SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
-------------------
Former name, former address and former fiscal year, if changed since last
report:
8600 N.W. 36th Street, Miami, FL 33166-6699
----------------------------------------------------------------------
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 reports), 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.
Outstanding as of
Class of Common Stock November 1, 1996
-------------------------------- --------------------
$ 0.10 par value 16,767,645
Page 1 of 27
<PAGE>
MasTec, Inc.
Index
PART I FINANCIAL INFORMATION
Item 1 -Unaudited Condensed Consolidated Statements of Income for the
Three and Nine Month Periods Ended September 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets as of September 30, 1996
(Unaudited) and December 31, 1995 (Audited) 4
Unaudited Consolidated Statement of Shareholders' Equity for the
Nine Month Period ended September 30, 1996 6
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Month Period Ended September 30, 1996 and 1995 7
Notes to Condensed Consolidated Financial Statements (Unaudited) 12
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
PART II OTHER INFORMATION 26
Page 2 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(Unaudited) (Unaudited)
1996 1995 1996 1995
------------------------------------------
Revenue $142,394 $46,642 $313,575 $120,439
Costs of revenue and expenses:
Costs of revenue,
excluding depreciation 103,260 36,296 232,185 89,210
Depreciation and amortization 3,740 1,878 9,035 4,766
General and administrative
expenses 19,993 4,772 39,093 12,234
------------------------------------------
Operating income 15,401 3,696 33,262 14,229
Interest expense -
Borrowings 3,197 1,099 8,304 3,217
Notes to stockholders 0 25 0 135
Interest and dividend income 959 925 2,939 1,761
Interest on notes from stockholders 46 48 137 241
Special charges - real estate writedown 0 15,386 0 15,386
Other income, net 544 102 959 1,761
------------------------------------------
Income (loss) from continuing operations
before equity in earnings (losses) of
unconsolidated companies, income taxes
and minority interest 13,753 (11,739) 28,993 (746)
Equity in earnings (losses) of
unconsolidated companies 586 (158) 1,789 (169)
Provision (benefit) for income taxes 4,789 (4,409) 10,940 (290)
Minority interest 188 (50) 412 (86)
------------------------------------------
Income from continuing operations 9,362 (7,438) 19,430 (539)
Discontinued operations (Note 5):
Income (loss) from discontinued operations
(net of applicable income taxes) 163 (353) 110 109
Gain on disposal of discontinued
operations (net of applicable
income taxes) 0 1,904 66 3,356
------------------------------------------
Net income $ 9,525 $(5,887) $19,606 $ 2,926
========= ========= ========= =========
Weighted average shares outstanding 17,093 16,047 16,572 16,043
========= ========= ========= =========
Earnings (loss) per share:
Continuing operations $ 0.55 $ (0.46) $ 1.17 $ (0.03)
Discontinued operations .01 0.10 .01 0.21
------------------------------------------
$ 0.56 $ (0.37) $ 1.18 $ 0.18
========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements
Page 3 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, 1996 December 31, 1995
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,324 $ 1,076
Accounts receivable-net and
unbilled revenue 269,152 45,922
Notes receivable and accrued interest 29,655 27,505
Inventories 5,230 2,819
Other current assets 36,544 27,878
-------------- --------------
Total current assets 343,905 105,200
-------------- --------------
Property and equipment 74,353 55,806
Accumulated depreciation (19,281) (11,235)
-------------- --------------
Property-net 55,072 44,571
-------------- --------------
Investments in and advances to
unconsolidated companies 29,397 14,847
Notes receivable from stockholders 1,770 1,770
Other assets 10,495 3,775
-------------- --------------
TOTAL ASSETS $ 440,639 $ 170,163
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, 1996 December 31, 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 66,727 $ 27,863
Accounts payable 134,599 19,026
Other current liabilities 35,060 13,744
-------------- --------------
Total current liabilities 236,386 60,633
-------------- --------------
Other liabilities 43,764 14,800
-------------- --------------
Long-term debt 78,834 34,601
Convertible subordinated debentures 0 9,625
-------------- --------------
Total long-term debt 78,834 44,226
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 139,677 134,186
Retained earnings 25,269 5,663
Accumulated translation adjustments (237) 1
Treasury stock (85,697) (91,989)
-------------- --------------
Total stockholders' equity 81,655 50,504
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 440,639 $ 170,163
============== ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
for the nine months ended September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock
Issued Capital Retained Accumulated Treasury
Shares Amount Surplus Earnings Translation Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 26,435 $ 2,643 $ 134,186 $ 5,663 $ 1 $ (91,989) $ 50,504
Net Income 19,606 19,606
Cumulative Effect of Translation (238) (238)
Stock issued to Employees from
Treasury Shares 10 168 178
Stock Issued for Debentures from
Treasury Shares 5,481 6,124 11,605
- -----------------------------------------------------------------------------------------------------------
Balance September 30, 1996 26,435 $ 2,643 $ 139,677 $ 25,269 $ (237) $ (85,697) $ 81,655
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 6 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income $19,606 $ 2,926
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest 412 (86)
Depreciation and amortization 9,035 4,766
Special charge - real estate writedown 0 15,386
Equity in (earnings) losses of unconsolidated companies (1,789) 169
Net gain on sale of discontinued operations (105) (3,771)
Gain on sale of assets (100) (7)
Changes in assets and liabilities net of effect of
acquisitions and divestitures:
Accounts receivable-net and unbilled revenue 22,710 (13,740)
Inventories and other current assets (5,656) (737)
Other assets (2,627) (1,184)
Accounts payable and expenses (1,696) 5,469
Accrued income taxes (3,521) 3,968
Other current liabilities 3,415 252
Net assets of discontinued operations (195) 0
Deferred taxes 2,410 (9,371)
Other liabilities 1,404 454
----------------------------
Net cash provided by operating activities 43,303 4,494
----------------------------
Cash flows from investing activities:
Cash acquired in acquisitions 999 148
Cash paid for acquisitions (6,164) (1,750)
Repayment of notes receivable 440 35
Proceeds from sale of preferred stock 5,100 0
Capital expenditures (4,420) (8,014)
Investment in unconsolidated companies (1,651) 0
Proceeds from sale of real estate and other assets 3,900 2,426
Repayment of loans to stockholders 0 1,800
Investment in note receivable 0 (25,000)
Distributions from unconsolidated companies 0 79
Net proceeds from sale of discontinued operations 0 20,899
----------------------------
Net cash used in investing activities (1,796) (9,377)
----------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 7 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- ----------
(Unaudited)
Cash flows from financing activities:
Proceeds from Revolver $ 5,853 $ 20,025
Borrowings 3,200 0
Debt repayments (48,470) (32,367)
Net proceeds from common stock issued from treasury 178 123
Proceeds from Term Loans 0 16,653
Repayment of loans from stockholders 0 (2,500)
Financing costs 0 (516)
----------------------------
Net cash (used in) provided by financing activities (39,239) 1,418
----------------------------
Net increase in cash and cash equivalents 2,268 (3,465)
Effect of translation on cash (20) 0
Cash and cash equivalents - beginning of period 1,076 5,612
----------------------------
Cash and cash equivalents - end of period $ 3,324 $ 2,147
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 7,740 $ 3,077
Income taxes $ 8,151 $ 5,690
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 8 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996
----------
(unaudited)
Acquisition of Carolina Com-Tec
Fair value of assets acquired:
Accounts receivable $ 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 condensed consolidated
financial statements.
Page 9 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996 1995
---------- ----------
(unaudited) (unaudited)
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 ULM:
Fair value of assets acquired:
Account 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
-----------
The accompanying notes are an integral part of these condensed consolidated
financial statements
Page 10 of 27
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996 1995
---------- ----------
(unaudited) (unaudited)
Acquisition of ULM:
Note payable issued to ULM stockholder $ 800
Cash paid for acquisition 1,750
Contingent consideration 406
----------
Purchase price $ 2,956
=========
Sale of Lectro:
Assets sold:
Account 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
===========
Property acquired through financing arrangements $ 7,596 $ 7,901
========= ===========
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 4 to the Condensed
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
Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 11 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
1. CONSOLIDATION AND PRESENTATION:
The accompanying unaudited condensed consolidated financial statements of
MasTec, Inc. ("MasTec" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements
and should be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1995. The year end condensed balance sheet data
was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
financial information furnished reflects all adjustments, consisting only
of normal recurring accruals which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The results of operations are not
necessarily indicative of future results of operations or financial
position of MasTec.
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
realized gains and losses are reflected in income.
2. ACQUISITIONS
Carolina Com-Tec
In February 1996, the Company purchased for $6,750,000 the outstanding
stock of Carolina Com-Tec, Inc., a company engaged in installing and
maintaining voice, data and video networks. The stockholders of Carolina
Com-Tec, Inc. received $1.0 million at closing, a $2.0 million, 12% note
paid June 1, 1996, and a $1.5 million 8% note, payable in quarterly
installments over four years. The balance of the purchase price is payable
over the next four years based on future pre-tax earnings of Carolina Com-
Tec, Inc. The assets and liabilities resulting from the acquisition are
disclosed in the supplemental schedule of non-cash investing and financing
activities in the Condensed Consolidated Statements of Cash Flows.
Supercanal
In March 1996, the Company acquired an additional 3% of Supercanal, S.A.
("Supercanal") , an Argentine cable television company, in exchange for
$2.0 million and the Company's interest in an Argentine radio station and
newspaper which were acquired in October 1995 at the time of the Company's
initial investment in Supercanal. The additional 3% investment was financed
by the sellers and is payable over nine months at 12% interest.
Page 12 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
In July 1996, the Company contributed its ownership interest in Supercanal
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 up to $17.7 million in cash, subject to adjustment
based on the number of Supercanal subscribers. MasTec's interest in the
holding company was reduced to approximately 28.5% as a result of
Multicanal's investment. Under the purchase agreement, Multicanal also
will provide programming and management services to Supercanal.
Sintel
On April 30, 1996 , the Company purchased from Telefonica de Espana, S.A.
("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.
The purchase price for Sintel was Spanish Pesetas ("Pesetas") 4.9 billion
(US$39.5 million at an exchange rate of 124 Pesetas to one U.S. dollar).
An initial payment of Pesetas 650 million (US$5.2 million) was made at
closing. An additional Pesetas 650 million (US$5.2 million) is due on
December 31, 1996, with the balance of the purchase price, Pesetas 3.6
billion (US$29.1 million), due in two equal installments on December 31,
1997 and 1998. 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 (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 Condensed Consolidated Statements
of Cash Flows. The Sintel acquisition gives the Company a significant
international presence. See Note 7 regarding geographic information.
The following information presents the unaudited pro forma condensed
results of operations for the nine months ended September 30, 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 employee terminations net of deferred taxes. The final
allocation will be contingent upon final assessment of the fair value of
the net assets acquired. 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 $1.8 million for 1996 and 1995, respectively),
offset by the reduction in interest and depreciation expenses resulting
from the Related Transactions ( $1 million and $3.3 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.
Page 13 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
Pro forma results of operations
for the nine months ended September 30,
1996 1995
Revenue $397,270 $299,924
Income (loss) from continuing operations 22,626 (14,861)
Net income (loss) 22,802 (11,396)
Earnings (loss) per share:
Continuing operations $ 1.37 (0.93)
Discontinued operations .01 0.22
--------------------------
Net income (loss) $ 1.38 $ (0.71)
======== =========
The pro forma results for the nine months ended September 30, 1996 and 1995
include special charges incurred by Sintel related to a restructuring plan
of $1.4 million and $ 16.3 million, net of tax, respectively.
3. 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 Bell
South Telecommunications, Inc. ("Bell South"). For the nine months ended
September 30, 1996, approximately 32% and 17% of the Company's revenue was
derived from services performed for Telefonica and Bell South ,
respectively. Revenue generated by Sintel from Telefonica is included from
May 1, 1996 (see Note 2). 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 Bell South
for a significant portion of its revenue in the future.
Page 14 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
4. DEBT
Debt is summarized as follows (in thousands): September 30, December 31,
1996 1995
---------------------------
Revolver, Fleet Credit Facility at LIBOR plus
2.00% (7.44% and 7.69% at September 30, 1996
and December 31, 1995, respectively) $ 16,835 $ 10,982
Term Loans, Fleet Credit Facility, at LIBOR
plus 2.25% (7.69% and 7.94% at
September 30, 1996 and December 31, 1995,
respectively) 19,461 23,262
Revolving credit facility, at MIBOR plus 0.30%
(8% at September 30, 1996 due November 1, 1996) 37,561 0
Other bank facilities, at interest rates from
8.1% to 9.3% 10,025 0
Notes payable for equipment, at interest
rates from 6.0% to 8.5% due in
installments through the year 2000 18,908 14,682
Notes payable for acquisitions, at interest
rates from 7% to 12% due in
installments through February 2000 39,276 8,382
Real estate mortgage notes, at interest rates
from 8.53% to 9.5% due in
installments through the year 2001 2,850 2,531
12% Convertible Subordinated Debentures 645 12,250
-------------------------
Total debt 145,561 72,089
Less current maturities 66,727 (27,863)
-------------------------
Long term debt $78,834 $ 44,226
========== =========
Not included in the preceding table at September 30, 1996 and December 31,
1995 is approximately $2.0 million in capital leases related to
discontinued operations (see Note 5).
On May 31, 1996, the Company called its 12% Convertible Subordinated
Debentures (the "Debentures") effective June 30, 1996. All but $645,000 of
the Debentures were converted to Common Stock, increasing the number of
shares outstanding by 690,456.
The Company maintains a $40.0 million credit facility with Shawmut Capital
Corporation n/k/a Fleet Capital Corporation (the "Fleet Credit Facility")
maturing January 2000 and also maintains several other credit facilities
for the purpose of financing equipment purchases. 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. At September 30, 1996, the Company had $ 80.6 million (10.4
billion Pesetas) of debt denominated in Pesetas, including the acquisition
debt of $33.1 million incurred pursuant to the Sintel acquisition (see Note 2).
Page 15 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
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, all of which
were met at September 30, 1996.
5. DISCONTINUED OPERATIONS
In the third quarter of 1995, the Company determined to concentrate its
resources and better position itself to achieve its strategic growth
objectives by disposing of all of the general products segment that the
Company acquired as part of the Burnup & Sims Inc. ("Burnup & Sims")
acquisition ( the "Burnup Acquisition"). These operations and assets
include Southeastern Printing Company, Inc. ("Southeastern"), Lectro
Products, Inc. ("Lectro") and Floyd Theatres, Inc. ("Floyd Theatres").
In March 1995, the Company sold the indoor theater assets of Floyd Theatres
for approximately $11.5 million of which $1.8 million was used to satisfy
liabilities not assumed by the buyer and transaction costs incurred. A
gain of $1.5 million net of tax, resulted from this transaction in the
first quarter of 1995. The remaining outdoor theater operations of Floyd
Theatres are currently being marketed for sale for the underlying real
estate value. Southeastern is being offered for sale and Lectro was sold
during the third quarter of 1995 for $12.4 million.
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 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):
For the nine months ended September 30,
1996 1995
------------------------
Revenue $ 9,679 $ 19,267
========= =========
Earnings before income taxes $ 179 $ 123
Provision for income taxes 69 14
----------------------
Net income from discontinued operations $ 110 $ 109
========= =========
Page 16 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
The following comprises the net assets of discontinued operations (in
thousands):
September 30, December 31,
1996 1995
----------------------
Receivables, net $2,140 $ 1,432
Inventory 943 1,047
Property, plant and equipment, net 8,499 9,101
Other assets 320 160
Land held for sale 855 855
Less:
Capital leases 1,980 2,140
Accounts payable 598 280
Accrued liabilities and reserve for
loss on disposal 3,479 3,775
---------------------
$ 6,700 $ 6,400
========= =========
6. EARNINGS PER SHARE
Earnings per share is determined by dividing the income for the period by
the weighted average of outstanding shares for the period after giving
effect to dilutive stock options. The weighted average shares includes
shares issued from the conversion of the Debentures from the date of
conversion. Fully diluted earnings per share is not disclosed because the
result is anti-dilutive. A pro forma primary earnings per share calculation
assuming the conversion of the Debentures took place at the beginning of
the year is not presented because the conversion of the Debentures did not
have an impact on the Company's earnings per share .
Page 17 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
7. GEOGRAPHIC INFORMATION
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, accordingly, only 1996 geographic information is presented below:
Nine months ended September 30,
1996
Revenue
Domestic $206,286
International 107,289
---------
Total $313,575
=========
Operating income
Domestic $22,740
International 10,522
---------
Total $33,262
=========
Identifiable assets
Domestic $116,534
International 229,352
Corporate 94,753
---------
Total $440,639
=========
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.
8. CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit against Burnup & Sims, the
members of its Board of Directors, and National Beverage Corporation
("NBC"). The complaint alleges, among other things, that Burnup & Sims'
Board of Directors and NBC, as Burnup & Sims' then largest stockholder,
breached their respective fiduciary duties in approving certain
transactions, including the distribution to Burnup & Sims' stockholders of
all of the common stock of NBC owned by Burnup & Sims and the exchange by
NBC of shares of common stock of Burnup & Sims for certain
indebtedness of NBC held by Burnup & Sims. The lawsuit seeks to rescind
these transactions and to recover
damages in an unspecified amount.
Page 18 of 27
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (unaudited)
In November 1993, Mr. Kahn filed a class action and derivative complaint against
Burnup & Sims, the members of its Board of Directors, Church & Tower, Inc. and
Church & Tower of Florida, Inc. (collectively, "Church & Tower"), and
Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal stockholders of
Church & Tower. The 1993 lawsuit alleges, among other things, that the
Burnup & Sims Board of Directors and NBC breached their respective fiduciary
duties by approving the terms of the Burnup Acquisition; and that Church & Tower
and its principal stockholders had knowledge of the fiduciary duties owed by NBC
and the Burnup & Sims Board of Directors and knowingly and substantially
participated in the breach thereof. The lawsuit also claims derivatively that
each member of the Burnup & Sims Board of Directors engaged in mismanagement,
waste and breach of their fiduciary duties in managing Burnup & Sims' affairs.
On March 7, 1994, the Delaware court in which these suits were filed denied
plaintiff's motion to enjoin the Burnup Acquisition. 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 by Bell South arising from certain
work performed by a subcontractor of the Company in 1993. The amount claimed
against the Company approximates $ 900,000. The lawsuit, filed in November 1995,
is in the early stages of discovery. The Company believes that the allegations
asserted by Bell South are without merit and intends to defend this lawsuit
vigorously. On September 27, 1996 the Company settled a previously disclosed
lawsuit with Gilpin County, Colorado for $115,000.
All of the claims asserted in the lawsuits described above, with the exception
of the second lawsuit filed by Albert Kahn in 1993, arise from activities
undertaken prior to March 11, 1994, the date of the Burnup Acquisition.
The Company is also a party to other pending legal proceedings, none of
which the Company believes is material to the Company's financial condition
or results of operations
9. NOTES RECEIVABLE
In July 1995, the Company made a $25.0 million one year term loan to Devono
Company Limited, a British Virgin Islands corporation ("Devono"). The loan is
secured 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. ("Conocell"),
one of two cellular phone operators in the Republic of Ecuador. The due date of
the loan was extended following the signing by Devono of an agreement to sell
100% of the capital stock of the Conocell holding company (including the 40%
securing the Company's loan to Devono) to Inter-American Communications
Corporation ("ICCA"), a U.S. public company. Pursuant to the terms of the sale
to ICCA, the Company would have received approximately $35 million in
consideration. At present, it does not appear that the sale to ICCA will be
completed, although Devono has not formally terminated the agreement with ICCA.
The Company is evaluating whether to extend the term of the Devono loan further
to permit a sale of Devono's indirect interest in Conecell to another purchaser
or to convert the loan to equity pursuant to the loan agreement. 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.
Page 19 of 27
<PAGE>
ITEM 2
MasTec, Inc.
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 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 and wide area networks
inside buildings. The Company also installs central office telephone
equipment.The Company also provides general construction services
consisting of design-and-build projects that the Company undertakes with
state and local governmental authorities.
On April 30, 1996, the Company purchased from Telefonica 100% of the
capital stock of Sintel , a company engaged in telecommunications
infrastructure construction services in Spain, Argentina, Chile, and Peru.
The acquisition of Sintel more than doubled the size of the Company in
terms of revenue and assets. In Argentina, Chile and Peru, the Company
operates through joint ventures in which it holds interests ranging from
38% to 50%. See Note 2 to the Condensed Consolidated Financial Statements
for pro forma financial information and Note 7 for geographic information.
Included in the Company's results for the nine months ended September 30,
1996 are the results of operations of Sintel from May 1, 1996 through
September 30, 1996.
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. The Company also
provides general construction services consisting of design-and-build
projects which the Company undertakes with state and local governmental
authorities.
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,
bonuses and benefits, rent, travel, telephone and utilities, professional
fees and clerical and administrative overhead.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included elsewhere
herein.
Page 20 of 27
<PAGE>
Three Months Ended September 30, 1996 vs. Three Months Ended September 30, 1995.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the three months ended
September 30, 1996 and 1995.
1996 1995
------ ------
Revenue 100.0 % 100.0 %
Costs of revenue, excluding depreciation 72.5 % 77.8 %
Depreciation and amortization 2.6 % 4.0 %
General and administrative expenses 14.0 % 10.2 %
Interest expense 2.2 % 2.4 %
Special charges - real estate writedown 0.0 % 33.0 %
Interest and dividend income, other income,
net, equity in earnings of unconsolidated
companies and minority interest 1.4 % 2.1 %
Income (loss) from continuing operations 6.6 % (16.0)%
Revenue. Revenue increased by approximately $ 95.8 million or 205%
from $ 46.6 million in 1995 to $ 142.4 million in 1996, primarily due to
international ($ 69.7 million) and domestic ($ 6.8 million) acquisitions,
new master contracts, increased volume under existing contracts and other
new business ($ 11.8 million), and an increase of $ 7.5 million in general
construction services revenue.
Costs of revenue, excluding depreciation . Costs of revenue as a
percentage of revenue decreased from 77.8% in 1995 to 72.5% in 1996
primarily due to operations in new international geographic areas.
Domestic and international margins for the three months ended September 30,
1996 were 24.8% and 30.3%, respectively. Domestically, the Company has
typically experienced reduced margins at the commencement of new contracts
resulting from mobilization and startup costs, as well as costs incurred in
recruiting and training of new personnel. Domestic gross margin has
increased since the quarters ended September 30, 1995 (22.2%) when the
Company began to significantly expand and grow. Internationally, margins
have improved as a result of a cost reduction program initiated by Sintel's
management. This program is continuing under the Company's ownership.
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue decreased from 4.0% in 1995 to 2.6% in 1996 due to
revenue growth and the lesser dependence by Sintel on its own equipment as
Sintel typically uses subcontractors to supply heavy equipment when needed.
General and administrative expenses. General and administrative
expenses as a percentage of revenue increased from 10.2% in 1995 to 14.0%
in 1996 primarily due to the acquisition of Sintel, which has a more costly
overhead structure than the Company's domestic operations. Domestic and
international general and administrative expenses as a percentage of
revenue for the three months ended September 30, 1996 were 9.7% and 18.6%,
respectively. Domestically, general and administrative expenses as a percentage
of revenue declined when compared to the same period in 1995 primarily due to
increased domestic volume. Internationally, general and administrative expenses
have declined on a nine month basis from 17.8% of revenue for 1995 to 17.2% of
revenue for the nine months ended September 30, 1996.
Page 21 of 27
<PAGE>
Interest expense. Interest expense increased from $1.1 million in
1995 to $3.2 million in 1996 . Included in interest expense for the three
months ended September 30, 1996 is $ 1.4 million of interest expense
incurred by the international operations to fund working capital needs.
Interest expense also increased due to new borrowings used for acquisitions,
for equipment purchases, to fund notes receivable and to make investments in
unconsolidated companies. The increase is partially offset by the conversion
of $12.3 million of the Company's Debentures on June 30, 1986. See Note 4 to
the Condensed Consolidated Financial Statements.
Special charge - real estate writedown. Results for the third quarter
of 1995 include a special charge of $15.4 million to reflect certain real
estate holdings at their estimated net realizable value.
Interest and dividend income, other income, net, equity in earnings
(losses) of unconsolidated companies and minority interest. Interest and
dividend income for the third quarter of 1995 includes $300,000 of dividend
income on an investment in preferred stock. The preferred stock was
disposed of in the first quarter of 1996. Interest and dividend income
reported for the third quarter of 1996 consists primarily of interest
accrued on a note receivable entered into in the third quarter of 1995. See
Note 9 to the Condensed Consolidated Financial Statements. Other income
for 1995 included the favorable settlement of a litigation in the amount of
$1,350,000. Equity in earnings of unconsolidated companies, which was
insignificant prior to the acquisition of Sintel, consists primarily of the
Company's share of earnings in Sintel's joint ventures in Argentina, Chile
and Peru.
Discontinued operations. As discussed in Note 5 to the Condensed
Consolidated Financial Statements, the company sold Lectro for $12.4
million at a gain, net of tax, of $5.9 million. The Company estimated a
loss of $4.0 million, net of tax, from the operations and a writedown to
net realizable value through the disposal date of the remaining business in
the General Products segment. The Company has received offers to purchase
Southeastern, but has not yet entered into any agreements to sell the
company.
Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the nine months ended
September 30, 1996 and 1995.
1996 1995
------ ------
Revenue 100.0 % 100.0 %
Costs of revenue, excluding depreciation 74.0 % 74.1 %
Depreciation and amortization 2.9 % 4.0 %
General and administrative expenses 12.5 % 10.2 %
Interest expense 2.6 % 2.8 %
Special Charges - real estate writedown - 12.8 %
Interest and dividend income, other income, net,
equity in earnings (losses) of unconsolidated
companies and minority interest 1.7 % 3.1 %
Income (loss) from continuing operations 6.2 % (0.4)%
Page 22 of 27
<PAGE>
Revenue. Revenue increased by approximately $ 193.2 million or 160%
from $120.4 million in 1995 to $ 313.6 million in 1996, primarily due to
international ($ 107.3 million) and domestic ($ 20.3 million) acquisitions,
new master contracts, increased volume under existing contracts and other new
business ($ 47.1 million), and an increase of $18.5 million in general
construction services.
Costs of revenue, excluding depreciation . Costs of revenue as a
percentage of revenue decreased from 74.1% in 1995 to 74.0% in 1996
primarily due to international operations and improvement in domestic
margins since the Company's domestic expansion which began in the third
quarter of 1995. Domestic and international margins for the nine months
ended September 30, 1996 were 24.5% and 28.8%, respectively. The same
trends discussed in the quarter to quarter discussion above impacted the nine
months' comparison.
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue decreased from 4.0% in 1995 to 2.9% in 1996 due to
revenue growth and the lesser dependence by Sintel on its own equipment as
Sintel typically uses subcontractors to supply heavy equipment when needed.
General and administrative expenses. General and administrative
expenses as a percentage of revenue increased from 10.2% in 1995 to 12.5%
in 1996. The increase in general administrative expenses as a percentage of
revenue is primarily due to higher general and administrative expenses of
the international operations, which approximated 17.3% of international
revenue. The same trends discussed in the quarter to quarter discussion
above impacted the nine months' comparison.
Interest expense. Interest expense increased from $3.4 million in
1995 to $ 8.3 million in 1996. Included in interest expense for the nine
months ended September 30, 1996 is $ 2.8 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, to fund notes receivable and to make
investments in unconsolidated companies. Partially offsetting the increase
was the conversion of the Company's 12% Debentures on June 30, 1996.
Interest and dividend income, other income, net, equity in earnings
(losses) of unconsolidated companies and minority interest. Interest and
dividend income and other income, net, increased from $3.7 million in 1995
to $ 5.4 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.
Discontinued operations
In March 1995, the Company sold the indoor theater assets of Floyd
Theatres, resulting in a net gain of $1.5 million. See Note 5 to the
Condensed Consolidated Financial Statements.
Page 23 of 27
<PAGE>
Financial Condition, Liquidity and Capital Resources
The Company's balance sheet as of September 30, 1996 reflects the
impact of the Sintel acquisition and the conversion of the Debentures to
Common Stock. See Notes 2 and 4 to the Condensed Consolidated Financial
Statements.
The Company's primary source of liquidity during the nine months ended
September 30, 1996 has been cash flow from operating activities and to a
lesser extent the proceeds from the sale of non-core assets. During the
nine months ended September 30, 1996, $ 43.3 million was generated from
operations compared to $ 4.5 million in the comparable period of 1995.
Operating cash flows for the 1996 period includes the collection of a
significant amount of international receivables. Also, during the nine
months ended September 30, 1996, the Company invested $6.2 million in
acquisitions and received $ 9.0 million from the sale of non core assets.
Cash paid for capital expenditures was $4.4 million and an additional $7.6
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 4 to the Condensed Consolidated
Financial Statements.)
As of September 30, 1996, working capital was approximately $ 107.5
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 Sintel acquisition. Included in working capital at
September 30, 1996, are the net assets of the discontinued operations,
notes receivable (see Note 9 to the Condensed 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.
The Company has completed two acquisitions and increased its
investment in an unconsolidated company during the nine months ended
September 30, 1996, as detailed in Note 2 to the Condensed Consolidated
Financial Statements. The combined consideration for these three
transactions amounted to approximately $48.3 million plus certain ownership
interests in other unconsolidated companies. The $48.3 million monetary
consideration consists of approximately $6.2 million in cash payments and
$42.1 million in seller financing, $9.3 million of which is due within the
next twelve months.
In March 1996, the Company sold its investment in preferred stock and
was repaid certain receivables due the Company from the buyer for a total
consideration of $6.3 million. See Note 2 to the Condensed Consolidated
Financial Statements.
The Company continues to pursue a strategy of growth through internal
growth and 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, sale of non-core assets, 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 at satisfactory terms for this purpose.
Page 24 of 27
<PAGE>
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 attempts to balance its foreign currency denominated assets
and liabilities as a means of hedging its balance sheet currency risk, but
there can be no assurance that this 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 actual conversion into U.S.
dollars.
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.
Reference is made to the Company's registration statement on Form S-3
(No. 333-11013) filed with the Securities and exchange Commission for a
discussion of certain risks and uncertainties that could materially impact
future operating results and financial condition of the Company.
Page 25 of 27
<PAGE>
PART II - OTHER INFORMATION
SEPTEMBER 30, 1996
Item 1. Legal Proceedings.
See Note 8 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 27.1 Article 5 - Financial Data Schedules.
(b) Reports on Form 8-K.
On July 15, 1996, the Company filed an amended Form 8-K
Current Report dated April 30, 1996 with the Securities and Exchange
Commission reporting information under Item 7 thereof regarding the
financial statements of Sintel and the pro forma financial information
required under Item 7.
Page 26 of 27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: November 13, 1996 /s/ Edwin D. Johnson
---------------------------
Edwin D. Johnson
Senior Vice President-
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 27 of 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
third quarter 10-q and is qualified in its entirety by reference to such
10-q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,324
<SECURITIES> 0
<RECEIVABLES> 269,152
<ALLOWANCES> 0
<INVENTORY> 5,230
<CURRENT-ASSETS> 343,905
<PP&E> 74,353
<DEPRECIATION> 19,281
<TOTAL-ASSETS> 440,639
<CURRENT-LIABILITIES> 236,386
<BONDS> 0
0
0
<COMMON> 2,643
<OTHER-SE> 79,012
<TOTAL-LIABILITY-AND-EQUITY> 440,639
<SALES> 313,575
<TOTAL-REVENUES> 313,575
<CGS> 232,185
<TOTAL-COSTS> 232,185
<OTHER-EXPENSES> 42,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,304
<INCOME-PRETAX> 30,370
<INCOME-TAX> 10,940
<INCOME-CONTINUING> 19,430
<DISCONTINUED> 176
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,606
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
