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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-3797
MasTec, Inc.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
_____________________________________________ ________________
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
8600 N.W. 36th Street, Miami, FL 33166
______________________________________________ _________
(Address of principal executive offices) (Zip Code)
(305) 599-1800
____________________________________________________
(Registrant's telephone number, including area code)
Burnup & Sims Inc.
One North University Drive
Ft. Lauderdale, Florida 33324
April 30
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ___X____ No _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding as of
March 31, 1994
_____________________ __________________________________
$ .10 par value 16,027,592
Documents Incorporated by Reference
a.)Form 8-K, dated March 11, 1994 concerning acquisition of Church & Tower, Inc.
and Church & Tower of Florida, Inc.
Page 1 of 20
MasTec, Inc.
Form 10-Q
March 31, 1994
Index
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements
of Income for the Three Month Period Ended
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Balance Sheet
as of March 31, 1994 and Condensed
Combined Balance Sheet as of December 31, 1993. . . . . 4
Unaudited Condensed Consolidated Statements
of Cash Flows for the Three Month Period
Ended March 31, 1994 and 1993 . . . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements (Unaudited). . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition. . . .14
PART II OTHER INFORMATION
Item 1 - Legal Proceedings. . . . . . . . . . . . . . .18
Item 4 - Submission of Matters to a Vote
of Security-Holders. . . . . . . . . . . . . .18
Item 5 - Other Information. . . . . . . . . . . . . . .19
Item 6 - Exhibits and Reports on Form 8-K . . . . . . .19
Page 2 of 20
MasTec, Inc.
STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
THREE MONTHS ENDED
MARCH 31,
1994 1993
(Unaudited) (Unaudited)
--------- ---------
Revenues $ 17,157 $ 13,729
--------- ---------
Costs and Expenses
Costs of Revenues (exclusive of
depreciation and amortization
shown separately below)
13,190 8,929
General and Administrative 2,107 1,080
Depreciation and Amortization 553 184
Interest Expense-
Borrowings 327 40
Notes to Shareholders 60 0
Interest and Dividend Income (135) (62)
Other (104) ( 4)
--------- ---------
Total Costs and Expenses 15,998 10,167
--------- ---------
Income before credit for income taxes,
equity in earnings (losses) of unconsolidated
joint venture and minority interest 1,159 3,562
Credit for Income Taxes ( 398) 0
--------- ---------
Income before equity in earnings (losses)
of unconsolidated joint venture and
minority interest 1,557 3,562
Equity in earnings (losses) of
unconsolidated joint ventures 45 (500)
Minority interest 0 (3)
--------- ----------
NET INCOME $ 1,602 $ 3,059
========= ==========
Average Shares Outstanding 16,045 10,250
Earnings Per Share $ 0.10 $ 0.30
The accompanying notes are an integral part of these financial statements.
Page 3 of 20
MasTec, Inc.
BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1994 1993
(Unaudited) (Audited)
----------- -----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 10,868 $ 8,930
Accounts Receivable-Net and Unbilled
Revenues 27,773 6,751
Inventories 3,636 0
Deferred and Refundable Income Taxes 4,143 0
Notes Receivable from Shareholders 3,570 0
Other 2,173 186
----------- -----------
Total Current Assets 52,163 15,867
----------- -----------
Investment in Preferred Stock and
Long-Term Notes Receivable 11,403 0
----------- -----------
Property-At Cost 45,170 6,066
Accumulated Depreciation (1,949) (1,434)
----------- -----------
Property-Net 43,221 4,632
----------- -----------
Goodwill 3,801 0
----------- -----------
Real Estate Investments and Other Assets 24,818 826
----------- -----------
TOTAL ASSETS $ 135,406 $ 21,325
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 4 of 20
MasTec, Inc.
BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1994 1993
(Unaudited) (Audited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Maturities of Debt $ 4,610 $ 508
Current Portion of Notes
Payable to Shareholders 1,000 500
Accounts Payable 9,458 2,265
Accrued Insurance 4,396 818
Accrued Compensation 1,736 241
Accrued Interest 1,262 -
Accrued and Deferred Income Taxes 182 -
Other 6,193 2,443
----------- -----------
Total Current Liabilities 28,837 6,775
----------- -----------
Other Liabilities 26,501 28
----------- -----------
Long-Term Debt 10,733 1,079
Notes Payable to Shareholders 2,000 2,500
Convertible Subordinated Debentures 21,875 0
----------- -----------
Shareholders' Equity
Common Stock 1,603 1,025
Capital Surplus 43,450 -
Retained Earnings 407 9,918
----------- -----------
Total 45,460 10,943
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 135,406 $ 21,325
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 5 of 20
MasTec, Inc.
STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
MARCH 31,
1994 1993
----------- -----------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net Income $ 1,602 $ 3,059
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Minority Interest in Consolidated Joint Ventures 0 3
Depreciation and Amortization 553 184
Equity in (Earnings) Losses of Unconsolidated
Joint Ventures (45) 500
Changes in Assets and Liabilities Net of
Effect of Reverse Acquisition of Burnup:
Accounts Receivable and Unbilled Revenues-Net (3,291) (2,469)
Inventories and Other Current Assets 446 609
Accounts Payable and Accrued Expenses 1,154 384
Other Assets 376 0
Accrued Interest and Income Taxes (1,047) (295)
Other-Current Liabilities (1,651) 226
Other Liabilities 1,540
---------- ----------
Net Cash Provided (Used) by Operating Activities (363) 2,201
---------- ----------
Cash Flows from Investing Activities:
Cash Acquired in Reverse Acquisition 6,291
Investments in Unconsolidated Joint Ventures 0 (260)
Capital Expenditures (278) (589)
Distribution from Unconsolidated Joint Ventures 65
Loans to Shareholders (3,570) 0
---------- ----------
Net Cash Provided (Used) by Investing
Activities 2,443 (784)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from Note Payable 0 989
Debt Repayments (142) (361)
---------- ----------
Net Cash Provided (Used) by Financing Activities (142) 628
---------- ----------
Net Increase in Cash and Cash Equivalents 1,938 2,045
Cash and Cash Equivalents - Beginning of Period 8,930 10,190
---------- ----------
Cash and Cash Equivalents - End of Period $ 10,868 $ 12,235
========== =========
Supplemental disclosures of Cash Flow information:
Cash Paid During the Period:
Interest $ 77 $ 40
========== =========
The accompanying notes are an integral part of these financial statements.
Page 6 of 20
MasTec, Inc.
STATEMENTS OF CASH FLOWS
(Continued)
(In Thousands)
Supplemental Schedule of non-cash investing activities:
Fair Value of Assets and Liabilities Acquired
Accounts Receivables $ 17,731
Inventories and Other Current Assets 7,176
Investments 11,403
Property 38,831
Goodwill 3,817
Real Estate Investments and Other Assets 24,368
---------
Total Non-Cash Assets $103,326
---------
Liabilities 41,007
Long-Term Debt 35,756
---------
Total Liabilities Assumed $ 76,763
---------
Net Non-Cash Assets Acquired 26,563
Cash Acquired 6,291
---------
Purchase Price $ 32,854
=========
The accompanying notes are an integral part of these financial statements.
Page 7 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
1. CONSOLIDATION AND PRESENTATION
On March 11, 1994, Church & Tower, Inc. ("CT") and Church & Tower of Florida,
Inc. ("CTF" and, together with CT, "CT Group"), privately held corporations
under common control, were acquired (the "Acquisition") through an exchange of
stock, by Burnup & Sims Inc. ("Burnup"), a Delaware public company. Immediately
following the acquisition, the name of Burnup was changed to MasTec, Inc.
("MasTec" or the "Company") and its fiscal year end was changed to December 31.
The accompanying unaudited condensed consolidated financial statements of
MasTec have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Rule 10-01 of Regulation S-X. They do not include all information and
notes required by general accepted accounting principles for complete financial
statements. The information furnished reflects all adjustments, consisting
only of normal recurring accruals which are, in the opinion of management,
necessary for a fair presentation of the financial position and results
of operations for the periods presented. The results of operations are not
necessarily indicative of future results of operation or financial position of
MasTec.
Under generally accepted accounting principles, the Acquisition was accounted
for as a purchase by the CT Group and, therefore, the 1993 financial statements
presented are those of the CT Group only. In addition, the results for the
three months ended March 31, 1994, include the operations of the CT Group during
such period and the operations of Burnup during the period March 11, 1994,
through March 31, 1994.
The following information presents the unaudited pro forma condensed results of
operations for the three months ended March 31, 1994 and 1993 of the CT Group
and Burnup as if the Acquisition had occurred on January 1, 1993. Appropriate
adjustments have been made related to purchase accounting and other matters
related to the Acquisition. These results are presented for informational
purposes only and are not necessarily indicative of the future results of
operations or financial position of MasTec or the results of operations or
financial position of MasTec had the Acquisition occurred on January 1, 1993.
Page 8 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
MasTec, INC.
PRO FORMA RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(In Thousands Except Per Share Amounts)
1994 1993
---- ----
(Unaudited) (Unaudited)
Revenues $ 37,425 $ 46,725
Net Loss (1,750) (814)
Loss Per Share $ (0.11) $ (0.05)
Revenues in 1994 decreased by $9.3 million mainly as a result of the completion
in the latter part of 1993 of a construction project, a reduction in the type of
work performed in early 1993 in Dade County as a result of Hurricane Andrew,
and uncommonly harsh winter conditions which reduced the volume and efficiency
of outside service activity.
The net loss for the period increased was due mainly to the reduction in revenue
as gross margin remained at approximately the same level (13% and 12% in 1994
and 1993, respectively).
The most significant adjustments to the balance sheet resulting from
the Acquisition are disclosed in the supplemental schedule of non-cash investing
activities in the statement of cash flows. The purchase price "paid" by the
CT Group consisted of the market value of Burnup stock not acquired by CT
Group shareholders in the merger of $32,355,000 (5,777,592 shares at a market
value of $5.60 per share) and $550,000 in acquisition costs incurred by
the CT Group, resulting in a total purchase price of $ 32,896,000.
2. Capital Surplus and Retained Earnings
As indicated in Note 1, effective March 31, 1994, the CT Group, upon its
acquisition with Burnup, would no longer be eligible under the S Corporation
provisions of the Internal Revenue Code. As a result, undistributed retained
earnings of CT Group at March 1, 1994 became permanently capitalized and were
transferred to capital surplus.
Page 9 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
A reconciliation of retained earnings between December 31, 1993 and March 31,
1994 is as follows:
Retained earnings, December 31, 1993 $ 9,918
Net Income for the three months
ended March 31, 1994 1,602
Transfer to capital surplus (11,113)
--------
Retained earnings, March 31, 1994 $ 407
========
A reconciliation of capital surplus between December 31, 1993 and March 31,
1994 is as follows:
Capital surplus, December 31, 1993 $ 0
Capital surplus arising from purchase
of Burnup 31,330
Transfer from retained earnings 11,113
Adjustment of CT capital stock to
$0.10 par value 1,025
Stock issue cost (18)
-------
$43,450
=======
3. Related Party Transactions
Notes Receivable from certain shareholders bear interest at the prime rate plus
2% (8.5% at March 31, 1994). See Note 4 regarding amounts payable to
shareholders.
4. Other Liabilities
Other Liabilities are summarized as follows (Dollars in Thousands):
March 31, December 31,
1994 1993
Deferred Income Taxes $ 16,461 $ 0
Accrued Interest - Non-Current 2,072 0
Accrued Insurance 7,940 0
Minority Interest in Consolidated
Joint Ventures 28 28
--------- ---------
$ 26,501 $ 28
========= =========
Page 10 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
5. Debt
Debt is summarized as follows (Dollars in Thousands):
March 31, December 31,
1994 1993
Term Loan payable to Bank, at
Prime plus 1/2% (7% at March 31,
1994, due June 1995) $ 9,263 $ 0
Term Loan payable to Bank, at 7.7% 1,463 1,587
Notes Payable to Shareholders, at
Prime plus 2% (8.5% at March 31,1994) 3,000 3,000
Capital Leases and Other, at Interest
Rates from 7% to 13% due in
installments through 2000 1,992 0
12% Convertible Subordinated Debentures
due 2000 24,500 0
--------- ----------
Total Debt 40,218 4,587
Less Current Maturities (5,610) (1,008)
--------- ----------
Non-Current Debt $ 34,608 $ 3,579
========= ==========
The indenture under which the 12% convertible subordinated debentures
(the "Debentures") are issued requires an annual payment to a sinking fund,
which commenced November 15, 1990, calculated to retire 75% of the issue
prior to maturity. The Company has the option to redeem all or part of the
Debentures prior to the due date by paying the principal amount at face value.
The Debentures are convertible into Common Stock at a conversion price of
$16.79 per share. At March 31, 1994, approximately 1,459,000 shares were
reserved for conversion.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants.
Pursuant to its loan agreements, the Company is currently prohibited from
declaring or paying dividends.
6. Earnings Per Share and Capital Stock
Earnings per share is based on the weighted average number of common shares
outstanding. Fully diluted earnings per share is not presented as the effect
of common stock equivalents is anti-dilutive or not material. Earnings per
share for the three months ended March 31, 1993, gives retroactive effect to the
10,250,000 shares received by the former stockholders of the CT Group.
At March 31, 1994, the Company had 50,000,000 shares of $.10 par value common
stock (the "Common Stock") authorized and 16,027,592 shares outstanding, and
5,000,000 shares of authorized but unissued preferred stock.
Page 11 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
7. Stock Option Plans
Options to purchase 163,100 shares of Common Stock under the Company's 1976 and
1978 Stock Option Plans were exercised, as well as stock appreciation rights
with respect to 55,965 shares. The 1976 plan was replaced by the 1994 Stock
Incentive Plan (the "1994 Plan"). In addition, approximately 19,000 options
remain outstanding under the 1976 Plan and may be still exercised in
accordance with the terms of the 1976 plan.
In connection with the Acquisition, the Company's stockholders approved the 1994
Stock Option Plan for Non-Employee Directors (the "Directors' Plan") and the
1994 Plan. The Directors' Plan options to purchase up to 400,000 shares
issuable to the non-employee members of the Company's Board of Directors.
Options to purchase 30,000 shares have been granted to Board members,
none of which are exercisable, at March 31, 1994. The options permit the
non-employee director to exercise for a period of up to ten years from the date
of grant an exercise price equal to the fair market value of such shares on the
date the option is granted.
The 1994 Plan authorized options to purchase up to 800,000 shares of the
Company's Common Stock of which 200,000 shares may be awarded as restricted
stock. At March 31,1994, options to purchase 131,000 had been granted.
Options become exercisable over a five year period in equal increments of 20%
per year beginning the year after the date of grant and must be exercised at
an exercise price no less than the fair market value of the shares at the
grant date. At March 31, 1994 shares had been granted, of which were none
are exercisable.
8. Income Taxes
The CT Group had elected to be treated as an S Corporation under the Internal
Revenue Code and, therefore the results of operations for the three months
ended March 31, 1993, do not include a provision for income taxes, as the
income of the Group passed directly to the stockholders. On March 1, 1994,
the CT Group's election to be treated as an S Corporation was terminated. The
income tax provision for the three months ended March 31, 1994, includes the
operations of the CT Group for the month of March, 1994, and the operations of
Burnup for the period from March 11, 1994, (date of Acquisition) through
March 31, 1994. The effect of recognizing a net deferred tax asset of
approximately $435,000 at March 1, 1994, in connection with the change in tax
status, is included in the provision for income taxes for the three months ended
March 31, 1994.
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income taxes
reflect the net effects of (a) temporary differences between carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes, and (b) operating loss and tax credit carryforwards.
The tax effects of significant items comprising the Company's net deferred tax
liability as of March 31, 1994 are as follows (in thousands of dollars):
Page 12 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
Tax Effect of Taxable Temporary Differences:
Differences between book and tax basis of property $ 17,916
Other 2,734
----------
20,650
----------
Tax Effect of Deductible Temporary Differences:
Reserves not currently deductible (6,034)
Operating loss carryforwards (603)
Tax credit carryforwards (112)
----------
(6,749)
----------
Valuation allowance 615
----------
Net deferred tax liability $ 14,516
==========
There was no change in the valuation allowance for the period ended March 31,
1994.
9. Contingencies
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was filed
on December 1990 by a stockholder of the Company in the Court of Chancery of
the State of Delaware in and for New Castle County against the Company, the
members of the Board of Directors, and against National Beverage Corporation
("NBC"), as a purported class action and derivative lawsuit. In May 1993,
plaintiff amended its class action and shareholder derivative complaint
(the "Amended Complaint"). The class action claims allege, among other things,
that the Board of Directors, and NBC as its then largest stockholder, breached
their respective fiduciary duties in approving (i) the distribution to the
Company's stockholders of all of the common stock of NBC owned by it
(the "Distribution") and (ii) the exchange by NBC of 3,846,153 shares of Common
Stock for certain indebtedness of NBC held by the Company (the "Exchange") (the
Distribution and the Exchange are hereinafter referred to as the "1991
Transaction"), and allegedly placing the interests of NBC ahead of the interests
of the other stockholders of the Company. The derivative action claims allege,
among other things, that the Board of Directors had breached its fiduciary
duties by approving executive officer compensation arrangements, by financing
NBC's operations on a current basis, and by permitting the interests of the
Company to be subordinated to those of NBC. In the lawsuit, plaintiff seeks to
rescind the 1991 Transaction and to recover damages in an unspecified amount.
The Amended Complaint alleges that the Special Transaction Committee that
approved the 1991 Transaction was not independent and that, therefore, the 1991
Transaction was not protected by the business judgment rule or conducted in
accordance with a settlement agreement (the "1990 Settlement") entered into in
1990 pertaining to certain prior litigation. The Amended Complaint also makes
Page 13 of 20
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 (Unaudited)
other allegations which involve (i) further violations of the 1990 Settlement
by the Company's engaging in certain transactions not approved by the Special
Transaction Committee; (ii) the sale of a subsidiary of the Company to a former
officer of the Company, (iii) the timing of the 1991 Transaction and (iv) the
treatment of executive stock options in the 1991 Transaction.
In November 1993, plaintiff filed a class action and derivative complaint, Civil
Action 13248, (the "1993 Complaint") against the Company, the members of
the Board of Directors, CT, CTF, Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas
(CT,CTF, Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas are referred to as the
"CT Defendants"). In December 1993, plaintiffs amended the 1993 Complaint
("1993 Amended Complaint"). The 1993 Amended Complaint alleges, among other
things, that (i) the Board of Directors and NBC, as the Company's largest
stockholder at the time, breached their respective fiduciary duties by
approving the Acquisition Agreement and the Redemption (as defined in the Proxy
Statement dated February 10, 1994) which, according to the allegations of the
1993 Complaint, benefits Mr. Caporella at the expense of the Company's
stockholders, (ii) the CT Defendants had knowledge of the fiduciary duties owed
by NBC and the Board of Directors and knowingly and substantially participated
in their breaches thereof, (iii) the Special Transaction Committee of the Board
of Directors which approved the Acquisition Agreement and Redemption was not
independent and, as such, was not in accordance with the 1990 Settlement,
(iv) the Board of Directors breached its fiduciary duties by failing to take an
active and direct role in the sale of the Company and failing to ensure the
maximization of stockholder value in the sale of control of the company, and
(v) the Board of Directors and NBC, as the Company's largest stockholder at
the time, breached their respective fiduciary duties by failing to disclose
completely all material information regarding the Acquisition Agreement and
the Redemption.
The 1993 Complaint also claims derivatively that each member of the Board of
Directors engaged in mismanagement, waste and breach of their fiduciary duties
in managing the Company's affairs. On November 29, 1993, plaintiff filed a
motion for an order preliminarily and permanently enjoining the Acquisition
and the Redemption. On March 7, 1994, the court heard arguments with respect
to plaintiff's motion to enjoin the Acquisition and Redemption and on March 10,
1994, the court denied plaintiff's request for injunctive relief.
The Company believes that the allegations in the complaint, the Amended
Complaint, the 1993 Complaint and the 1993 Amended Complaint are without
merit, and intends to vigorously defend these actions.
William C. Deviney, Jr. v. Burnup & Sims Inc., et al. Civil Action No. 152350
was filed in the Chancery Court of the First Judicial District of Hines County,
Mississippi on May 3, 1993. The plaintiff in this action filed suit seeking
specific performance of alleged obligations of the Company pursuant to a stock
purchase agreement and related agreements entered into in 1988. Pursuant to
the agreements, the Company sold to plaintiff a minority interest in a
Telephone Services subsidiary and granted to plaintiff an option to purchase
the remaining stock if certain conditions were satisfied. Alternatively,
plaintiff seeks unspecified damages for breach of contract and for alleged
breaches of fiduciary duties, and seeks an award of punitive damages and
attorneys' fees for alleged bad faith conduct in connection with the stock
Page 14 of 20
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31, 1994
purchase agreement and related matters. The Company believes that the
allegations in the complaint are without merit and is vigorously
defending this action. Additionally, the Company has filed counterclaims
which, among other things, seek a declaratory judgment that the plaintiff's
failure to satisfy certain material conditions terminated his rights under
the stock purchase agreement. The evidentiary portion of the trial proceedings
relative to these actions concluded on November 19, 1993 and the Court has
not yet rendered a verdict.
Jorge Gamez, as Personal Representative of the Estate of Jorge A. Gamez,
deceased, vs. Church & Tower, Inc., a Florida Corporation, et al. Civil Action
93-07318 CA 20, filed in the Circuit Court of the 11th Judicial Circuit in and
for Dade County, Florida on March 22, 1993, and amended on April 20, 1994, to
include MasTec, Inc. The claim alleges that a Group employee was negligent in
the operation of a truck and trailer combination which resulted in a death.
Although no amounts are stated in the preliminary case filings, the plaintiff
has made a demand for $7.2 million.
The Company is also a defendant in other legal actions arising in the normal
course of business.
Management believes, based on consultations with legal counsel, that the
amount provided in the accompanying financial statements is adequate to cover
the estimated losses expected to be incurred in connection with these matters.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 vs. Three Months Ended March 31, 1993
- - -------------------------------------------------------------------------------
The results for the quarter ended March 31, 1994 include three months of
operations of the CT Group and operating results of Burnup for the period
March 11, 1994 through March 31, 1994. (See Note 1 to the Condensed
Consolidated Financial Statements.)
Revenues for the first quarter increased by approximately $3.4 million
primarily resulting from the inclusion of the Burnup revenues (approximately
$10.7 million), offset by a $4.6 million decrease in revenues from the
Company's construction services segment due to the completion of a project
included in last year's results and by a $3.7 million decrease in revenues
from telephone contract services due to the decline in post-hurricane Andrew
related activities.
Costs of revenues approximated 77% and 65% of revenues in 1994 and 1993,
respectively, due to reduced economies of scale related to the volume decline,
as well as lower margins realized on certain Burnup contracts.
General and administrative expenses increased by approximately $1 million to
12% of revenues from 8% of revenues due primarily to the impact of the
Acquisition and costs related to the addition of administrative personnel and
increased marketing efforts with respect to opportunities to provide utility
services in Central and South America and the development of personal
communications services ("PCS"). The Company has undertaken a study for
purposes of bidding on the assignment of the spectrum for PCS by the Federal
Communications Commission.
Page 15 of 20
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31, 1994
Depreciation and amortization increased as a percentage of revenues to 3%
from 1% due to the decline in revenues, the effect of the Acquisition
and additional depreciation expense resulting from a fleet replacement program
implemented by the CT Group in the later part of 1993.
Interest expense increased due to debt assumed pursuant to the Acquisition
and newly issued notes to shareholders.
The increase in interest and dividend income results from the Acquisition.
Other income increased due to the rental of certain equipment to third parties.
Equity in earnings of unconsolidated joint ventures increased due to losses
incurred during the first quarter of 1993 resulting from the nonpayment
of certain change orders, of which certain claims were subsequently settled.
The credit for income taxes approximates 34% of pretax income for the three
months ended March 31, 1994. Upon consummation of the Acquisition, the
CT Group's election to be treated as an S Corporation was terminated and,
accordingly, the Company recognized a net deferred tax asset of approximately
$435,000 related to deductible temporary differences. This benefit was reduced
by a provision for the results of operations of the consolidated group for the
month of March 1994 at an effective tax rate of 37.5%. The Company was not
subject to tax in 1993.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
March 31, 1994 vs. December 31, 1993
- - -------------------------------------------------------------------------------
The Company's cash position increased to $10.9 million at March 31, 1994 from
$8.9 million at December 31, 1993. Cash of $.4 million was used by operating
activities due primarily to changes in various components of working capital,
particularly an increase in accounts receivable. This increase in receivables
was primarily the result of the Company's contractual arrangement with a
certain utility which provides for payments to be made at the completion of
specific stages under the contract which are yet to be completed. The Company
is currently negotiating with the customer to modify the contract to provide
payment at earlier stages of completion. Cash of $2.4 million was provided by
investing activities, including $6.3 million provided by the Acquisition and
$3.6 million used for loans to shareholders. Cash of $0.1 million was used
during the quarter for debt repayments.
Significant adjustments to the balance sheet were recorded as a result of the
Burnup transaction, (see Note 1 to the Condensed Consolidated Financial
Statements) as more fully detailed in the supplemental schedule of non-cash
investing activities of the Condensed Consolidated Statement of Cash Flows
for the three months ended March 31, 1994.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants. Pursuant
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MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31, 1994
to such covenants, the Company is currently prohibited from declaring or paying
dividends. (See Note 4 to the Condensed Consolidated Financial Statements.)
The Company anticipates that operating cash requirements, capital expenditures,
and debt service will substantially be funded from cash flow generated by
operations and, to a lesser extent, trade and external financing. The Company
currently has no material commitments for capital expenditures; however, it is
continuously evaluating the need for fleet improvements.
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MasTec, Inc.
PART II - OTHER INFORMATION
MARCH 31, 1994
Item 1. Legal Proceedings
See Note 9 to the Condensed Consolidated Financial
Statements.
Item 4. Results of Votes of Security Holders.
The 1993 Annual and Special Meeting of Stockholders of Burnup & Sims Inc.
(the "Meeting") was held on Friday, March 11, 1994 for the purpose of (1)
electing one director, (2) approving the Acquisition and Redemption
(see note 9 to the Condensed Consolidated Financial Statements), (3) approving
an amendment to the Company's certificate of incorporation (the "Certificate")
changing the name of the Company to MasTec, Inc. (4) approving an amendment to
the Certificate increasing the total number of shares of Common Stock which the
Company is authorized to issue from 25,000,000 to 50,000,000, (5) approving an
amendment to the Certificate to eliminate all designations, powers,
preferences, rights and qualifications, limitations and restrictions prescribed
in the Certificate relating to the 5,000,000 authorized shares of preferred
stock, (6) approving an amendment to the Certificate to adopt the provisions of
Section 102(b)(7) of Delaware General Corporation Laws relating to the
liability of directors, (7) approving an amendment to the Certificate to
broaden the corporate powers of the Company to the maximum extent permitted
by the Delaware General Corporation Laws and make certain other clarifications
to the Certificate, (8) approving the Company's 1994 stock option plan for
Non-Employee Directors, and (9) approving the Company's 1994 Stock Incentive
Plan.
The following summarizes the results of the vote for each issue listed above:
Number of Shares Voted
_________________________________________
Against or
Issue For Withheld Abstaining
_________ ________ __________
1 8,040,149 295,627 0
2 6,445,375 90,278 45,149
3 8,152,157 104,398 59,421
4 7,824,602 465,643 45,731
5 6,011,994 500,283 81,606
6 7,890,166 349,013 96,797
7 7,564,843 349,235 64,740
8 5,964,410 549,872 79,601
9 5,986,055 515,131 79,616
At the meeting, Mr. Samuel C. Hathorn, Jr. was elected as Class II director.
Mr. William A. Morse remains a Class I director until his term expires at the
annual meeting of stockholders in 1995.
Page 18 of 20
MasTec, Inc.
PART II - OTHER INFORMATION
MARCH 31, 1994
At a meeting of the Board of Directors held subsequent to the Meeting, Messrs.
Nick A. Caporella and Leo J. Hussey resigned as directors in accordance with
the terms of the Acquisition Agreement. In addition, Mr. Cecil D. Conlee
resigned from the Board. Messrs. Jorge L. Mas Canosa, Jorge Mas, Eliot C.
Abbott, and Arthur B. Laffer were appointed to the Board.
Item 5. Other Information
Burnup consummated its acquisition of Church & Tower, Inc. and Church & Tower
of Florida, Inc. (See Note 1 to the condensed consolidated financial
statements.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Not applicable.
(b) Reports on Form 8-K.
On March 18, 1994, the Company filed Form 8-K regarding the
Acquisition the Securities and Exchange Commission.
Page 19 of 20
MasTec, Inc.
SIGNATURES
FORM 10-Q
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: May 13, 1994 /s/ Carlos A. Valdes
________________________
Carlos A. Valdes
Sr. Vice-President - Finance
(Principal Financial Officer)
and
Authorized Officer of the
Registrant
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