listed on the Nasdaq National Market under the symbol MASX. The high and low
closing prices of the Common Stock for each quarter of the last two fiscal
years, as reported by Nasdaq, are set forth below:
1996 1995
High Low High Low
First Quarter $ 12 5/8 $ 9 1/2 $ 13 1/2 $ 10 1/8
Second Quarter $ 35 3/4 $ 11 3/8 $ 13 1/8 $ 9 3/4
Third Quarter $ 38 3/8 $ 21 1/2 $ 13 1/8 $ 10
Fourth Quarter $ 57 3/4 $ 32 5/8 $ 13 1/4 $ 9 1/8
The above quotations reflect interdealer prices, without retail mark
up, mark down or commission, and may not necessarily represent actual
transactions. The Company's Board of Directors declared a three-for-two stock
split in the form of a stock dividend for stockholders of record on February 3,
1997 payable on February 28, 1997. The prices set forth in the preceding table
have not been adjusted for the stock split. The Company did not declare any cash
dividends for the years ended December 31, 1996 and 1995. See Note 6 to the
Consolidated Financial Statements.
At March 20 1997, there were approximately 4,800 stockholders of record
of the Common Stock.
6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial
information of the Company and selected combined financial information of Church
& Tower, Inc. and Church & Tower of Florida, Inc. ("Church & Tower") as of the
dates and for each of the periods indicated. The selected financial data set
forth below should be read in conjunction with the Consolidated Financial
Statements, the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Annual
Report on Form 10-K.
Year ended December 31,
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
(a) (b) (c) (c)
Income statement data:
Revenue $ 472,800 $ 174,583 $ 111,294 $ 44,683 $ 34,136
Costs of revenue 352,329 130,762 83,952 28,729 22,163
Depreciation and amortization 12,000 6,913 4,439 609 371
General and administrative
expenses 58,529 19,081 13,022 9,871 3,289
------ ------ ------ ----- -----
Operating income 49,942 17,827 9,881 5,474 8,313
Interest expense (d) 11,434 4,954 3,587 133 33
Interest and
dividend income (e) 3,246 3,349 1,469 315 207
Special charges-real estate
and investment write-downs 0 23,086 0 0 0
Other income (expense), net 950 2,028 1,009 (81) 209
Equity (losses) in earnings
of unconsolidated companies
and minority interest 3,133 (139) 247 1,177 (416)
Provision (benefit) for
income taxes (f) 15,661 (1,835) 3,211 2,539 3,113
------ -------- ------- ------- --------
Income (loss) from
continuing operations (f) $ 30,176 $ (3,140) $ 5,808 $ 4,213 $ 5,167
======= ======== ======= ======= ========
Weighted average shares
outstanding (h) 25,128 24,069 24,116 15,375 15,375
(g) (g)
Income (loss) per share from
continuing operations (h) $ 1.20 $ (0.13) $ 0.24 $ 0.27 $ 0.34
Balance sheet data:
Property and equipment, net $ 59,602 $ 44,571 $ 40,102 $ 4,632 $ 3,656
Total assets 483,018 170,163 142,452 21,325 23,443
Total long-term debt 117,157 44,226 35,956 3,579 855
Stockholders' equity 103,504 50,504 50,874 10,943 (i) 15,690
(a) Includes the results of operations of Sintel for the eight months ended
December 31, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
(b) Includes the results of Church & Tower for the full year 1994, the
results of Burnup & Sims, Inc. from March 11, 1994 through the end of 1994, and
the results of Designed Traffic Installation Co., Inc. from June 22, 1994
through the end of 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
(c) Includes the results and financial condition of Church & Tower only.
(d) Includes interest due to stockholders from outstanding notes amounting
to $135,000 and $223,000 for the years ended December 31, 1995 and 1994,
respectively.
(e) Includes interest accrued from notes from stockholders amounting to
$182,000, $289,000 and $304,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
(f) Church & Tower was not subject to income taxes because it was an S
corporation and, as a consequence, income from continuing operations for 1992
through 1994 has been adjusted to reflect a pro forma provision for income
taxes.
(g) Reflects the shares of Common Stock of the Company received by the
former shareholders of Church & Tower upon acquisition of the Company and not
the outstanding shares of common stock of Church & Tower.
(h) Weighted average shares and earnings per share amounts have been
adjusted to reflect the three-for-two stock split declared in 1997.
(i) Distributions of $11.5 million were made to the shareholders of Church
& Tower representing subchapter S earnings.
7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MasTec is one of the world's leading contractors specializing in the
build-out of telecommunications and related infrastructure. The Company's
principal business consists of the design, installation and maintenance of the
outside physical plant for telephone and cable television communications systems
and of integrated voice, data and video local and wide area networks inside
buildings, and the installation of central office equipment. The Company also
provides infrastructure services to public utilities and the traffic control and
highway safety industry.
The Company was formed through the combination of Church & Tower and
Burnup & Sims Inc. ("Burnup & Sims") two established names in the U.S.
telecommunications construction services industry. On March 11, 1994, the
shareholders of Church & Tower acquired 65% of the outstanding common stock of
Burnup & Sims in a reverse acquisition (the "Burnup Acquisition"). Following the
change in control, the senior management of Burnup & Sims was replaced by Church
& Tower management and the name of Burnup & Sims was changed to "MasTec, Inc."
Church & Tower is considered the predecessor company to MasTec and, accordingly,
the results of Burnup & Sims subsequent to March 11, 1994 are included in the
results of the Company.
During the three fiscal years prior to the acquisition, Burnup & Sims
incurred increasing net losses culminating in a net loss of $9.3 million for
fiscal 1993. Following the Burnup Acquisition, the Company implemented a number
of strategic initiatives to improve operating efficiencies, including the
elimination of duplicative facilities, consolidation of subsidiaries, the
restructuring of certain unprofitable contracts and the implementation of
tighter control over bidding procedures and purchasing. As a result of these
initiatives, Burnup & Sims' operations made a positive contribution to the
Company's operating profit in 1994.
Since the Burnup Acquisition, the Company has followed a two-pronged
strategy to expand its core telecommunications infrastructure construction
business through the aggressive pursuit of new contracts and through
acquisitions. As a result, the Company's revenue has increased from $111.3
million in 1994 to $472.8 million in 1996. Beginning in 1995, the Company began
a concurrent program of divesting itself of non-core activities and investments
acquired through the Burnup Acquisition (see "Discontinued Operations" and
"Special Charges-Real Estate and Investment Write Downs").
In April 1996, the Company purchased Sintel, a company engaged in
telecommunications infrastructure construction services in Spain, Argentina,
Chile and Peru, from Telefonica. The Sintel acquisition gave the Company a
significant international presence and more than doubled the size of the Company
in terms of revenue and number of employees. In Argentina, Chile and Peru, the
Company operates through unconsolidated joint ventures in which it holds
interests ranging from 38% to 50%. See Notes 2 and 10 to the Consolidated
Financial Statements for pro forma financial information and geographic
information, respectively.
Following losses in 1993 and 1994, Sintel's current management
implemented a cost reduction program to restore Sintel to profitability. Under
the program, Sintel (a) reorganized its corporate structure from five to two
divisions, (b) consolidated its offices and reduced management personnel, (c)
consolidated its field operations and reduced the number of its occupied
buildings, (d) instituted procedures to improve billing and collections as well
as the management of its accounts payable, and (e) reduced general expenses. In
addition, Sintel restructured its workforce by laying off approximately 500 full
time workers and reassigning other workers to more profitable operations.
Sintel is continuing its cost reduction program under the Company's
ownership. As a result of this program, Sintel's operating margin has improved
from 7.5% to 10.8% of revenue (excluding special charges) for 1995 and 1996,
respectively. Included in the Company's results for 1996 are the results of
operations of Sintel from May 1, 1996 through December 31, 1996.
Discontinued operations
In the third quarter of 1995, the Company adopted a plan to dispose of
certain non-core businesses acquired in the Burnup Acquisition. See Note 14 to
the Consolidated Financial Statements. The general products segment included the
operations of a printing company, a theatre chain and an uninterrupted power
supply assembler. Based on the estimated net realizable value of these assets, a
loss on disposition of approximately $6.4 million, net of tax, relating to the
remaining discontinued operations was recorded in 1995. During 1995, the Company
sold the assets of the theatre chain and the assembler. The two transactions
netted a gain of $7.4 million after tax. The remaining theater operations have
been closed and are currently being marketed for sale for the underlying real
estate value. The Company sold the printing company in January 1997 for its
carrying value. Net assets of discontinued operations at December 31, 1996 and
1995, are reflected in other current assets in the consolidated balance sheet.
Special charges-real estate and investment write downs
In 1995, the Company decided to accelerate the pace of its disposal of
non-core real estate and other investments. As a result of this decision, the
Company recorded special charges totaling $23.1 million to reflect the net
realizable value of these assets based on offers received. During 1996, the
Company received $9.1 million in proceeds from the sale of certain of these
assets.
Results of operations
Revenue is generated primarily from telecommunications and related
infrastructure services. Infrastructure services are provided to telephone
companies, public utilities, CATV operators, other telecommunications providers,
governmental agencies and private businesses.
Costs of revenue includes subcontractor costs and expenses, materials
not supplied by the customer, fuel, equipment rental, insurance, operations
payroll and employee benefits.
General and administrative expenses include management salaries and
benefits, rent, travel, telephone and utilities, professional fees and clerical
and administrative overhead.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the years ended December 31, 1996,
1995 and 1994:
1996 1995 1994(1)
Revenue 100.0 % 100.0 % 100.0 %
Costs of revenue 74.5% 74.9 % 75.4 %
Depreciation and amortization 2.5% 4.0 % 4.0 %
General and administrative expenses 12.4% 10.9 % 11.7 %
Operating margin 10.6% 10.2% 8.9%
Interest expense 2.4% 2.8 % 3.2 %
Interest and dividend income and other
income, net, equity in unconsolidated
companies and minority interest 1.6% 3.0 % 2.4 %
Special charge-real estate and investments
write-downs 0.0% 13.2 % 0.0 %
Income (loss) from continuing operations (1) 6.4% (1.8)% 5.2 %
(1) Income from continuing operations for 1994 as a percentage of revenue
has been adjusted to reflect a tax provision as though the Company had
been subject to taxation for the entire year.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company experienced dramatic growth during the year. Revenue
increased 171% from $174.6 million in 1995 to $472.8 million in 1996 while
operating income increased 180% from $17.8 million to $49.9 million. A
significant portion of this growth is a direct result of the acquisition of
Sintel, which contributed $188.2 million to revenue and $19.7 million to
operating income for the eight months of 1996 during which the Company owned
Sintel. Domestic operations, which accounted for substantially all of 1995
results, grew 63% in revenue to $284.6 million in 1996 and contributed $30.2
million to operating income.
Although the operating margin of domestic and international operations
are approximately the same, cost components as a percentage of revenue differ.
Direct costs for domestic operations were 76.2% of domestic revenues in 1996
while direct costs for international operations were only 72.0% of international
revenues. Although the resulting consolidated gross margin percentage of 25.5%
was an improvement over the 1995 gross margin of 25.1%, domestic gross margins
declined to 23.8% primarily due to additional start up and expansion costs
relating to the rapid growth in revenues.
Depreciation and amortization costs are 3.5% of domestic revenue, down
from 4.0% in 1995, and 1.1% of international revenue as international activities
are less capital intensive. General and administrative expenses are 9.7% of
domestic revenues, down from 10.9% in 1995, and 16.5% of international revenue.
General and administrative expenses as a percentage of domestic revenue have
declined as the growth in revenue has allowed overhead expenses to be spread
over a broader base. The decrease in domestic gross margin in 1996 was offset by
the decrease in depreciation and amortization and general and administrative
expenses to produce an improved domestic operating margin of 10.6% as compared
to 10.2% in 1995.
Interest expense increased from $5.0 million in 1995 to $11.4 million
in 1996. Included in interest expense for the year ended December 31, 1996 is
$3.4 million of interest expense incurred by the international operations to
fund its working capital needs. Interest expense also increased due to new
borrowings used for acquisitions, for equipment purchases and to make
investments in unconsolidated companies. Partially offsetting the increase was
the conversion of the Company's 12% Subordinated Convertible Debentures (the
"Debentures") to Common Stock on June 30, 1996.
Interest and dividend income, other income, net, equity in earnings
(losses) of unconsolidated companies and minority interest increased from $4.9
million in 1995 to $7.3 million in 1996 as a result of equity in earnings of
unconsolidated companies, primarily those acquired as part of the Sintel
acquisition, and interest income accrued on a note receivable. The increase from
1995 to 1996 was partially offset by the sale of a preferred stock investment,
which reduced dividend income in the 1996 period.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue increased by approximately $63.3 million or 57% from $111.3
million in 1994 to $174.6 million in 1995, primarily due to expansion into new
contract areas and the full year's effect in 1995 of acquisitions in 1994,
including the Burnup Acquisition.
Costs of revenue as a percentage of revenue decreased from 75.4% in
1994 to 74.9% in 1995, primarily due to improved margins resulting from improved
operating efficiencies, improved productivity due to the use of more modern
equipment, and the Company's renegotiation of an unprofitable master contract
assumed as part of the Burnup Acquisition.
Depreciation and amortization as a percentage of revenue was 4.0% in
both 1995 and 1994. Depreciation expense increased from $4.4 million in 1994 to
$6.9 million in 1995 primarily due to a fleet replacement program related to the
Burnup & Sims fleet acquired in the Burnup Acquisition and an increase in
capital expenditures resulting from expansion into new contract areas.
General and administrative expenses as a percentage of revenue declined
from 11.7% in 1994 to 10.9% in 1995. General and administrative expenses
increased by approximately $6.1 million from 1994 to 1995 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 & Sims
from January 1 to March 11, 1994. Additionally, the Company expended
approximately $1.6 million in 1995 related to pursuing and monitoring investment
opportunities abroad.
Interest expense increased from $3.6 million in 1994 to $5.0 million in
1995 primarily due to new borrowings used for equipment purchases, to fund the
Devono Loan and to make investments in unconsolidated companies.
Interest and dividend income increased from $1.5 million in 1994 to
$3.3 million in 1995 as a result of dividends earned on the preferred stock
investment acquired in the acquisition and the interest accrued on the Devono
Loan. Other income increased by $1.0 million from 1994 to 1995 as a result of a
$1,350,000 favorable settlement of a lawsuit.
See "Special charges real-estate and investment write-downs" for a
discussion of the special charges for the write-down of certain real estate and
other assets of the Company.
Liquidity and capital resources
The Company's balance sheet as of December 31, 1996, reflects the
impact of the Sintel Acquisition, the conversion of the Debentures to Common
Stock and the issuance of 198,000 shares of Common Stock for an acquisition. See
Notes 2 and 6 to the Consolidated Financial Statements.
The Company's primary source of liquidity has been cash flow from
operating activities, external sources of financing, and the proceeds from the
sale of non-core assets. During the year ended December 31, 1996, $37.4 million
was generated from operations compared to $5.6 million for 1995, primarily due
to higher earnings. Also, during the year ended December 31, 1996, the Company
invested $6.2 million in acquisitions and received $9.1 million from the sale of
non-core assets. Cash paid for capital expenditures was $7.1 million and an
additional $8.6 million of capital expenditures were financed. The Company used
its excess cash to repay debt, principally under its revolving credit facility
with a wholly owned finance subsidiary of Telefonica and debentures Sintel had
outstanding as of April 30, 1996. See Note 6 to the Consolidated Financial
Statements.
As of December 31, 1996, working capital was approximately $151.8
million compared to working capital of approximately $44.6 million at December
31, 1995. The significant increase in working capital is primarily attributable
to the acquisition of Sintel. Included in working capital at December 31, 1996
are the net assets of discontinued operations, notes receivable (see Note 4 to
the Consolidated Financial Statements) and real estate held for sale. Proceeds
from the sale or repayment of these assets will be used for general corporate
purposes including furthering the Company's growth strategy.
During 1996, the Company completed three acquisitions and increased its
investment in an unconsolidated company, as detailed in Note 2 to the
Consolidated Financial Statements. The combined consideration for these four
transactions amounted to approximately $58.9 million plus certain ownership
interest in other unconsolidated companies and the assumption of debt. The
purchase price consisted of approximately $7.0 million in cash payment and $40.9
million in seller financing, and Common Stock of $11.0 million.
The Company continues to pursue a strategy of growth through internal
expansion and through acquisitions. The Company anticipates that this growth as
well as operating cash requirements, capital expenditures and debt service will
be funded from cash flow generated by operations and external sources of
financing. The success of the Company's growth strategy will be dependent in
part on the Company obtaining additional capital. Although the Company believes
that additional capital will be obtained, there can be no assurance that the
Company will be able to obtain capital on satisfactory terms for this purpose.
The Company also anticipates that certain of its non-core assets will be
converted into cash within the next twelve months.
The Company conducts business in several foreign currencies, which are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
Company does not enter into foreign exchange contracts: however, as a means of
hedging its balance sheet currency risk, the Company attempts to balance its
foreign currency denominated assets and liabilities. There can be no assurance
that a balance can be maintained. In addition, the Company's results of
operations from foreign activities are translated into U.S. dollars at the
average prevailing rates of exchange during the period reported, which average
rates may differ from the actual rates of exchange in effect at the time of the
actual conversion into U.S. dollars. The Company currently has no plans to
repatriate significant earnings from its international operations.
The Company's current and future operations and investments in certain
foreign countries are generally subject to the risks of political, economic or
social instability, including the possibility of expropriation, confiscatory
taxation, hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment income, capital
and other assets. The Company cannot predict whether any of such factors will
occur in the future or the extent to which such factors would have a material
adverse effect on the Company's international operations.
Impact of inflation
The primary inflationary factor affecting the Company's operations is
increased labor costs. The Company's revenue is principally derived from
services performed under master contracts, which typically include provisions to
increase contract prices on an annual basis based on increases in the
construction price index. In Spain, union contracts historically have called for
increases in labor rates based on the rate of inflation, which was less than
3.0% for 1996. Accordingly, the Company believes that increases in labor costs
will not have a significant impact on its results of operations.
Environmental matters
The Company is in the process of removing, restoring and upgrading
underground fuel storage tanks and does not expect the costs of completing this
process to be significant.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Consolidated Financial Statements.
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 8, 1995, the Board of Directors dismissed Price Waterhouse LLP
as the Company's independent auditors and retained Coopers & Lybrand L.L.P. as
the Company's independent auditors. These events were previously reported in
Forms 8-K filed on May 8, 1995 and June 27, 1995.
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and nominees for director of the
Company set forth under the caption "Election of Directors" of the Company's
Proxy Statement for the 1997 Annual Meeting of Stockholders (the "Proxy
Statement") is incorporated by reference into this Annual Report on Form 10-K.
Information concerning the executive officers of the Company is included under
the caption "Executive Officers of the Registrant" in reliance upon General
Instruction G to Form 10-K and Instruction 3 of Item 401(b) of Regulation S-K.
11. EXECUTIVE COMPENSATION
The information concerning executive compensation set forth under the
caption "Executive Compensation" of the Company's Proxy Statement is
incorporated by reference into this Annual Report on Form 10-K.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management" of the
Company's Proxy Statement is incorporated by reference into this Annual Report
on Form 10-K.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" of the Company's Proxy Statement is incorporated by
reference into this Annual Report on Form 10-K.
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page Number
Report of Independent Accountants F-1
(a)(i) Consolidated Financial Statements
Statements of Income for the three years ended
December 31, 1996 F-2
Balance Sheets at December 31, 1996 and 1995 F-4
Statements of Stockholders' Equity for the
three years ended December 31, 1996 F-5
Statements of Cash Flows for the three
years ended December 31,1996 F-6
Notes to Consolidated Financial Statements F-13
(b) Report on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended December 31, 1996.
(c) Index to Exhibits E-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of MasTec, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of MasTec, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MasTec, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 28, 1997
F-1
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the three years ended December 31, 1996
(In thousands except per share amounts)
1996 1995 1994
Revenue $ 472,800 $ 174,583 $ 111,294
Costs of revenue 352,329 130,762 83,952
Depreciation and amortization 12,000 6,913 4,439
General and administrative expenses 58,529 19,081 13,022
-------- -------- -------
Operating income 49,942 17,827 9,881
Interest expense
Borrowings 11,434 4,819 3,364
Notes to stockholders 0 135 223
Interest and dividend income 3,064 3,060 1,165
Interest on notes from stockholders 182 289 304
Special charges-real estate and
investment write-downs 0 23,086 0
Other income, net 950 2,028 1,009
-------- -------- -------
Income (loss) from continuing operations
before equity in earnings (losses) of
unconsolidated companies, provision
(benefit) for income taxes and minority interest 42,704 (4,836) 8,772
Equity (losses) in earnings of
unconsolidated companies 3,040 (300) 247
Provision (benefit) for income taxes 15,661 (1,835) 2,325
Minority interest (93) (161) 0
-------- --------- -------
Income (loss) from continuing operations 30,176 (3,140) 6,694
Discontinued operations (Note 15):
(Loss) income from discontinued operations,
net of applicable income taxes (177) 38 825
Net gain on disposal of discontinued
operations net of a provision of $6,405
for 1995 to write down related assets
to realizable values and including operating
losses during phase-out period,
net of applicable income taxes 66 2,493 0
-------- -------- -------
Net income (loss) $ 30,065 $ (609) $ 7,519
======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the three years ended December 31, 1996
(In thousands except per share amounts)
1996 1995 1994
Weighted average shares outstanding (2) 25,128 24,069 24,116
Earnings (loss) per share (1)(2):
Continuing operations $ 1.20 $ (0.13) $ 0.24
Discontinued operations .00 0.10 0.03
--------- -------- ---------
$ 1.20 $ (0.03) $ 0.27
========= ======== =========
(1) Net income and earnings per share amounts for 1994 have been adjusted
to include a provision for income taxes of $3,763 as though the Company had been
subject to taxation for the entire year resulting in a net income on a pro forma
basis of $6,633.
(2) Amounts have been adjusted to reflect the three-for-two stock split
declared subsequent to December 31, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of December 31, 1996 and 1995
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 4,754 $ 1,076
Accounts receivable-net and unbilled revenue 306,022 45,922
Notes receivable 29,549 27,505
Inventories 4,837 2,819
Other current assets 35,382 27,878
------- -------
Total current assets 380,544 105,200
------- -------
Property and equipment-at cost 80,119 55,806
Accumulated depreciation (20,517) (11,235)
------- -------
Property-net 59,602 44,571
Investments in unconsolidated companies 30,209 14,847
Notes receivable from stockholders 1,770 1,770
Other assets 10,893 3,775
------- -------
TOTAL ASSETS $ 483,018 $ 170,163
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 38,035 $ 27,863
Accounts payable 162,377 19,026
Other current liabilities 28,352 13,744
------- --------
Total current liabilities 228,764 60,633
------- --------
Other liabilities 33,593 14,800
------- --------
Long-term debt 117,157 34,601
Convertible subordinated debentures 0 9,625
------- ---------
Total long-term debt 117,157 44,226
------- --------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 149,083 134,186
Retained earnings 35,728 5,663
Accumulated translation adjustments (802) 1
Treasury stock (83,148) (91,989)
------- --------
Total stockholders' equity 103,504 50,504
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 483,018 $ 170,163
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
MASTEC, INC .
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years ended December 31, 1996
(In thousands)
Common Stock Accumulated
Issued Capital Retained Translation Treasury
Shares Amount Surplus Earnings Adjustment Stock Total
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 10,250 $ 1,025 $ $ 9,918 $ $ $ 10,943
Net income 7,519 7,519
Retained earnings of CT Group
transferred to capital surplus 11,165 (11,165) 0
Equity acquired in reverse
acquisition 16,185 1,618 122,969 (92,232) 32,355
Stock issuance costs for
reverse acquisition (18) (18)
Stock issued to employees
from treasury stock (22) 96 74
Stock issued for debentures
from treasury shares 1 1
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 26,435 2,643 134,094 6,272 (92,135) 50,874
Net loss (609) (609)
Stock issued to 401(k)
Retirement Savings Plan from
treasury shares 92 146 238
Accumulated translation adjustment 1 1
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 26,435 2,643 134,186 5,663 1 (91,989) 50,504
Net income 30,065 30,065
Cumulative effect of translation (803) (803)
Stock issued from treasury stock
for options exercised 48 523 571
Tax benefit for stock option plan 513 513
Stock issued from treasury stock
for an acquisition 8,844 2,201 11,045
Stock issued for Debentures
from treasury stock 5,492 6,117 11,609
- -------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 26,435 $ 2,643 $149,083 $ 35,728 $ (802) $(83,148) $103,504
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $ 30,065 $ (609) $ 7,519
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,000 6,913 5,474
Minority interest (93) (161) 0
Equity in (earnings) losses of
unconsolidated companies (3,040) 300 (247)
Special charge-real estate and
investments write downs 0 23,086 0
Gain on sale of discontinued operations (144) (2,667) 0
(Gain) loss on sale of assets (221) (156) (609)
Stock issued to employees from treasury stock 0 0 74
Changes in assets and liabilities net of
effects of acquisitions and divestitures:
Accounts receivable-net and unbilled
revenue (12,013) (20,322) (8,249)
Inventories and other current assets (2,448) (1,626) (128)
Other assets (3,250) (2,545) 511
Accounts payable and accrued expenses 24,492 10,929 139
Income taxes 3,814 1,754 1,133
Other current liabilities (6,706) (1,194) (2,900)
Net assets of discontinued operations 1,148 963 0
Deferred income taxes (1,240) (10,092) 884
Other liabilities (4,942) 1,023 (9)
-------- --------- ---------
Net cash provided by operating activities 37,422 5,596 3,592
-------- --------- ---------
Cash flows used in investing activities:
Capital expenditures (7,059) (14,668) (4,272)
Investment in notes receivable 0 (25,000) 0
Investments in unconsolidated companies (1,212) (7,408) 0
Notes to stockholders 0 0 (3,570)
Repayment of notes to stockholders 0 1,800 0
Cash acquired in acquisitions 1,130 148 6,585
Cash paid in acquisitions (6,164) (1,750) (1,850)
Proceeds from sale of assets 9,107 2,934 664
Repayment of notes receivable 1,273 443 0
Distributions from unconsolidated companies 0 245 277
Net proceeds from sale of discontinued operations 297 21,293 0
-------- --------- ---------
Net cash used in investing activities (2,628) (21,963) (2,166)
-------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
1996 1995 1994
Cash flows from financing activities:
Proceeds from Term Loan 0 24,500 1,000
Proceeds from Revolver 17,476 21,625 0
Financing costs 0 (516) 0
Other borrowings 21,739 5,450 0
Debt repayments (70,320) (26,966) (5,244)
Debt repayments - Revolver 0 (10,000) 0
Repayments of notes from stockholders 0 (2,500) (500)
Net proceeds from common stock issued
from treasury stock 792 238 0
------- ------- -------
Net cash (used in) provided by
financing activities (30,313) 11,831 (4,744)
------- ------- -------
Net effect of translation on cash (803) 0 0
Net increase (decrease) in cash and cash equivalents 3,678 (4,536) (3,318)
Cash and cash equivalents-
beginning of period 1,076 5,612 8,930
------- ------- -------
Cash and cash equivalents-
end of period $ 4,754 $ 1,076 $ 5,612
======= ======= =======
Cash paid during the period:
Interest $ 10,029 $ 4,984 $ 3,984
Income taxes $ 11,676 $ 7,527 $ 1,695
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996
Acquisition of Sintel:
Fair value of assets acquired:
Accounts receivable $ 242,280
Inventories 2,258
Other current assets 10,088
Property and equipment 8,093
Investment in unconsolidated companies 9,373
Other assets 2,094
--------
Total non-cash assets 274,186
--------
Liabilities 158,390
Long-term debt 78,024
--------
Total liabilities assumed 236,414
--------
Net non-cash assets acquired 37,772
Cash acquired 832
--------
Purchase price $ 38,604
========
Seller financing $ 33,061
Cash paid for acquisition 5,164
Acquisition costs paid by the Company 379
--------
Purchase price $ 38,604
========
Acquisition of Harrison-Wright:
Fair value of net assets acquired:
Accounts receivables $ 2,147
Discontinued operations 4,225
Other current assets 2,547
Property 4,398
Other assets 55
--------
Total non-cash assets 13,372
--------
Liabilities 1,665
Long-term debt 366
--------
Total liabilities assumed 2,031
--------
Net non-cash assets acquired 11,341
Cash acquired 131
--------
Net value of assets acquired $ 11,472
========
MasTec stock issued to Harrison-Wright's shareholders $ 11,045
Cash paid for acquisition 131
Acquisition costs paid by the Company 296
--------
Purchase price $ 11,472
========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996
Acquisition of Carolina ComTec:
Fair value of assets acquired:
Accounts receivable, net of allowances of $167 $ 3,660
Inventories 722
Other current assets 26
Property and equipment 657
Other assets 11
--------
Total non-cash assets 5,076
--------
Liabilities 2,873
Long-term debt 576
--------
Total liabilities assumed 3,449
--------
Net non-cash assets acquired 1,627
Cash acquired 167
--------
Fair value of net assets acquired 1,794
Excess over fair value of assets acquired 4,956
--------
Purchase price $ 6,750
========
Seller financing $ 3,500
Cash paid for acquisition 1,000
Contingent consideration 2,250
--------
Purchase price $ 6,750
========
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
1995
Acquisitions:
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 stockholder $ 800
Cash paid for acquisition 1,750
Contingent consideration 406
-------
Purchase price $ 2,956
=======
Disposals:
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
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
1994
Acquisition of Burnup & Sims:
Fair value of net assets acquired:
Accounts receivable, net of allowances of $1,482 $ 18,274
Inventories and other current assets 7,524
Investments 9,000
Property 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
=======
Acquisition of DTI:
Fair value of net assets acquired:
Accounts receivable $ 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
=======
1996 1995 1994
Property acquired through financing
arrangements $ 8,550 $ 9,452 $ 2,989
======= ======== =======
Property acquired through capital leases $ 0 $ 0 $ 1,764
======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
In 1996, the Company issued approximately 198,000 shares of Common
Stock for an acquisition. Common Stock was issued from treasury at a cost of
$2.2 million.
In 1996, the Company converted $11.6 million of its 12% Convertible
Subordinated Debentures into Common Stock. Common Stock was issued from treasury
at a cost of $6.1 million. See Note 6 to the Consolidated Financial Statements.
In 1996, the Company's purchase of an additional 3% interest in Supercanal,
S.A. was financed in part by the sellers for $2 million. See Note 2 to the
Consolidated Financial Statements.
During 1996, MasTec issued $523,000 of Common Stock from treasury for
stock option exercises. Capital surplus was increased by $48,000.
In 1995, the Company's purchase of a 33% interest in Supercanal was
financed in part by the seller for $7 million. See Note 2 to the Consolidated
Financial Statements.
During 1995, MasTec issued $146,000 of Common Stock from treasury stock for
purchases made by The MasTec, Inc. 401(k) Retirement Savings Plan. Capital
surplus was increased by $92,000.
During 1994, MasTec sold equipment in exchange for a note receivable for
$631,000.
During 1994, MasTec issued $96,000 of Common Stock from treasury stock to
its employees. Capital surplus was reduced by $22,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
MasTec, Inc. (the "Company" or "MasTec") is one of the world's leading
contractors specializing in the build-out of telecommunications infrastructure.
The Company's principal business consists of the design, installation and
maintenance of the outside physical plant ("outside plant") for telephone and
cable television communications systems, including the installation of aerial,
underground and buried copper, coaxial and fiber optic cable networks and the
construction of wireless antenna networks for telecommunications service
companies such as local exchange carriers, competitive access providers, cable
television operators, long-distance carriers, and wireless phone companies. The
Company also installs central office equipment and designs, installs and
maintains integrated voice, data and video local and wide area networks inside
buildings ("inside wiring"). The Company believes it is the largest independent
contractor providing telecommunications infrastructure construction services in
the United States and Spain and one of the largest in Argentina, Chile and Peru.
The Company is able to provide a full range of infrastructure services to
its telecommunications company customers. Domestically, the Company provides
outside plant services to local exchange carriers such as BellSouth
Telecommunications, Inc. ("BellSouth"), U.S. West Communications, Inc., SBC
Communications, Inc., United Telephone of Florida, Inc. (a subsidiary of Sprint
Corporation) and GTE Corp. MasTec currently has 20 exclusive, multi-year service
contracts ("master contracts") with regional bell operating companies ("RBOCs")
and other local exchange carriers to provide all of their outside plant
requirements up to a specific dollar amount per job and within certain
geographic areas. Internationally, the Company provides through its wholly owned
subsidiary Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel") outside
plant services, turn-key switching system installation and inside wiring
services to Telefonica de Espana, S.A. ("Telefonica") under multi-year contracts
similar to those in the U.S.
The Company was formed through the combination of Church & Tower and Burnup
& Sims, two established names in the U.S. telecommunications construction
services industry. On March 11, 1994, the shareholders of Church & Tower
acquired 65% of the outstanding common stock of Burnup & Sims in a reverse
acquisition (the "Burnup Acquisition"). Following the change in control, the
senior management of Burnup & Sims was replaced by Church & Tower management and
the name of Burnup & Sims was changed to "MasTec, Inc." Church & Tower is
considered the predecessor company to MasTec and, accordingly, the results of
Burnup & Sims subsequent to March 11, 1994 are included in the results of the
Company.
Management's estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation
The Consolidated Financial Statements include MasTec, Inc. and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform to the
current presentation.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
Foreign currency
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency. The
Company translates foreign currency financial statements by translating balance
sheet accounts at the exchange rate on the balance sheet date and income
statement accounts at the average exchange rate for the period. Translation
gains and losses are recorded in stockholders' equity, and transaction gains and
losses are reflected in income.
Revenue recognition
Revenue and related costs for short-term telecommunications construction
projects, which represent approximately 90% of total revenue, are recognized as
the projects are completed. Revenue generated by certain long-term construction
contracts are accounted for by the percentage-of-completion method under which
income is recognized based on the estimated stage of completion of individual
contracts. Losses, if any, on such contracts are provided for in full when they
become known. Billings in excess of costs and estimated earnings on uncompleted
contracts are classified as current liabilities. Any costs in excess of billings
are classified as current assets.
The Company also provides management, coordination, consulting and
administration services for construction projects. Compensation for such
services is recognized ratably over the term of the service agreement.
Earnings per share
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares during the period.
Outstanding stock options are considered common stock equivalents and are
included in the calculation using the treasury stock method. In computing the
1995 loss per share, stock options were not considered because they had an
anti-dilutive effect.
Fully diluted earnings per share, assuming conversion of the Debentures
with corresponding adjustments for interest expense, net of tax, is not
presented because the effect of conversion is anti-dilutive.
The Company's Board of Directors declared a three-for-two stock split in
the form of a stock dividend for stockholders of record on February 3, 1997
payable on February 28, 1997. All earnings per share amounts have been
calculated as if the dividend had occurred on December 31, 1993.
In February 1997, the Financial Accounting Standards Board (the FASB)
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
(FAS 128). FAS 128 specifies new standards designed to improve the EPS
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. FAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company does not believe it will have any
material effect on its EPS calculation.
Cash and cash equivalents
The Company considers all short-term investments with maturities of three
months or less when purchased to be cash equivalents. The Company places its
temporary cash investments with high credit quality financial institutions. At
times, such investments may be in excess of the F.D.I.C. insurance limits. The
Company has not experienced any loss to date on these investments.
Inventories
Inventories (consisting principally of material and supplies) are carried
at the lower of first-in, first-out cost or market.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
Property and equipment, net
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful life of the assets as follows: buildings and improvements -- 5 to 20
years and machinery and equipment -- 3 to 7 years. Leasehold improvements are
amortized over the shorter of the term of the lease or the estimated useful
lives of the improvements. Expenditures for repairs and maintenance are charged
to expense as incurred. Expenditures for betterments and major improvements are
capitalized. The carrying amounts of assets sold or retired and related
accumulated depreciation are eliminated in the year of disposal and the
resulting gains and losses are included in income.
Investments
The Company's investment in real estate located primarily in Florida,
acquired in connection with the Burnup Acquisition, is stated at their estimated
net realizable value. Investments in unconsolidated companies are accounted for
following the equity method of accounting (see Note 2).
Accrued insurance
The Company is self-insured for certain property and casualty and worker's
compensation exposure and, accordingly accrues the estimated losses not
otherwise covered by insurance.
Income taxes
The Company records income taxes using the liability method. Under this
method, the Company records deferred taxes based on temporary taxable and
deductible differences between the tax bases of the Company's assets and
liabilities and their financial reporting bases. A valuation allowance is
established when it is more likely than not that some or all of the deferred tax
assets will not be realized.
2. ACQUISITIONS AND INVESTING ACTIVITIES
Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel")
On April 30, 1996 , the Company purchased from Telefonica, 100% of the
capital stock of Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel"),
a company engaged in telecommunications infrastructure construction services in
Spain, Argentina, Chile, and Peru. In Argentina, Chile and Peru, the Company
operates through unconsolidated joint ventures in which it holds interests
ranging from 38% to 50%. The purchase price for Sintel was Spanish Pesetas
("Pesetas") 4.9 billion (US$39.5 million at the then exchange rate of 124
Pesetas to one U.S. dollar). An initial payment of Pesetas 650 million ($5.1
million) was made at closing. An additional Pesetas 650 million ($4.9 million)
was paid on December 31, 1996, with the balance of the purchase price, Pesetas
3.6 billion (US$27.5 million), due in two equal installments on December 31,
1997 and 1998. Prior to April 30, 1996, as part of the terms of the purchase and
sale agreement with Telefonica, Sintel sold certain buildings to Telefonica and
Telefonica repaid certain tax credits and made a capital contribution to Sintel
collectively referred to as the "Related Transactions". The total proceeds from
the Related Transactions were approximately $41 million. The assets and
liabilities resulting from the acquisition are disclosed in the supplemental
schedule of non-cash investing and financing activities in the Consolidated
Statements of Cash Flows. The Sintel acquisition gives the Company a significant
international presence. See Note 10 regarding geographic information.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
The following information presents the unaudited pro forma condensed
results of operations for the years ended December 31, 1996 and 1995 as if the
Company's acquisition of Sintel and the Related Transactions had occurred on
January 1, 1995. The Sintel acquisition has been treated as a "purchase" as the
term is used under generally accepted accounting principles. Management's
preliminary estimate of fair value approximated that of the carrying value of
the net assets acquired after reflecting a reserve for involuntary employee
terminations of $12.4 million and deferred taxes of $4.3 million. At December
31, 1996, approximately $2.7 million remained outstanding related to the
termination reserve. The allocation reflects management's best estimate based
upon currently available information and significant differences are not
expected. The pro forma results, which include adjustments to increase interest
expense resulting from the debt incurred pursuant to the Sintel acquisition
($700,000 and $2.4 million for 1996 and 1995, respectively), offset by the
reduction in interest and depreciation expenses resulting from the Related
Transactions ($1 million and $4.4 million for 1996 and 1995, respectively) and a
tax benefit at 35% for each period are presented for informational purposes only
and are not necessarily indicative of the future results of operations or
financial position of the Company or the results of operations or financial
position of the Company had the Sintel acquisition and the Related Transactions
occurred January 1, 1995.
Pro forma results of operations
for the year ended December 31,
(in thousands)
1996 1995
Revenue $ 556,495 $ 430,085
Income (loss) from continuing operations 33,372 (17,498)
Net income (loss) 33,261 (14,967)
Earnings (loss) per share:
Continuing operations $ 1.33 (0.73)
Discontinued operations (.01) 0.10
-------- --------
Net income (loss) $ 1.32 $ (0.63)
======== ========
The pro forma results for the year ended December 31, 1996 and 1995,
include special charges incurred by Sintel related to a restructuring plan of
$1.4 million and $21.1 million, net of tax, respectively.
During 1996 and 1995, the Company completed certain other acquisitions
which have also been accounted for under the purchase method of accounting and
the results of operations have been included in the Company's consolidated
financial statements from the respective acquisition dates. If the acquisitions
had been made at the beginning of 1996 or 1995, pro forma results of operations
would not have differed materially from actual results. Acquisitions made in
1996 were Carolina ComTec, Inc., a privately held company engaged in installing
and maintaining voice, data and video networks and Harrison-Wright Company Inc.,
one of the oldest telecommunications contractors in the southeastern United
States. In 1995, the Company acquired Utility Line Maintenance, a privately held
company engaged in the utility right of way clearance business.
Investing activities
In July 1996, the Company contributed its 36% ownership interest in
Supercanal, S.A., a CATV operator in Argentina to a holding company.
Concurrently, Multicanal, S.A., one of the leading cable television operators in
Argentina, acquired a 20% interest in the holding company for approximately $17
million in cash. The Company's interest in the holding company was reduced to
approximately 28.5% as a result of Multicanal's investment. At December 31,
1996, the Company's investment was $16.0 million.
Since 1995, the Company invested a total of $2 million for a 9.3% interest
in a Mexican public pay telephone company.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
3. ACCOUNTS RECEIVABLE-NET
Accounts receivable are net of an allowance for doubtful accounts of
$3,065,000, $1,009,000 and $1,404,000 at December 31, 1996, 1995 and 1994,
respectively. The Company recorded a provision for doubtful accounts of
$1,083,000, $425,000 and $268,000 during 1996, 1995 and 1994, respectively. In
addition, the Company recorded write-offs of $77,000, $683,000 and $596,000
during 1996, 1995 and 1994, respectively and in 1996 transferred from other
accounts $883,000.
Accounts receivable include retainage which has been billed but is not due
until completion of performance and acceptance by customers, and claims for
additional work performed outside original contract terms. Retainage aggregated
$4,052,000 and $2,561,000 at December 31, 1996 and 1995, respectively.
4. NOTES RECEIVABLE
In July 1995, the Company made a $25 million one year non-recourse term
loan to Devono Company Limited, a British Virgin Islands corporation ("Devono").
The loan is collateralized by 40% of the capital stock of a holding company that
owns 52.6% of the capital stock of Consorcio Ecuatoriano de Telecomunicaciones,
S.A. ("Conecell"), one of two cellular phone operators in the Republic of
Ecuador. In order to permit a sale of Devono's indirect interest in Conecell to
a third party, the Company has not called its loan. In any such future sale, the
Company is entitled under the terms of its loan agreement with Devono to
repayment of its loan and accrued interest, plus a certain percentage of the
total purchase price.
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31, 1996 and
1995 (in thousands):
1996 1995
Land $ 7,479 $ 6,926
Buildings and improvements 6,187 4,081
Machinery and equipment 63,110 43,605
Office furniture and equipment 3,343 1,194
------- -------
80,119 55,806
Less-accumulated depreciation (20,517) (11,235)
------- -------
$ 59,602 $ 44,571
======= =======
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
6. DEBT
Debt is comprised of the following as of December 31, 1996 and 1995 (in
thousands):
1996 1995
Revolver, Fleet Credit Facility at LIBOR plus 2.00% (7.69% and 7.75% at December
31, 1996 and
1995, respectively) $ 24,865 $ 10,982
Term Loan, Fleet Credit Facility, at LIBOR plus 2.25%
(7.94% and 8.00% at December 31, 1996 and
1995, respectively) 22,000 23,262
Revolving credit facility, at MIBOR plus 0.30% (7.00%) at
December 31, 1996 due November 1, 1998) 43,613 0
Other bank facilities, at interest rates from 8.1% to 9.3% 11,048 0
Notes payable for equipment, at interest rates from
7.5% to 8.5% due in installments through the year 2000 18,865 14,682
Notes payable for acquisitions, at interest rates from
7% to 8% due in installments through February 2000 32,253 8,382
Real estate mortgage notes, at interest
rates from 8.5% to 8.53% due in installments
through the year 2001 2,548 2,531
12% Convertible Subordinated Debentures 0 12,250
------- -------
Total debt 155,192 72,089
Less current maturities (38,035) (27,863)
------- -------
Long term debt $117,157 $ 44,226
======= =======
Not included in the preceding table at December 31, 1996 and 1995 is
approximately $1.9 million and $2.2 million, respectively in capital leases
related to discontinued operations (see Note 14).
The Company maintains a $50 million credit facility with Fleet Capital
Corporation (the "Fleet Credit Facility") collateralized by certain equipment
and receivables maturing January 2000 and also maintains several other credit
facilities for the purpose of financing equipment purchases. The Company may
reborrow under the Revolver as principal payments under the Term Loan are made.
Interest on the Term Loan accrues, at the Company's option, at the rate of prime
or 2.25% over LIBOR. Interest on the Revolver accrues, at the Company's option,
at the rate of prime or 2.00% over LIBOR. Additionally, the Company has several
credit facilities denominated in Pesetas, one of which is a revolving credit
facility with a wholly-owned finance subsidiary of Telefonica. Interest on this
facility accrues at MIBOR (Madrid interbank offering rate) plus .30%. At
December 31, 1996, the Company had $82.1 million (1.08 billion Pesetas) of debt
denominated in Pesetas, including $27.4 million remaining under the acquisition
debt incurred pursuant to the Sintel Acquisition (see Note 2).
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the observance of certain financial covenants such as
minimum levels of cash flow and tangible net worth.
In May 1996, the Company called its 12% Convertible Subordinated Debentures
(the "Debentures") effective June 30, 1996. The Debentures were converted into
Common Stock increasing the number of shares outstanding by 690,456.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
The Company has letters of credit outstanding totaling $3.5 million. These
letters of credit were issued primarily as security to the Company's insurance
administrators as part of its self-insurance program.
At December 31, 1996 debt matures as follows:
1997 $ 38,035
1998 69,195
1999 9,314
2000 5,741
2001 4,548
after 2001 28,359
-------
Total $ 155,192
=======
7. STOCK OPTION PLANS
The Company's only employee stock option plan currently in effect is the
1994 Stock Incentive Plan (the "1994 Plan"). However, options which were
outstanding under the Company's 1976 and 1978 stock option plans at the time of
the Burnup Acquisition remain outstanding in accordance with the terms of the
respective plans. Approximately 49,200 shares have been reserved for and may
still be issued in accordance with the terms of such plans. Compensation expense
of $589,000 and $51,000 was recorded in 1996 and 1995, respectively, related to
the 1976 plan. Shares underlying stock options and exercise prices have been
adjusted to reflect the three-for-two stock split declared in 1997 by the Board
of Directors.
The 1994 Plan authorizes the grant of options or awards of restricted stock
up to 1,200,000 shares of the Company's Common Stock, of which 300,000 shares
may be awarded as restricted stock. As of December 31, 1996, options to purchase
732,000 shares 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 within ten years from the date of grant. Options are
issued with an exercise price no less than the fair market value of the Common
Stock at the grant date.
The Company also adopted the 1994 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"). The Directors' Plan authorized the grant of
options to purchase up to 600,000 shares of the Company's Common Stock to the
non-employee members of the Company's Board of Directors. Options to purchase
112,500 shares have been granted to Board members through 1996. The options
granted become exercisable ratably over a three year period from the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant at an exercise price equal to the fair market value of
such shares on the date the option is granted.
In addition, during 1994 options to purchase 150,000 shares of Common Stock
at $3.83 per share were granted to a director outside the Directors' Plan in
lieu of the Director's Plan and annual fees paid to the director. Compensation
expense of $42,500 in connection with the issuance of this option is being
recognized annually over the five year vesting period. The options are
exercisable ratably over a five year period beginning the year after the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
The following is a summary of all stock option transactions:
Weighted Avg.
Weighted Avg. Exercise Fair Value of
Shares Exercise Price Price Options Granted
Outstanding December 31, 1994 407,700 $ 4.62 $ 0.10 - $ 5.29
Granted 303,000 8.48 $ 6.83 - $ 8.92 $ 4.22
Exercised (3,150) 5.29 $ 0.10 - $ 5.29
Canceled (32,250) 3.94 $ 0.10 - $ 8.92
------- -------
Outstanding December 31, 1995 675,300 6.11 $ 0.10 - $ 8.92
Granted 306,000 16.96 $ 7.42 - $ 28.58 $ 9.23
Exercised (81,600) 6.02 $ .10 - $ 8.92
Canceled (2,700) 5.29 $ 8.92 - $ 8.92
------- -------
Outstanding December 31, 1996 897,000 $ 9.81 $ .10 - $ 28.58
======= =======
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------------ -------------------------------------
Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg.
Range of Outstanding Remaining Exercise Excercisable Exercise
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
0.10 17,850 6.4 $ 0.10 5,400 $ 0.10
1.33 21,000 6.4 1.33 9,570 1.33
3.83 - 5.29 281,250 7.2 4.51 85,470 4.51
6.68 - 8.92 368,400 8.7 8.28 38,700 8.83
21.25 - 28.58 208,500 9.6 21.38 0 -
------- --- ----- ------- -----
0.10 - 28.58 897,000 8.3 $ 9.82 139,140 $ 5.32
======= === ===== ======= =====
As of December 31, 1996, the Company adopted the disclosure provisions of
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." Accordingly, the Company is required to disclose pro
forma net income and earnings per share both for 1996 and 1995 as if
compensation expense relative to the fair value of the options granted had been
included in earnings. The fair value of each option grant was estimated using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996 and 1995, respectively: a five year expected life for all years;
volatility factors of 51% for both years; risk-free interest rates of 6.13% and
5.94%, respectively; and no dividend payments. Had compensation cost for the
Company's options plans been determined and recorded consistent with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts as follows:
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1996 1995
Net income (loss)
As reported $ 30,065 $ (609)
Pro forma 29,211 (880)
Earnings per share
As reported $ 1.20 $ (0.03)
Pro forma $ 1.16 $ (0.04)
The 1996 and 1995 pro forma effect on net income is not necessarily
representative of the effect in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995 and does not reflect a tax benefit related to the compensation expense as
such benefit would be reflected directly in stockholders' equity given that the
options are considered incentive stock options.
8. INCOME TAXES
On March 11, 1994, the Company became a taxable corporation and the effect
of recognizing the change in tax status of approximately $435,000 is included in
the provision for income taxes for the year ended December 31, 1994.
The provision (benefit) for income taxes consists of the following (in
thousands):
1996 1995 1994
Current:
Federal $ 10,891 $ 4,821 $ 2,444
Foreign 5,347
State and local 1,536 (284) 375
------ ------ ------
Total current 17,774 4,537 2,819
------ ------ ------
Deferred:
Federal (1,895) (5,879) (422)
State and local (218) (493) (72)
------ ------ ------
Total deferred (2,113) (6,372) (494)
------ ------ ------
Provision (benefit) for income taxes 15,661 (1,835) 2,325
Discontinued operations (70) 135 552
------ ------ ------
Total $ 15,591 $ (1,700) $ 2,877
====== ====== ======
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 31, 1996 and 1995 are as follows (in thousands):
1996 1995
Deferred tax assets:
Accrued self insurance $ 3,050 $ 2,773
Operating loss and tax credit carry forward 525 543
Accrual for disposal of discontinued
operations 1,147 1,503
All other 4,774 2,708
------- -------
Total deferred tax assets $ 9,496 $ 7,527
------- -------
Deferred tax liabilities:
Property and equipment $ 5,817 $ 5,873
Asset revaluations 5,462 2,604
All other 1,718 2,820
------- -------
Total deferred tax liabilities $ 12,997 $ 11,297
------- -------
Valuation allowance 500 400
------- -------
Net deferred tax liabilities $ 4,001 $ 4,170
======= =======
The net change in the valuation allowance for deferred tax assets in 1996
was an increase of $100,000. The change relates primarily to state capital
losses generated in the current year which management believes will more likely
than not be realized.
Deferred tax assets of $2,096,000 and $1,068,000 for 1996 and 1995,
respectively, have been recorded in current assets in the accompanying
consolidated financial statements.
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
1996 1995 1994
U.S. statutory federal rate
applied to pretax income 35% (35)% 34%
State and local income taxes 2 (2) 5
Effect of dividend exclusion 0 (5) (2)
Change in tax status 0 0 (9)
Foreign loss producing no tax benefit 0 6 0
Effect of non-U.S. tax rates (3)
Adjustment of prior years' taxes 0 (5) 0
Change in federal statutory tax rate 0 9 0
Change in state tax filing status 0 (8) 0
Other 0 3 (2)
-- --- --
(Benefit) Provision for income taxes 34% (37)% 26%
== === ==
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
No provision was made in 1996 for U.S. income taxes on the undistributed
earnings of the foreign subsidiaries as it is the Company's intention to utilize
those earnings in the foreign operations for an indefinite period of time or
repatriate such earnings only when tax effective to do so. At December 31, 1996
undistributed earnings of the foreign subsidiaries amounted to $12.5 million. If
the earnings of such foreign subsidiaries were not indefinitely reinvested, a
deferred tax liability of $1.3 million would have been required.
The Internal Revenue Service is currently examining the tax returns of
Burnup & Sims for the fiscal years ended April 30, 1989 through April 30, 1993.
The Company has filed a protest with the appellate level of the IRS regarding
assessments made for the years 1989 through 1991. Adjustments, if any, as a
result of this audit will be recorded as an adjustment to purchase accounting.
9. CAPITAL STOCK
The Company has authorized 50,000,000 shares of Common Stock. At December
31, 1996 and 1995, 26,434,814 shares of Common Stock were issued, 25,621,134 and
24,082,584 shares were outstanding (adjusted for the stock split), respectively,
and 813,680 and 2,352,230 were held in treasury, at cost (after giving effect to
the stock split paid in the form of a dividend from treasury stock),
respectively.
At the date of the Burnup Acquisition, the Company transferred Church &
Tower's previously reported undistributed earnings and profits of approximately
$11,165,000 to capital surplus.
At December 31, 1996 and 1995, the Company had 5,000,000 shares of
authorized but unissued preferred stock.
10. OPERATIONS BY GEOGRAPHIC AREAS
The Company's principal source of revenue is the provision of
telecommunication infrastructure construction services in the United States and
Spain. The Company did not have significant international operations in 1995 or
1994, accordingly, only 1996 geographic information is presented below:
1996
Revenue
Domestic $ 284,645
International 188,155
--------
Total $ 472,800
========
Operating income
Domestic $ 30,209
International 19,733
--------
Total $ 49,942
========
Identifiable assets
Domestic $ 118,929
International 258,071
Corporate 106,018
--------
Total $ 483,018
========
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
There are no transfers between geographic areas. Operating income consists
of revenue less operating expenses, and does not include interest expense,
interest and other income, equity in earnings of unconsolidated companies,
minority interest and income taxes. Domestic operating income is net of
corporate general and administrative expenses. Identifiable assets of geographic
areas are those assets used in the Company's operations in each area. Corporate
assets include cash and cash equivalents, investments in unconsolidated
companies, net assets of discontinued operations, real estate held for sale and
notes receivable.
11. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from the provision
of telecommunication infrastructure services to Telefonica and to BellSouth. For
the year ended December 31, 1996, approximately 35% and 15% of the Company's
revenue was derived from services performed for Telefonica and BellSouth,
respectively. Revenue generated by Sintel from Telefonica is included from May
1, 1996 (see Note 2). During 1995 and 1994, the Company derived revenue from
BellSouth of approximately $73.1 million and $48.3 million, respectively.
Accounts receivable from the Company's two largest customers at December 31,
1996 and 1995 were $194.2 million and $19.3 million, respectively. Although the
Company's strategic plan envisions diversification of its customer base, the
Company anticipates that it will continue to be dependent on Telefonica and its
affiliates and BellSouth for a significant portion of its revenue in the future.
12. COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors, and National Beverage
Corporation ("NBC"), the Company's then-largest stockholder. The complaint
alleges, among other things, that the Company's Board of Directors and NBC
breached their respective fiduciary duties in approving certain transactions,
including the distribution in 1989 to the Company's stockholders of all of the
common stock of NBC owned by the Company and the exchange by NBC of shares of
common stock of the Company for certain indebtedness of NBC to the Company. The
lawsuit seeks to rescind these transactions and to recover damages in an
unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative complaint
against the Company, the then-members of its Board of Directors, Church & Tower,
Inc. and Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal shareholders
of Church & Tower, Inc. The 1993 lawsuit alleges, among other things, that the
Company's Board of Directors and NBC breached their respective fiduciary duties
by approving the terms of the acquisition of the Company by the Mas family, and
that Church & Tower, Inc. and its principal shareholders had knowledge of the
fiduciary duties owed by NBC and the Company's Board of Directors and knowingly
and substantially participated in the breach of these duties. The lawsuit also
claims derivatively that each member of the Company's Board of Directors engaged
in mismanagement, waste and breach of fiduciary duties in managing the Company's
affairs prior to the acquisition by the Mas Family.
Each of the foregoing lawsuits is in discovery and no trial date has been
set. The Company believes that the allegations in each of the lawsuits are
without merit and intends to defend these lawsuits vigorously.
The Company is involved in a lawsuit filed in November 1995 by BellSouth
arising from certain work performed by a subcontractor of the Company from 1991
to 1993. The amount claimed against the Company in this lawsuit approximates
$800,000. The Company has filed a counterclaim against BellSouth for unpaid
invoices related to this work. The Company believes that the allegations
asserted by BellSouth in the lawsuit are without merit and intends to defend the
lawsuit vigorously.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
All of the claims asserted in the lawsuits described above, with the
exception of the second lawsuit filed by Albert Kahn, arise from activities
undertaken prior to March 1994, the date of the consummation of the acquisition
of the Company by the Mas Family.
The Company is a party to other pending legal proceedings arising in the
normal course of business, none of which the Company believes is material to the
Company's financial position or results of operations.
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.
In connection with certain contracts, the Company has signed certain
agreements of indemnity in the aggregate amount of approximately $100.2 million,
of which approximately $62.3 million relate to the uncompleted portion of
contracts in process. These agreements are to secure the fulfillment of
obligations and performance of the related contracts.
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 these tanks, as required by applicable laws,
and has identified certain tanks and surrounding soil which will require
remedial cleanups.
13. FAIR VALUE
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts and notes receivable, accounts payable and other
liabilities, the carrying amounts approximate fair value due to their short
maturities. Long-term floating rate notes are carried at amounts that
approximate fair value.
The Company uses letters of credit to back certain insurance policies. The
letters of credit reflect fair value as a condition of their underlying purpose
and are subject to fees competitively determined in the market place.
The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized as of year end or that will
be realized in the future.
14. DISCONTINUED OPERATIONS AND REAL ESTATE HELD FOR SALE
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 that the Company acquired as
part of the Burnup Acquisition. These operations and assets include Southeastern
Printing Company, Inc. ("Southeastern"), Lectro Products, Inc. ("Lectro") and
Floyd Theatres, Inc. ("Floyd Theatres").
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
In March 1995, the Company sold the indoor theater assets of Floyd Theatres
for approximately $11.5 million. A gain of $1.5 million net of tax, resulted
from this transaction in the first quarter. In August 1995, the Company sold the
stock of Lectro for $11.9 million in cash and a note receivable of $450,000. A
gain of $5.9 million, net of tax was recorded in the third quarter related to
the sale of Lectro. In January 1997, the Company sold the assets of Southeastern
at its carrying value for approximately $2.1 million in cash and a note for
$500,000.
As part of the acquisition of Harrison-Wright (see Note 2) the Company
purchased the assets of Utility Pre-cast, Inc. The Company intends to sell the
pre-cast business and accordingly has reflected the net assets of approximately
$4.2 million as a discontinued operation.
Included in other current assets in the accompanying balance sheet is
approximately $15.7 million and $17.7 million of real estate held for sale at
December 31, 1996 and 1995, respectively.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale of these assets. While the estimates are
based on current negotiations, the amounts the Company will ultimately realize
could differ materially in the near term from the amounts assumed in arriving at
the loss on disposal of the discontinued operations.
Summary operating results of discontinued operations, excluding net gains
on disposal and estimated loss during the phase-out period, are as follows (in
thousands):
1996 1995 1994
Revenue $ 12,665 $ 21,952 $ 29,902
======= ====== ======
(Loss) earnings before income taxes (288) $ 58 $ 1,377
(Benefit) provision for income taxes (111) 20 552
------ ------ ------
Net income from discontinued operations $ 177 $ 38 $ 825
====== ====== ======
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
15. QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except earnings per share)
1996: First Second Third Fourth
Quarter Quarter (2) Quarter (3) Quarter (4) Total
Revenue $ 62,547 $ 108,634 $ 142,394 $ 159,225 $ 472,800
======== ======= ======= ======= =======
Operating income $ 6,477 $ 11,384 $ 15,401 $ 16,680 $ 49,942
========= ======= ======= ======= =======
Income from
continuing operations $ 3,695 $ 6,373 $ 9,362 $ 10,746 $ 30,176
(Loss) income from
discontinued operations
including gain (loss)
on disposal, net of taxes (14) 27 163 (287) (111)
-------- -------- ------- ------- -------
Net income $ 3,681 $ 6,400 $ 9,525 $ 10,459 $ 30,065
======== ======== ======= ======= =======
Earnings per share (1) (5):
Income from continuing
operations $ 0.15 $ 0.26 $ 0.37 $ 0.41 $ 1.20
Income from discontinued
operations 0.00 0.00 0.00 (0.01) 0.00
-------- -------- ------- ------- -------
$ 0.15 $ 0.26 $ 0.37 $ 0.40 $ 1.20
======== ======== ======= ======= =======
1995:
Revenue $ 34,623 $ 39,174 $ 46,642 $ 54,144 $ 174,583
======== ======== ======= ======= =======
Operating income $ 4,497 $ 6,036 $ 3,696 $ 3,598 $ 17,827
======== ======== ======= ======= =======
Income (loss) from
continuing operations $ 2,452 $ 4,447 $ (7,438) $ (2,601) $ (3,140)
Income (loss) from
discontinued operations
including gain (loss)
on disposal, net of taxes 1,709 205 1,551 (934) 2,531
-------- -------- ------- ------- -------
Net income (loss) $ 4,161 $ 4,652 $ (5,887) $ (3,535) $ (609)
======== ======== ======= ======= =======
Earnings per share (1) (5):
Income (loss) from continuing
operations $ 0.10 $ 0.18 $ (0.31) $ (0.11) $ (0.13)
Income (loss) from discontinued
operations 0.07 0.01 0.06 (0.04) 0.10
--------- -------- ------- ------- -------
$ 0.17 $ 0.19 $ (0.24) $ (0.15) $ (0.03)
========= ======== ======= ======= ========
(1) Earnings per share amounts have been adjusted to reflect the
three-for-two stock split declared by the Company's Board of Directors
subsequent to year end.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) The Company acquired Sintel (see Note 2) on April 30, 1996.
(3) In the third quarter of 1995, the Company recorded a special charge of
$15.4 million to write-down its real estate held for sale.
(4) In the fourth quarter of 1995, the Company recorded an additional
charge of $ 7.7 million to write-down real estate held for sale and its
investment in preferred stock.
(5) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share data does not equal the
total computed for the year due to changes in the weighted average number of
shares outstanding.
F-28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 26, 1997.
MasTec, Inc.
(Registrant)
/s/Edwin D. Johnson
-----------------------------
Edwin D. Johnson
Senior Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
The undersigned directors and officers of MasTec, Inc. hereby constitute and
appoint Edwin D. Johnson and Jose M. Sariego and each of them with full power to
act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below this Annual Report on Form 10-K and any
and all amendments thereto and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratify and confirm all that such attorneys-in-fact, or any
of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 26, 1997.
/s/ Jorge Mas /s/ Samuel C. Hathorn, Jr.
Jorge Mas Samuel C. Hathorn, Jr.
President and Chief Executive Officer Director
(Principal Executive Officer)
/s/ Jorge L. Mas /s/ Jose S. Sorzano
Jorge L. Mas Jose S. Sorzano
Chairman of the Board Director
/s/ Arthur B. Laffer
Arthur B. Laffer
Director
/s/ Eliot C. Abbott
Eliot C. Abbott
Director
S-1
EXHIBIT INDEX
3.1 Certificate of Incorporation and By-laws of the Company, filed as
Exhibit 3(i) to Company's Registration Statement on Form S-8 (File No. 33-55237)
and incorporated by reference herein.
10.1 Loan and Security Agreement dated January 29, 1995, between the
Company and Barclays Business Credit, Inc. filed as Exhibit 10 to the Company's
Form 8-K dated February 9, 1995 and incorporated by reference herein.
10.2 Loan Agreement dated July 14, 1995 between the Company and Devono
Company Limited, filed as Exhibit 10 to the Company's Form 10-Q for the quarter
ended June 30, 1995 and incorporated by reference herein.
10.3 Amendment to Loan and Security Agreement dated February 29, 1996
between the Company and Fleet Capital Corporation filed as Exhibit 10.5 to the
Company's Form 10-K for the year ended December 31, 1995 and incorporated by
reference herein.
10.4 Stock Option Agreement dated March 11, 1994 between the Company and
Arthur B. Laffer as filed as Exhibit 10.6 to the Company's Form 10-K for the
year ended December 31, 1995 and incorporated by reference herein.
10.5 Joinder and Second Amendment to Loan and Security Agreement dated
December 30, 1996 between the Company and Fleet Capital Corporation.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Coopers & Lybrand L.L.P.
27.1 Financial data schedule.
Exhibit 10.5
JOINDER AND SECOND AMENDMENT
TO LOAN AND SECURITY AGREEMENT
This Joinder and Second Amendment to Loan and Security Agreement
"Second Amendment") entered into as of December 30, 1996 between Fleet Capital
Corporation, f/k/a Shawmut Capital Corporation, successor to Barclays Business
Credit, Inc. ("Lender"), a Rhode Island corporation with an office at 200
Glastonbury Boulevard, Glastonbury, CT 06033 and MasTec, Inc. ("MasTec"), a
Delaware corporation, each other entity comprising the Telecommunication Group
(as defined in Appendix A to the Loan Agreement); and Southeastern Printing
Company, Inc. ("Southeastern Printing"), a Florida corporation; (collectively
"Borrowers" and singly each is a "Borrower"), the Sureties (as defined in
Appendix A to the Loan Agreement) each with its chief executive office at Suite
110, 3155 N.W. 77th Avenue, Miami, Florida 33122-1205; and Harrison-Wright Co.,
Inc., a Delaware corporation ("HWC"); Utility Precast, Inc., a Delaware
corporation ("UPI"), each with its chief executive office at 305 South Church
Street, Charlotte, NC 28202 and Carolina Com-tec, Inc., a North Carolina
corporation ("CCI") with its chief executive office at 1715 Orr Industrial Park,
Charlotte, NC 28213.
BACKGROUND
A. Borrowers, Sureties and Lender are parties to a certain Loan and
Security Agreement dated January 26, 1995, as amended by that certain Joinder
and First Amendment to Loan and Security Agreement dated February 29, 1996
(collectively "Loan Agreement") pursuant to which Lender established certain
financing arrangements for the benefit of Borrowers. The Loan Agreement and all
instruments, documents and agreements executed in connection therewith, or
related thereto are referred to herein collectively as the "Loan Documents".
B. MasTec and H-W Liquidating Company, Inc. (f/k/a HarrisonWright
Company, Inc.), a North Carolina corporation, and UPI Liquidating Company, Inc.
(f/k/a Utility Precast, Inc.), a North Carolina corporation (collectively
"Sellers") are parties to a certain Asset Purchase Agreement dated as of
November 22, 1996, and MasTec and the shareholders of CCI are parties to a
certain Stock Purchase Agreement dated as of February 2, 1996 (collectively with
the Asset Purchase Agreement, the "Purchase Agreements") pursuant to which
MasTec acquired all of the assets each of HWC and UPI and all of the issued and
outstanding common stock of CCI (collectively "Stock").
C. In recognition of the benefits and privileges under the Loan
Documents, HWC, UPI and CCI have requested that they be permitted to join into
the Loan Documents as if original signatories thereto and Borrowers, Sureties
and Lender have so consented subject to the terms and conditions hereof.
D. In addition, Borrowers have requested that Lender increase the Total
Credit Facility. Lender has agreed to do so, subject to the terms and conditions
set forth below.
NOW WHEREFORE, with the foregoing background incorporated by reference,
the parties hereto, intending to be legally bound, hereby agree as follows:
1. Joinder
1.1 Upon the effectiveness of this Second Amendment, HWC, UPI
and CCI join in, assume, adopt and become Borrowers under the Credit Facility
and all Loans. All references to Borrower or Borrowers contained in the Loan
Documents (including this Second Amendment) are hereby deemed, for all purposes
to refer to and include HWC, UPI and CCI as a Borrower and HWC, UPI and CCI
hereby agree to comply with all of the terms and conditions of the Loan
Documents as if each were an original signatory thereto.
1.2 Without limiting the generality of the provisions of
subparagraph 1.1 above, HWC, UPI and CCI are thereby liable, on a joint and
several basis, along with all other Borrowers and Sureties for all existing and
future Loans and other liabilities and obligations incurred at any time by any
one or more Borrowers under the Loan Documents, as amended hereby or as may be
hereafter amended, modified, supplemented or replaced.
2. Amendments to Loan and Security Agreement.
2.1 The introductory paragraph of Section 1 to the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and
the other Loan Documents, Lender agrees to make a Total Credit
Facility of up to $50,000,000 available upon Borrowers'
request therefor, as follows:
2.2 Section 1.1.1 of the Loan Agreement is hereby deleted in its entirety
and replaced with the following:
1.1.1 Loans. As a Part of the Total Credit
Facility, Lender hereby establishes a subfacility pursuant to
which Lender agrees, for so long as no Default or Event of
Default exists and subject to the corresponding Borrowing
Bases, to make Revolving Credit Loans to, and for the joint
and several benefit of, Borrowers from time to time, as
requested by Borrowers in the manner set forth in subsection
3.1.1 hereof. Revolving Credit Loans may be made by Lender to
the Telecommunication Group up to a maximum principal amount
equal to the Telecommunication Group Borrowing Base and
Revolving Credit Loans may be made to Southeastern Printing up
to a maximum principal amount equal to the Southeastern
Printing Borrowing Base. In no event and at no time, however,
shall the aggregate amount outstanding of all Revolving Credit
Loans exceed the lesser of (a) the aggregate amount of the
Borrowing Bases or (b) an amount equal to (i) $50,000,000
minus (ii) the aggregate amount of all reserves (as provided
in Section 1.1.2. below), plus the outstanding LC Amount, plus
the aggregate amount outstanding under the Consolidated Term
Loan. If (x) the unpaid balance of Revolving Credit Loans made
to the Telecommunication Group exceeds the Telecommunication
Borrowing Base, or (y) the unpaid balance of Revolving Credit
Loans made to Southeastern Printing exceed the Southeastern
Printing Borrowing Base, or (z) the unpaid balance of the
Revolving Credit Loans exceed any other limitations set forth
in this Agreement, then such excess Revolving Credit Loans
shall nevertheless constitute Obligations that are due and
payable on demand, secured by the Collateral and entitled to
all the benefits thereof. Each Borrower is jointly and
severally liable for all Obligations. All Revolving Credit
Loans shall be repayable in accordance with the terms hereof
and the Revolving Credit Note.
2.3 (a) As of December 27, 1996, the aggregate outstanding principal
balance of all Equipment Loans is equal to $9,375,000.00 and the outstanding
principal balance of the Term Loan is equal to $9,031,618.84. Pursuant to
Borrowers' request, the Equipment Loans and the Term Loan are hereby
consolidated and reset as the "Consolidated Term Loan". In conjunction with this
Second Amendment, Lender shall advance an additional $3,593,381.16 such that the
initial principal balance of the Consolidated Term Loan shall be equal to
$22,000,000. The Consolidated Term Loan shall be repayable quarterly, in equal
quarterly installments of principal of $1,000,000 each on the first day of each
January, April, July and October with the entire amount of such Consolidated
Term Loan due and payable upon the earlier to occur of (a) the last day of the
Original Term, or if applicable, any Renewal Term, or (b) the termination of the
credit Facility as provided for in the Loan Agreement, or (c) the scheduled
final repayment date based on the stated repayment schedule. The Consolidated
Term Loan shall be evidenced by that certain Amended, Restated and Consolidated
Term Note, which is hereby incorporated by reference.
(b) Section 1.2 and Section 1.3 of the Loan Agreement are
hereby deleted in their entirety and shall be deemed to be replaced by Section
1.3(a) of this Second Amendment.
(c) All references to the "Term Loan" and/or the "Equipment
Loans" or an "Equipment Loan" contained in the Loan Agreement shall be deemed to
refer to the Consolidated Term Loan.
2.4 The calculation of all financial covenants contained in
the Loan Agreement and the calculation of EBIDTA for purposes of determining
the-Revolving Credit LIBOR Rate and the Term LIBOR Rate, shall be based solely
on the results of the Borrowers' financial performance, and shall specifically
exclude the financial performance of any and all foreign subsidiaries including
Telecomunication, S.A. ("Sintel").
3. Amendments to Appendix A/General Definitions.
3.1 The definition of "Aggregate Adjusted Availability" is hereby deleted
in its entirety and replaced with the following:
Aggregate Adjusted Availability - an amount equal to
the lesser of (a) the aggregate amounts of the Borrowing Bases
or (b) $50,000,000, less the sum of (i) the aggregate amount
of Loans and the LC Amount as of the date of calculation plus
(ii) all sums due and owing to trade creditors which remain
outstanding beyond normal trade terms or special terms granted
by trade creditors, plus (iii) any reserves against the
Borrowing Bases, plus (iv) if applicable, closing payments and
expenses.
3.2 The definition of "Bank" is hereby deleted in its entirety and replaced
with the following: Bank - Fleet National Bank.
3.3 The definition of "Total Credit Facility" is hereby deleted in its
entirety and replaced with the following:
3.4 The definition of "Telecommunication Group" is hereby amended by adding
Harrison-Wright Co., Inc., Utility Precast, Inc. and Carolina Com-tec, Inc. as
members of the Telecommunications Group. Total Credit Facility - $50,000,000
3.5 Appendix A/General Definitions is hereby amended by adding the
following definitions: (a) Amended, Restated and Consolidated Term Note - that
certain promissory which evidences the Consolidated Term Loan, which amends,
restates and consolidates the Master Equipment Note and the Term Note.
(b) Consolidated Term Loan - As defined in Section 2.3(a) of the Second
Amendment to Loan and
-----------------------
Security Agreement.
(c) Sintel - As defined in Section 2.4 of the Second Amendment to Loan and
Security Agreement. 4. Collateral. As security for the payment of the
Obligations, and satisfaction by Borrowers (including without
limitation HWC, UPI and CCI) of all covenants and undertakings contained in the
Loan Agreement and the Loan Documents, HWC, UPI and CCI each hereby assigns and
grants to Lender a continuing first Lien on (except with respect to such
Property expressly covered by the Liens set forth on Exhibit A hereto) and
security interest in, upon and to all of the following, whether now owned or
hereafter acquired, created or arising and wherever located ("Collateral"):
(a) Accounts;
(b) Inventory;
(c) Equipment;
(d) General Intangibles;
(e) Fixtures;
(f) Deposit Accounts;
(g) All monies and other Property of any kind now or at any time or times
hereafter in the possession or under the control of Lender or a bailee or
Affiliate of Lender; (h) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of HWC, UPI and/or CCI pertaining to any of (a) through
(g) above; and (i) All accessions to, substitutions for and all replacements,
products and cash and non-cash
proceeds of all of the foregoing above, including, without limitation, proceeds
of and unearned premiums with respect to insurance policies insuring any of the
Collateral.
5. Effectiveness Conditions. This Second Amendment shall be effective upon
completion of the following conditions precedent (all documents to be in form
and substance satisfactory to Lender and Lender's counsel): (a) Execution of
this Second Amendment to Loan and Security Agreement.
(b) Execution and delivery of the Second Amended and Restated
Revolving Credit Note which shall amend and restate, but not extinguish the
indebtedness evidenced by, that certain Amended and Restated Revolving Credit
Note dated February 29, 1996.
(c) The Amended, Restated and Consolidated Term Note, which
amends, restates and consolidates that Master Equipment Note, as amended, and
that certain Term Note, as amended, each dated as of January 26, 1995.
(d) UCC-1 Financing Statements to be executed by HWC, UPI and
CCI and filed in all jurisdictions which Lender may deem appropriate.
(e) Certified copies of (i) the resolutions of each Borrower,
including without limitation HWC, UPI and CCI, authorizing the execution of this
Second Amendment, the Notes to be issued hereunder, and each document required
to be delivered by any section hereof and (ii) HWC's, UPI's and CCI's articles
of incorporation and by-laws.
(f) Incumbency Certificate for each Borrower, including
without limitation HWC, UPI and CCI, identifying all Authorized Officers with
specimen signatures.
(g) Evidence satisfactory to Lender in its reasonable
discretion that the acquisition of the Assets has been completed strictly in
accordance with terms of the Purchase Agreements and the delivery to Lender of
the fully executed Purchase Agreements and all related agreements.
(h) All Vehicle Titles (if applicable) owned by HWC, UPI and
CCI and pledged to Lender pursuant to the terms hereof along with all completed
documentation necessary to have Lender's first lien noted thereon.
(i) Good Standing Certificates of HWC, UPI and CCI from North
Carolina and their respective states of incorporation.
6. Confirmation of Indebtedness. Borrowers hereby acknowledge and
confirm that as of the close of business on December 27, 1996, they are each,
jointly and severally, indebted to Lender, without defense, setoff, claim or
counterclaim under the Loan Documents, in the aggregate principal amount of
$36,296,849.08, as well as reimbursement for draws which may hereafter be made
on Letters of Credit issued for the benefit of Borrowers, or any of them,
currently in the aggregate face amount of $3,515,650.92, plus all fees, costs
and expenses (including attorney's fees) incurred to date in connection with the
Loan Documents.
7. Collateral. Borrowers and Sureties each hereby confirm and agree
that all security interests and Liens granted to Lender continue to be properly
perfected and are in full force and effect and shall continue to secure the
Obligations. All Collateral remains free and clear of any Liens other than
Permitted Liens or Liens in favor of Lender. Nothing herein contained is
intended to in any way impair or limit the validity, priority and extent of
Lender's existing security interest in and Liens upon the Collateral.
8. Reaffirmation of Sureties.
Each Surety, party to that certain Surety Agreement each dated
January 26, 1995 in favor of Lender, by execution hereof in its capacity as
surety, hereby consents to the provisions of this Second Amendment, including
the increase in the Total Credit Facility and acknowledges that the Surety
Agreement remains in full force and effect and that it remains liable for all of
Borrowers' Obligations to Lender under the Loan Documents, as amended hereby.
9. Representations and Warranties.
9.1 Borrowers, including without limitation HWC, UPI and CCI,
represent and warrant that as of the date hereof no Event of Default or
Unmatured Event of Default has occurred or is existing under the Loan Documents.
9.2 The execution and delivery by each Borrower, including
without limitation HWC, UPI and CCI, and by each Surety, of this Second
Amendment and performance by it of the transactions herein contemplated (i) are
and will be within its powers, (ii) have been authorized by all necessary
corporate action, and (iii) are not and will not be in contravention of any
order of any court or other agency of government, of law or any other indenture,
agreement or undertaking to which such Borrower or Surety is a party or by which
the property of such Borrower or Surety is bound, or be in conflict with, result
in a breach of or constitute (with due notice and/or lapse of time) a default
under any such indenture, agreement or undertaking or result in the imposition
of any lien, charge or encumbrance of any nature on any of the properties of
such Borrower or Surety.
9.3 This Second Amendment, the Notes referenced in Section 3
hereof, and each other agreement, instrument or document executed and/or
delivered in connection herewith, shall be valid, binding and enforceable in
accordance with its respective terms.
9.4 Each of the Borrowers, including without limitation, HWC,
UPI and CCI, is organized under the laws of the United States of America and is
in good standing in all states where the failure to be in good standing might
have a material adverse effect on its business or operations (financial or
otherwise).
9.5 Borrowers, including without limitation, HWC, UPI and CCI
and Sureties have no liability whatsoever with respect to the debts and
liabilities of Sintel.
10. Governing Law.
This Second Amendment shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
11. Ratification of Loan Documents.
Except as expressly provided herein, all terms and conditions
of the Loan Documents remain in full force and effect, unless such terms or
conditions are no longer applicable by their terms. To the extent the provisions
of this Second Amendment are expressly inconsistent with the provisions of the
Loan Documents, the provisions of this Second Amendment shall control.
12. Counterparts
This Second Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original, and such
counterparts together shall constitute one and the same respective agreement.
13. Incorporation.
This Second Amendment shall amend and is incorporated into the Loan
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed and delivered as of the day and year first above
written.
BORROWERS:
MASTEC, INC.
BURNUP & SIMS OF CALIFORNIA, INC.
BURNUP & SIMS OF THE CAROLINAS, INC.
BURNUP & SIMS COMMUNICATIONS SERVICES, INC.
BURNUP & SIMS COMTEC, INC.
BURNUP & SIMS NETWORK DESIGNS, INC.
BURNUP & SIMS TSI, INC.
BURNUP & SIMS TELECOM OF FLORIDA,INC.
BURNUP & SIMS OF TEXAS, INC.
CHURCH & TOWER, INC.
CHURCH & TOWER FIBER TEL, INC.
CHURCH & TOWER OF FLORIDA, INC.
CHURCH & TOWER OF TN, INC.
DESIGNED TRAFFIC INSTALLATION, INC.
SOUTHEASTERN PRINTING COMPANY, INC.
UTILITY LINE MAINTENANCE, INC.
WITNESS/ATTEST: By:
Edwin D. Johnson
Title: On Behalf of, and as
of each of the Foregoing
Borrowers
HARRISON-WRIGHT CO., INC.
WITNESS/ATTEST: By: Edwin D. Johnson
Title:
UTILITY PRECAST, INC.
WITNESS/ATTEST: By: Edwin D. Johnson
Title:
CAROLINA COM-TEC, INC.
WITNESS/ATTEST: By: Edwin D. Johnson
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
SURETIES:
MASTEC INTERNATIONAL, INC.
MASTEC WIRELESS, INC.
BURNUP & SIMS ENTERPRISES, INC.
BURNUP: SIMS OF MISSISSIPPI, INC.
BURNUP & SIMS COMMUNICATIONS SERVICES OF FLORIDA, INC.
CAL TECHNICAL SERVICES, INC.
CAPSCAN CABLE COMPANY, INC.
GDSI, INC.
CONSTRUCTION EQUIPMENT SYSTEMS CORPORATION
LATLINK CORP., f/k/a MASTEC EQUIPMENT
COMPANY, INC.
TELINK, INC.
WITNESS/ATTEST: By:
Edwin D. Johnson
Title: On Behalf of, and as
of each of the Foregoing
Borrowers
LENDER:
FLEET CAPITAL CORPORATION, f/k/a SHAWMUT CAPITAL CORPORATION, SUCCESSOR TO
BARCLAYS BUSINESS CREDIT, INC.
By: Howard Handman
Title:
Exhibit 21.1
Subsidiaries of the Registrant
Set forth below is a list of the significant subsidiaries of the Company.
Burnup & Sims of Texas, Inc.*
Burnup & Sims of the Carolinas, Inc.
Burnup & Sims TelCom of Florida, Inc.
Burnup & Sims TSI, Inc.
Church & Tower, Inc.+
Church & Tower Fiber Tel, Inc.
Church & Tower of Florida, Inc.+
Church & Tower of TN, Inc.
Designed Traffic Installation Co., Inc.+
Harrison-Wright Co., Inc.
Kennedy Cable Construction, Inc.
LatLink Corporation
MasTec ComTec of California, Inc.
MasTec ComTec of the Carolinas, Inc.
MasTec International, Inc.
MasTec Technologies, Inc.
R.D. Moody & Associates, Inc. +
Shanco Corporation +
Sistemas e Instalaciones de Telecomunicaciones, S.A.$
Utility Line Maintenance, Inc. @
All jurisdictions of incorporation for the subsidiaries are in Delaware except
the following: *Texas, +Florida, $ Spain, @ Georgia. All subsidiaries listed are
100% owned.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-4 (No.333-9607) of our report dated
February 28, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 24, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-8 (No.333-22465) of our report dated
February 28, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 24, 1997
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-8 (No.33-55327) of our report dated
February 28, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 24, 1997
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-3 (No.333-11013) of our report dated
February 28, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 24, 1997
5
YEAR
DEC-31-1996
DEC-31-1996
4,754
0
309,086
(3,064)
4,837
380,544
80,119
(20,517)
483,018
228,764
0
0
0
2,643
100,861
483,018
472,800
472,800
352,329
352,329
63,200
0
11,434
45,837
15,661
30,176
(111)
0
0
30,065
1.2
1.2
