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 June 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 August 12, 1996
-------------------------------- --------------------
$ 0.10 par value 16,761,645
Page 1 of 24
<PAGE>
MasTec, Inc.
Index
PART I FINANCIAL INFORMATION
Item 1 -Unaudited Condensed Consolidated Statements of Income for the
Three and Six Month Periods Ended June 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets as of June 30, 1996
(Unaudited) and December 31, 1995 (Audited) 4
Unaudited Consolidated Statement of Shareholders' Equity for the
Six Month Period ended June 30, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Month Period Ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 11
Item 2 -Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
PART II OTHER INFORMATION 23
Page 2 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Unaudited) (Unaudited)
1996 1995 1996 1995
------------------------------------------
Revenue $108,634 $39,174 $171,181 $73,797
Costs of revenue and expenses:
Costs of revenue,
excluding depreciation 81,595 27,925 128,925 52,914
Depreciation and amortization 3,033 1,583 5,295 2,888
General and administrative expenses 12,622 3,630 19,100 7,462
-------------------------------------
Operating income 11,384 6,036 17,861 10,533
Interest expense -
Borrowings 3,430 995 5,107 2,093
Notes to stockholders 0 66 0 135
Interest and dividend income 1,156 441 1,980 836
Interest on notes from stockholders 76 95 91 193
Other income, net 407 1,593 415 1,659
-------------------------------------
Income from continuing operations
before equity in earnings (losses)
of unconsolidated companies, income
taxes and minority interest 9,593 7,104 15,240 10,993
Equity in earnings (losses) of
unconsolidated companies 837 0 1,203 (11)
Provision for income taxes 3,828 2,679 6,151 4,119
Minority interest 229 (22) 224 (36)
-------------------------------------
Income from continuing operations 6,373 4,447 10,068 6,899
Discontinued operations (Note 5):
(Loss)income from discontinued operations
(net of applicable income taxes) (39) 205 (53) 462
Gain on disposal of discontinued
operations (net of applicable income taxes) 66 0 66 1,452
-------------------------------------
Net income $ 6,400 $ 4,652 $10,081 $ 8,813
================== ========= ========
Weighted average shares outstanding 16,468 16,166 16,312 16,168
================== ========= ========
Earnings per share:
Continuing operations $ 0.39 $ 0.28 $ 0.62 $ 0.43
Discontinued operations 0.00 0.01 0.00 0.12
-------------------------------------
$ 0.39 $ 0.29 $ 0.62 $ 0.55
================== ========= ========
The accompanying notes are an integral part of these financial statements
Page 3 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, 1996 December 31, 1995
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,219 $ 1,076
Accounts receivable-net and
unbilled revenue 253,566 45,922
Notes receivable and accrued interest 29,329 27,505
Inventories 5,016 2,819
Other current assets 31,578 27,878
---------- -----------
Total current assets 320,708 105,200
---------- -----------
Property and equipment 71,357 55,806
Accumulated depreciation (15,872) (11,235)
---------- -----------
Property-net 55,485 44,571
---------- -----------
Investments in and advances to
unconsolidated companies 30,174 14,847
Notes receivable from stockholders 1,770 1,770
Other assets 10,479 3,775
---------- -----------
TOTAL ASSETS $418,616 $170,163
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $61,409 $27,863
Accounts payable 129,403 19,026
Other current liabilities 33,984 13,744
---------- -----------
Total current liabilities 224,796 60,633
---------- -----------
Other liabilities 41,840 14,800
---------- -----------
Long-term debt 79,729 34,601
Convertible subordinated debentures 0 9,625
---------- -----------
Total long-term debt 79,729 44,226
---------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 139,653 134,186
Retained earnings 15,744 5,663
Accumulated translation adjustments (40) 1
Treasury stock (85,749) (91,989)
---------- -----------
Total stockholders' equity 72,251 50,504
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $418,616 $170,163
========== ==========
The accompanying notes are an integral part of these financial statements.
Page 4 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
for the six months ended June 30, 1996
<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 10,081 10,081
Cumulative Effect of Translation (41) (41)
Stock issued to Employees from
Treasury Shares (7) 123 116
Stock Issued for Debentures from
Treasury Shares 5,474 6,117 11,591
- -----------------------------------------------------------------------------------------------------------
Balance June 30, 1996 26,435 $ 2,643 $ 139,653 $ 15,744 $ (40) $ (85,749) $ 72,251
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
SIX MONTHS ENDED
JUNE 30,
1996 1995
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income $10,081 $ 8,813
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest 224 (36)
Depreciation and amortization 5,295 2,888
Equity in (earnings) losses of unconsolidated companies (1,203) 11
Net gain on sale of discontinued operations (105) (2,304)
Loss (gain) on sale of assets 93 (138)
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable-net and unbilled revenue 38,296 (6,776)
Inventories and other current assets 421 (849)
Other assets (2,165) 160
Accounts payable and expenses (10,377) 6,952
Accrued income taxes 444 1,317
Other current liabilities (94) (643)
Net assets of discontinued operations 1,785 556
Deferred taxes (319) (310)
Other liabilities 293 853
----------------------------
Net cash provided by operating activities 42,669 10,494
----------------------------
Cash flows from investing activities:
Cash acquired in acquisitions 999 0
Cash paid for acquisitions (6,169) 0
Repayment of notes receivable 766 0
Proceeds from sale of preferred stock 5,100 0
Repayment of loans to shareholders 0 1,800
Capital expenditures (2,808) (7,170)
Investment in unconsolidated companies (1,410) 0
Distributions from unconsolidated companies 0 79
Net proceeds from sale of discontinued operations 0 9,718
Proceeds from sale of real estate and other assets 3,535 1,218
----------------------------
Net cash provided by investing activities 13 5,645
----------------------------
Cash flows from financing activities:
Proceeds from Revolver 4,798 0
Borrowings 3,200 0
Proceeds from Term Loan 0 12,000
Proceeds from Equipment Loan 0 2,584
Debt repayments (50,612) (20,718)
Repayment of loans from shareholders 0 (2,500)
Net proceeds from common stock issued from treasury 116 75
Financing costs 0 (516)
----------------------------
Net cash used in financing activities (42,498) (9,075)
----------------------------
The accompanying notes are an integral part of these financial statements.
Page 6 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
SIX MONTHS ENDED
JUNE 30,
1996 1995
---------- ----------
(Unaudited)
Effect of translation on cash (41) 0
Net increase in cash and cash equivalents 143 7,064
Cash and cash equivalents - beginning of period 1,076 5,612
----------------------------
Cash and cash equivalents - end of period $ 1,219 $ 12,676
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 5,013 $ 2,568
Income taxes $ 3,957 $ 4,121
The accompanying notes are an integral part of these financial statements.
Page 7 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996
----------
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 financial statements.
Page 8 of 24
<PAGE>
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(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 158,117
Long-term debt 78,024
---------
Total liabilities assumed 236,141
---------
Net non-cash assets acquired 38,045
Cash acquired 832
---------
Purchase price $38,877
=========
Seller financing $33,465
Cash paid for acquisition 5,169
Acquisition costs paid by the Company 243
---------
Purchase price $38,877
=========
1995
----------
Property acquired
through financing arrangements $ 5,952 $ 2,921
========= =========
Property disposed
Receivable arising from the sale of equipment $ 0 $ 1,200
========= =========
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 financial statements.
Page 9 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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
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
acquired in October 1995 at the time of the Company's initial investment in
Supercanal. The additional 3% was financed by the sellers and is payable over
nine months at 12% interest.
Page 10 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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's 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 six months ended June 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 $1.2 million for 1996 and
1995, respectively), offset by the reduction in interest and depreciation
expenses resulting from the Related Transactions ( $1 million and $2.2 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 11 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
Pro forma results of operations
for the six months ended June 30,
1996 1995
Revenue $254,876 $186,258
Income (loss) from continuing operations 13,264 (6,696)
Net income (loss) 13,277 (4,782)
Earnings (loss) per share:
Continuing operations $ 0.81 $ (0.42)
Discontinued operations 0.00 0.12
Net income (loss) 0.81 (0.30)
The pro forma results for the six months ended June 30, 1996 and 1995 include
special charges incurred by Sintel related to a restructuring plan of $1.4
million and $13.5 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 BellSouth
Telecommunications, Inc. ("BellSouth"). For the six months ended June 30, 1996,
approximately 22% and 20% 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). 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.
Page 12 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
4. DEBT
Debt is summarized as follows (in thousands): June 30, December 31,
1996 1995
-------------------------
Revolver, Fleet Credit Facility at LIBOR plus 2.00%
(7.49% and 7.25% at June 30, 1996 and
December 31, 1995, respectively) $ 15,780 $ 10,982
Term Loans, Fleet Credit Facility, at LIBOR plus 2.25%
(7.74% and 7.94% at June 30, 1996 and
December 31, 1995, respectively) 20,517 23,262
Revolving credit facility, at MIBOR plus 0.30% (9.12% at
June 30, 1996 due November 1, 1996) 34,056 0
Other bank facilities, at interest rates from 8.1% to 9.3% 7,186 0
Notes payable for equipment, at interest rates from 6.0%
to 8.5% due in installments through the year 2000 18,593 14,682
Notes payable for acquisitions, at interest rates from 7%
to 12% due in installments through February 2000 41,657 8,382
Real estate mortgage notes, at interest rates from 8.53%
to 9.5% due in installments through the year 2001 2,690 2,531
12% Convertible Subordinated Debentures due June 1996 659 12,250
-----------------------
Total debt 141,138 72,089
Less current maturities (61,409) (27,863)
-----------------------------
Long term debt $79,729 $ 44,226
========== =========
Not included in the preceding table at June 30, 1996 and December 31, 1995 is
approximately $2.1 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 $659,000 of the Debentures
were converted to Common Stock, increasing the number of shares outstanding by
690,219.
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 June
30, 1996, the Company had $74.4 million ( 9.5 billion Pesetas) of debt
denominated in Pesetas, including the acquisition debt of $33.4 million
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, all of which were met at
June 30, 1996.
Page 13 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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.
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 six months ended June 30,
1996 1995
---------------------------
Revenue $ 6,275 $ 16,219
========= =========
(Loss) earnings before income taxes $ (86) $ 734
(Benefit) provision for income taxes (33) 272
---------------------------
Net (loss) income from discontinued
operations $ (53) $ 462
========= =========
Page 14 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
The following comprises the net assets of discontinued operations
(in thousands):
June 30, December 31,
1996 1995
Receivables, net $ 1,865 $ 1,432
Inventory 1,032 1,047
Property, plant and equipment, net 8,697 9,101
Other assets 53 51
Land held for sale 1,095 964
Less:
Capital leases 2,058 2,140
Accounts payable 252 280
Accrued liabilities and reserve for
loss on disposal 3,608 3,775
---------- -----------
$ 6,824 $ 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 15 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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:
Six months ended June 30
1996
Revenue
Domestic $133,641
International 37,540
---------
Total $171,181
=========
Operating income
Domestic $ 14,249
International 3,612
---------
Total $ 17,861
=========
Identifiable assets
Domestic $103,319
International 212,467
Corporate 102,830
---------
Total $418,616
=========
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 16 of 24
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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 from 1991 to 1993 and a second
lawsuit filed by the County of Gilpin, Colorado, against the Company in
connection with work performed for U.S. West, Inc. in 1992. The amounts
claimed against the Company in these two lawsuits in the aggregate total
approximately $1.5 million. Both lawsuits were filed in November 1995 and are
in the early stages of discovery. The Company believes that the allegations
asserted by Bell South and Gilpin County are without merit and intends to
defend these lawsuits vigorously.
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. SUBSEQUENT EVENTS
An agreement has been signed by the principal stockholder of the holding
company for Consorcio Ecuatoriano de Telecomunicaciones, S.A. ("Conecell") to
sell the holding company's stock to Inter-American Communications Corporation
("ICCA"), a U.S. public company, for consideration totaling approximately $105
million, subject to certain conditions. As a result of the signing, the
maturity date of the Company's loan by its terms automatically has been
extended to August 30, 1996. The Company will likely extend the due date
further to allow additional time for the transaction to be completed. The
consideration for the sale is a combination of cash, promissory notes of ICCA
and ICCA common stock. If the transaction is completed, Company would, under
the terms of its loan, receive approximately $35 million of the total
consideration in a combination of cash, promissory notes of ICCA and ICCA
common stock.
Page 17 of 24
<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 and
installs central office equipment . The Company also provides general
construction services consisting of design-and-build projects which the Company
undertakes with private businesses and 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 the number of employees . In Argentina, Chile and Peru, the Company
operates through joint ventures in which it holds interests ranging from 38%
to 50%. See Note 7 regarding geographic information. Also, see Note 2 to the
Condensed Consolidated Financial Statements for pro forma financial
information. Included in the Company's results for the quarter ended June 30,
1996 are the results of operation of Sintel from May 1, 1996 through June 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 private businesses and 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 18 of 24
<PAGE>
Three Months Ended June 30, 1996 vs. Three Months Ended June 30, 1995.
Included in the Company's results for the quarter ended June 30, 1996 are
the results of operations of Sintel from May 1, 1996 through June 30, 1996.
See Note 2 to the Condensed Consolidated Financial Statements.
The following table sets forth certain historical consolidated financial
data as a percentage of revenue for the three months ended June 30, 1996 and
1995.
1996 1995
------ ------
Revenue 100.0 % 100.0 %
Costs of revenue, excluding depreciation 75.1 % 71.3 %
Depreciation and amortization 2.8 % 4.0 %
General and administrative expenses 11.6 % 9.3 %
Interest expense 3.2 % 2.7 %
Interest and dividend income, other income, net,
equity in earnings of unconsolidated companies
and minority interest 2.1 % 5.5 %
Income from continuing operations 5.9 % 11.4 %
Revenue. Revenue increased by approximately $ 69.4 million or 177% from $
39.2 million in 1995 to $ 108.6 million in 1996, primarily due to international
($37.5 million) and domestic ($ 6.5 million) acquisitions, new master
contracts, increased volume under existing contracts and other new business ($
17.8 million), and an increase of $ 7.6 million in general construction
services revenue.
Costs of revenue, excluding depreciation . Costs of revenue as a
percentage of revenue increased from 71.3% in 1995 to 75.1% in 1996 primarily
due to operations in new geographic areas. Domestic and international margins
for the three months ended June 30, 1996 were 24.2% and 26.2%, 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%)
and December 31, 1995 (23.3%) when the Company began to significantly expand
and grow, and has remained near the gross margin for the three months ended
March 31, 1996 ( 24.3%).
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue decreased from 4.0% in 1995 to 2.8% 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 9.3% in 1995 to 11.6% 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 June 30, 1996 were 9.8% and 15.3%, respectively. Sintel
initiated a cost reduction program that has reduced general and administrative
expenses from 19.2% of revenue for the six months ended June 30, 1995 to 16.3%
for the same period in 1996. This cost reduction program is continuing under
the Company's ownership. Domestically, general and administrative expenses as
a percentage of revenue are approximately the same for the first half of 1996
as for the comparable period in 1995.
Page 19 of 24
<PAGE>
Interest expense. Interest expense increased from $1.1 million in 1995 to
$3.4 million in 1996 . Included in interest expense for the three months ended
June 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.
Interest and dividend income, other income, net, equity in earnings
(losses) of unconsolidated companies and minority interest. Interest and
dividend income for the second 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
second quarter of 1996 consists primarily of interest accrued on a note
receivable entered into in the third quarter of 1995. 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 for the two
months since the Sintel acquisition.
Six Months Ended June 30, 1996 vs. Six Months Ended June 30, 1995.
The following table sets forth certain historical consolidated financial
data as a percentage of revenue for the six months ended June 30, 1996 and
1995.
1996 1995
------ ------
Revenue 100.0 % 100.0 %
Costs of revenue, excluding depreciation 75.3 % 71.7 %
Depreciation and amortization 3.1 % 3.9 %
General and administrative expenses 11.2 % 10.1 %
Interest expense 3.0 % 3.0 %
Interest and dividend income, other income, net,
equity in earnings (losses) of unconsolidated
companies and minority interest 2.0 % 3.7 %
Income from continuing operations 5.9 % 9.3 %
Revenue. Revenue increased by approximately $97.4 million or 132% from
$73.8 million in 1995 to $171.2 million in 1996, primarily due to international
($37.5 million) and domestic ($ 13.5 million) acquisitions, new master
contracts, increased volume under existing contracts and other new business ($
35.4 million), and an increase of $ 11.0 million in general construction
services.
Costs of revenue, excluding depreciation . Costs of revenue as a
percentage of revenue increased from 71.7% in 1995 to 75.3% in 1996 primarily
due to operations in new geographic areas. Domestic and international margins
for the six months ended June 30, 1996 were 24.3% and 26.2%, respectively. The
same trends discussed in the quarter to quarter discussion above impacted the
six months' comparison.
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue decreased from 3.9% in 1995 to 3.1% 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.
Page 20 of 24
<PAGE>
General and administrative expenses. General and administrative expenses
as a percentage of revenue increased from 10.1% in 1995 to 11.2% 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 15.3 % of international revenue.
The same trends discussed in the quarter to quarter discussion above impacted
the six months' comparison.
Interest expense. Interest expense increased from $2.2 million in 1995 to
$5.1 million in 1996. Included in interest expense for the six months ended
June 30, 1996 is $1.4 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, to fund notes receivable and to make investments in unconsolidated
companies.
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 $2.7 million in 1995 to
$3.5 million in 1996 as a result of interest accrued on notes receivable and
equity in earnings of unconsolidated companies. The increase from 1995 to 1996
was partially offset by the sale of a preferred stock investment.
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.)
Financial Condition, Liquidity and Capital Resources
The Company's balance sheet as of June 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 six months ended June
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 six months ended June
30, 1996, $ 42.7 million was generated from operations compared to $10.5
million in the comparable period of 1995. Operating cash flows for the 1996
period includes the collection of a significant amount of international
receivables. The Company's major international customer's payment terms are 180
days and require all unbilled work near the end of the year (work in progress)
to be billed prior to the close of year. Accordingly, the second quarter has
higher collections for the international division than other quarters as the
additional work in process billed in December is collected. Also, during the
six months ended June 30, 1996, the Company invested $7.6 million in
acquisitions and received $ 8.6 million from the sale of non core assets. Cash
paid for capital expenditures was $2.8 million and an additional $6.0 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.)
Page 21 of 24
<PAGE>
As of June 30, 1996, working capital was approximately $ 95.9 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 June 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.
As a result of expansion into new contract areas and continuing a fleet
replacement program, the Company estimates spending approximately $14.0 million
in capital expenditures in 1996 , primarily on existing domestic operations.
The Company has completed two acquisitions and increased its investment
in an unconsolidated company during the six months ended June 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. The Company has announced its
intention to make an underwritten public offering of common stock in the
approximate gross amount of $50 million.
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.
Page 22 of 24
<PAGE>
PART II - OTHER INFORMATION
JUNE 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.
The 1996 Annual Meeting of Stockholders of MasTec, Inc. (the "Meeting")
was held on June 3, 1996 for the purpose of electing one Class I director for a
three-year term ending in 1999. At the Meeting, Jorge Mas was elected as Class
I Director with 14,302,162 votes for, 0 withheld and 23,000 abstaining.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 2.1- Agreement dated April 1, 1996 between MasTec
International, Inc. and Telefonica de Espana, S.A. filed as Exhibit 2.1
to the Company's Form 8-K Current Report dated April 30, 1996 and incorporated
herein by reference.
Exhibit 27.1 Article 5 - Financial Data Schedules.
(b) Reports on Form 8-K.
On April 6, 1996, the Company filed a Form 8-K Current Report dated April
1, 1996 with the Securities and Exchange Commission reporting information under
Item 5 thereof regarding the proposed acquisition of Sistemas e Instalaciones
de Telecomunicacion, S.A. ("Sintel"). See Note 2 to the Condensed Consolidated
Financial Statements.
On May 15, 1996, the Company filed a Form 8-K Current Report dated April
30, 1996 with the Securities and Exchange Commission reporting information
under Item 5 thereof regarding the acquisition of Sintel.
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 23 of 24
<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: August 14, 1996 /s/ Edwin D. Johnson
---------------------------
Edwin D. Johnson
Senior Vice President-
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 24 of 24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the second
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