SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] Amendment to Application or Report Filed Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
Commission file number 0-3797
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K
<PAGE>
The undersigned Registrant hereby amends the following sections of its
Annual Report on Form 10-K for the year ended December 31, 1996 to restate the
financial information giving affect to two 1997 acquisitions accounted for under
the pooling of interest method:
Item 6. Selected Financial Information
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8. Financial Statements and Supplementary Data
Part IV.
Item 14. Exhibits, Financial Statements, Schedules and Related
Transactions
2
<PAGE>
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
MASTEC, INC.
Date: February 6, 1998 By: /s/
------------------------
Edwin D. Johnson
Senior Vice President -
Chief Financial Officer
3
<PAGE>
6. SELECTED FINANCIAL INFORMATION
The following table presents selected consolidated financial
information of the Company as of the dates and for each of the periods
indicated. The selected financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K/A.
<TABLE>
Year Ended December 31, (1)
<CAPTION>
<S> <C> <C> <C> <C> <C>
1992 1993 1994 (2) 1995 1996 (3)
---------- ---------- ------------- ---------- -------------
(Dollars in thousands except per share amount)
----------------------------------------------------------------------
Statement of Income Data:
Revenue $ 54,502 $ 74,728 $142,583 $218,859 $534,068
Cost of revenue 36,779 51,763 105,451 158,598 394,497
Depreciation and amortization 1,116 1,520 5,545 8,178 13,686
General and administrative expenses 7,456 15,681 20,595 28,918 72,392
-------- -------- -------- -------- --------
Operating income 9,151 5,764 10,992 23,165 53,493
Interest expense 302 3,846 5,306 11,940
98
Interest and dividend income 271 359 1,550 3,501 3,480
Special charges-real estate and
investment write-downs (4) - - - 23,086 -
Other income, net 672 355 1,348 2,250 2,553
Equity in earnings (losses) of
unconsolidated companies and
minority interest 1,177 247 3,133
(416) (139)
Provision for income taxes (5) 3,601 2,765 3,541 148 17,492
------- ------- ------- -------- --------
Income from continuing operations (5) 5,979 4,588 6,750 237 33,227
Discontinued operations - - 825 2,531 (111)
------- ------- ------- -------- --------
Net income $ 5,979 $ 4,588 $ 7,575 $ 2,768 $ 33,116
======= ======= ======= ======== ========
Weighted average shares outstanding (6) 16,746 16,746 25,487 25,440 26,499
Pro forma earnings per share from
continuing operations (5) $ 0.37 $ 0.27 $ 0.26 $ 0.11 $ 1.25
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
---------- ---------- --------- ---------- ---------
(Dollars in thousands)
Balance Sheet Data:
Property and equipment, net 6,625 8,038 44,157 50,572 67,177
Total assets 31,071 32,988 155,969 191,272 511,154
Total debt 1,565 5,545 46,977 77,668 164,934
Total stockholders' equity 20,974 16,396 52,271 60,614 116,983
<FN>
(1) Amounts have been restated to reflect the 1997 acquisitions of Wilde
Construction, Inc. and two related companies, and AIDCO, Inc. and one
related company, which were accounted for as poolings of interest.
See Note 2 of Notes to Consolidated Financial Statements.
(2) Includes the results of Burnup & Sims Inc. from March 11, 1994.
(3) Includes the results of Sintel from May 1, 1996.
(4) As a result of the disposal of non-core real estate assets and other
investments, the Company recorded $23.1 million in special charges in
the year ended December 31, 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(5) Provision for income taxes and income from continuing operations have
been adjusted to reflect a pro forma tax provision for companies which
were previously S Corporations.
(6) Amounts have been adjusted to reflect the three-for-two stock split
declared February 28, 1997 and shares issued in connection with two
acquisitions accounted for under the pooling of interest method.
</FN>
</TABLE>
4
<PAGE>
7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MasTec is one of the world's largest contractors specializing in the
build-out of telecommunications and related infrastructure. The Company's
principal business consists of the design, installation and maintenance of the
outside physical plant for telephone and cable television communications systems
and of integrated voice, data and video local and wide area networks inside
buildings, and the installation of central office telecommunications equipment.
The Company also provides infrastructure construction services to the electric
power industry and other public utilities.
MasTec was formed in March 1994 through the combination of Church &
Tower Inc. and Church & Tower of Florida, Inc. (collectively, "Church & Tower")
and Burnup & Sims Inc. ("Burnup & Sims"), two established names in the U.S.
telecommunications construction services industry. In April 1996, the Company
purchased Sintel, a company engaged in telecommunications infrastructure
construction services in Spain, Argentina, Chile and Peru, from Telefonica. The
Sintel acquisition gave the Company a significant international presence and
more than doubled the size of the Company in terms of revenue and number of
employees. In Argentina, Chile and Peru, the Company operates through
unconsolidated joint ventures in which it holds a 50% interest. See Notes 2 and
9 of Notes to Consolidated Financial Statements for pro forma financial
information and geographic information, respectively.
In July and August 1997, the Company acquired Wilde Construction, Inc.
and two related companies and AIDCO, Inc. and one related company (collectively,
the "Pooled Companies") through an exchange of common stock. The acquisitions
were accounted for as poolings of interest. Accordingly, the Company's conso-
lidated financial statements include the results of the Pooled Companies for all
periodspresented. See Note 2 of Notes to Consolidated Financial Statements.
In July 1997, the Company acquired a 51% interest in MasTec Inepar, a
Brazilian telecommunications infrastructure construction company. At the time of
the acquisition, MasTec Inepar had a backlog of construction contracts of
approximately $280.0 million. The results of MasTec Inepar are consolidated in
the results of the Company, net of a 49% minority interest, beginning August
1997.
During the nine months ended September 30, 1997, the Company completed
eight other acquisitions which have been accounted for under the purchase method
of accounting and the results of operations of which have been included in the
Company's consolidated financial statements from the respective acquisition
dates. The Company's pro forma results of operations for 1996 giving effect to
these acquisitions, would not differ materially from actual results. In
addition, subsequent to September 30, 1997, the Company completed the
acquisition of Weeks Construction Company.
On September 3, 1997, Sintel filed a petition with the Spanish labor
authorities to approve a restructuring of its workforce. In response to the
Company's petition, the unionized employees declared work stoppages during the
latter part of September 1997 and continued with half day strikes through the
first week in October 1997. Although only two half days of work stoppages
occurred in the quarter ended September 30, 1997, overall production for the
month of September was further impacted by labor slow downs following the filing
of the petition at the beginning of the month.
In January 1998, Sintel entered into an agreement with its unions
to resolve the labor dispute subject to ratification and final documentation.
The agreement contemplates reductions in administrative positions, reductions in
certain non-wage compensation and increases in productivity benchmarks. The
agreement also contemplates an increase in base wage rates for remaining union
workers. While management anticipates a reduction in ongoing operating costs to
result from these negotiations, the Company recognizes that it services an
increasingly competitive telephony industry in the Spanish market and a
substantial portion of any savings may be offset by more competitive prices to
Telefonica and other communication service customers. There can be no assurance
that workers will ratify the agreement or that final documentation will be
completed. As of September 30, 1997, the Company had not reserved for possible
restructuring costs associated with a settlement of the Sintel labor situation
in its consolidated financial statements.
Results of Operations
Revenue is generated primarily from telecommunications and related
infrastructure services. Infrastructure services are provided to telephone
companies, public utilities, cable television operators, other
telecommunications providers, governmental agencies and private businesses.
Costs of revenue includes subcontractor costs and expenses, materials not
5
<PAGE>
supplied by the customer, fuel, equipmentrental, insurance, operations payroll
and employee benefits. General and administrative expenses include management
salaries and benefits, rent, travel, telephone and utilities, professional
fees and clerical and administrative overhead.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the years ended December 31, 1994,
1995 and 1996 .
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
Revenue 100.0% 100.0% 100.0%
Costs of revenue 74.0 72.5 73.9
Depreciation and amortization 3.9 3.7 2.6
General and administrative expenses 14.4 13.2 13.6
---- ---- ----
Operating income 7.7 10.6 9.9
Interest expense 2.7 2.4 2.2
Interest and dividend income, other income,
net, equity in earnings of unconsolidated
companies and minority interest 2.2 2.6 1.7
Special charge-real estate and investment
write-downs - 10.6 -
---- ---- ----
Income from continuing operations before provision
for income taxes 7.2 0.2 9.4
Provision for income taxes (1) 2.5 0.1 3.2
---- ---- ----
Income from continuing operations 4.7% 0.1% 6.2%
<FN>
==== ==== ====
- ---------------
(1) Provision for income taxes has been adjusted to reflect a tax provision
for companies which were S corporations and therefore not subject to
corporate federal income taxes.
</FN>
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue increased $315.2 million, or 144.0%, to $534.1 million for the
year ended December 31, 1996 from $218.9 million for the year ended December 31,
1995. Domestic revenue increased $127.0 million, or 58.0%, to $345.9 million for
1996 from $218.9 million for 1995, primarily due to growth in revenue generated
from existing contracts and to an acquisition completed in 1996. International
revenue, comprised of revenue from Sintel, which the Company acquired in April
1996, contributed $188.2 million of revenue for the year ended December 31,
1996.
Gross profit, excluding depreciation and amortization, increased $79.3
million, or 131.5%, to $139.6 million, or 26.1% of revenue, for the year ended
December 31, 1996 from $60.3 million, or 27.5% of revenue, for the year ended
December 31, 1995. Domestic gross margins (gross profit as a percentage of
revenue) decreased to 25.1% for the year ended December 31, 1996 from 27.5% for
the year ended December 31, 1995. The decline in domestic gross margins was
primarily due to additional start-up and expansion costs relating to the rapid
growth in revenue. International gross margins were 28.0% for the year ended
December 31, 1996.
Depreciation and amortization increased $5.5 million, or 67.1%, to
$13.7 million for the year ended December 31, 1996 from $8.2 million for the
year ended December 31, 1995. Domestic depreciation and amortization as a
percentage of domestic revenue decreased to 3.4% for 1996 from 3.7% for 1995 due
to economies of scale obtained over a larger domestic revenue base.
International depreciation and amortization was 1.1% of international revenue
for the year ended December 31, 1996, as the Company's international operations
are less capital intensive than the Company's domestic operations.
General and administrative expenses increased $43.5 million, or 150.5%,
to $72.4 million, or 13.6% of revenue, for the year ended December 31, 1996 from
$28.9 million, or 13.2% of revenue for the year ended December 31, 1995.
Domestic general and administrative expenses increased $12.5 million, or 43.3%,
to $41.4 million, or 12.0% of domestic revenue, for 1996 from $28.9 million, or
13.2% of domestic revenue in 1995. The decrease in domestic general and
administrative expenses as a percentage of domestic revenue is primarily the
result of spreading overhead expenses over a broader revenue base. Included in
domestic general and administrative expenses for 1996 and 1995 are salaries and
bonuses for employees of the Pooled Companies of approximately $6.1 million and
$3.8 million, respectively. International general and administrative expenses
were $31.0 million, or 16.5% of international revenue, for the year ended
December 31, 1996.
6
<PAGE>
Operating income increased $30.3 million, or 130.6%, to $53.5 million,
or 9.9% of revenue, for the year ended December 31, 1996 from $23.2 million, or
10.6% of revenue, for the year ended December 31, 1995 because of the decline in
domestic gross margins in 1996 and bonuses earned by employees of the Pooled
Companies.
Interest expense increased $6.6 million, or 124.5%, to $11.9 million
for the year ended December 31, 1996 from $5.3 million for the year ended
December 31, 1995 primarily due to borrowings used for equipment purchases and
to fund investments in unconsolidated companies, offset in part by the
conversion of the Company's 12% Subordinated Convertible Debentures into Common
Stock on June 30, 1996.
As a result of the disposal of non-core real estate assets and other
investments, the Company recorded $23.1 million in special charges during the
year ended December 31, 1995.
Income from continuing operations after a pro forma tax provision
increased to $33.2 million, or 6.2% of revenue, for the year ended December 31,
1996 from $0.2 million for the year ended December 31, 1995 which included a
special charge of $23.1 million.
In the third quarter of 1995, the Company adopted a plan to dispose of
certain non-core businesses acquired as a result of the acquisition of Burnup &
Sims in March 1994. See Note 13 of Notes to Consolidated Financial Statements.
These businesses included the operations of a printing company, a theater chain
and an uninterrupted power supply assembler. During 1995, the Company sold the
assets of the theater chain and the assembler. The two transactions netted a
gain of $7.4 million after tax. The remaining theater operations have been
closed and are currently being marketed for sale for the underlying real estate
value. Based on the estimated net realizable value of these businesses, a loss
on disposition of approximately $6.4 million, net of tax, relating to the
remaining discontinued operations was recorded in 1995. The Company sold the
printing company in January 1997 for its carrying value. Net assets of
discontinued operations and other non-core assets amount to $21.4 million at
December 31, 1996 and are reflected in other current assets in the consolidated
balance sheet.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue increased $76.3 million, or 53.5%, to $218.9 million for the
year ended December 31, 1995 from $142.6 million for the year ended December 31,
1994, primarily due to expansion into new contract areas and the full year's
effect in 1995 of acquisitions completed in 1994.
Gross profit, excluding depreciation and amortization, increased $23.2
million, or 62.5%, to $60.3 million, or 27.5% of revenue, for the year ended
December 31, 1995 from $37.1 million, or 26.0% of revenue, for the year ended
December 31, 1994 primarily due to improved operating efficiencies, improved
productivity due to the use of more modern equipment and the renegotiation of an
unprofitable master contract assumed in one of the Company's acquisitions.
Depreciation and amortization increased $2.7 million, or 49.1%, to $8.2
million for the year ended December 31, 1995 from $5.5 million for the year
ended December 31, 1994 due to a fleet replacement program and an increase in
capital expenditures resulting from expansion into new contract areas. As a
percentage of revenue, depreciation and amortization expense was 3.7% for 1995
and 3.9% for 1994.
General and administrative expenses increased $8.3 million, or 40.3%,
to $28.9 million, or 13.2% of revenue, for the year ended December 31, 1995 from
$20.6 million, or 14.4% of revenue, for the year ended December 31, 1994.
General and administrative expenses decreased as a percentage of revenue as a
result of spreading overhead expenses over a broader revenue base.
Operating income increased $12.2 million, or 110.9%, to $23.2 million,
or 10.6% of revenue, for the year ended December 31, 1995 from $11.0 million, or
7.7% of revenue, for the year ended December 31, 1994.
Interest expense increased $1.5 million, or 39.5%, to $5.3 million for
the year ended December 31, 1995 from $3.8 million for the year ended December
31, 1994 primarily due to borrowings used for equipment purchases, to fund a
loan to the holding company of an Ecuadorian cellular phone company and to make
investments in unconsolidated companies.
As a result of the disposal of non-core real estate assets and other
investments, the Company recorded $23.1 million in special charges during the
year ended December 31, 1995.
Income from continuing operations after a pro forma tax provision was
$0.2 million for the year ended December 31, 1995, compared to income from
continuing operations of $6.8 million, or 4.7% of revenue, for the year ended
December 31, 1994.
7
<PAGE>
Financial Condition, Liquidity and Capital Resources
The Company's primary liquidity needs are for working capital, to
finance acquisitions and capital expenditures and to service the Company's
indebtedness. The Company's primary sources of liquidity have been cash flow
from operations, borrowings under revolving lines of credit and the proceeds
from the sale of investments and non-core assets.
Net cash provided by operating activities for the nine months ended
September 30, 1997 was $28.5 million, compared to $45.7 million for the nine
months ended September 30, 1996. This decrease was due to an increase in net
income to $36.3 million for the nine months ended September 30, 1997 as compared
to net income of $21.1 million in the comparative 1996 period which was offset
by fluctuations in working capital, particularly the reduction of accounts
payable balances and an increase in accounts receivable from Brazilian
operations. Net cash provided by operating activities for the years ended
December 31, 1996, 1995 and 1994 was $41.9 million, $7.9 million and $4.3
million, respectively.
Net cash provided by the sale of investments and non-core assets
amounted to $9.8 million in the nine months ended September 30, 1997. Net cash
provided by the sale of investments and non-core assets amounted to $9.4
million, $24.3 million and $0.7 million in the years ended December 31, 1996,
1995 and 1994, respectively. The Company invested cash, net of cash acquired, in
acquisitions and investments in unconsolidated companies totaling $26.9 million
during the nine months ended September 30, 1997, $6.8 million in 1996 and $9.0
million in 1995, and in 1994 had a net inflow from acquisitions of $4.7 million.
During the nine months ended September 30, 1997, the Company made capital
expenditures of $17.2 million, primarily for machinery and equipment used in the
production of revenue. Capital expenditures were $8.4 million, $17.2 million and
$6.0 million in the years ended December 31, 1996, 1995 and 1994, respectively.
The Company believes that capital expenditures in 1998, excluding capital
expenditures resulting from acquisitions, will not exceed $30.0 million.
As of September 30, 1997, working capital totaled $133.2 million,
compared to working capital of $136.2 million at December 31, 1996, excluding a
note receivable that was converted into an equity investment in June 1997. See
Note 2 of Notes to Consolidated Financial Statements. Included in working
capital are net assets of discontinued operations and real estate held for sale
totaling $14.7 million.
In December 1997, the Company sold its indirect investment in Consorcio
Ecuatoriano de Telecomunicaciones, S.A. ("Conecel"), an Ecuadorian cellular
phone company, for $20.0 million in cash and the right to receive shares of
Conecel non-voting common stock upon a public offering by Conecel. The Company
will have certain registration rights with respect to the Conecel common stock
that it will receive.
The Company continues to pursue a strategy of growth through
acquisitions and internal expansion. During the quarter ended September 30,
1997, the Company closed its acquisition of 51% of MasTec Inepar for stock and
$29.4 million in cash payable over eleven months. In addition, in connection
with its acquisition of Sintel, the Company is required to make payments of 1.8
billion pesetas (approximately $12.1 million at the exchange rate in effect at
the time of the acquisition) on each of December 31, 1997 and 1998. The Company
has paid a portion of the December 31, 1997 payment, with the remaining amounts
to be paid pending resolution of offsetting amounts between the Company and
Telefonica. See Note 2 of Notes to Consolidated Financial Statements. The
Company believes that cash generated from operations, borrowings under its
Credit Facility and proceeds from the sale of investments and non-core assets
will be sufficient to finance these payments, as well as the Company's working
capital needs, capital expenditures and debt service obligations for the
foreseeable future. Future acquisitions are expected to be financed from these
sources, as well as other external financing sources to the extent necessary,
including the issuance of equity securities and additional borrowings.
In June 1997, the Company refinanced its domestic credit facility with
the $125.0 million Credit Facility. Borrowings under this facility may be used
for domestic acquisitions, working capital, capital expenditures and general
corporate purposes. At September 30, 1997, borrowings under this facility
totaled $82.4 million and standby letters of credit issued pursuant to this
facility totaled approximately $3.5 million, and approximately $39.0 million
remained unused and available. The Company intends to repay all outstanding
borrowings under the Credit Facility with a portion of the proceeds of the
Offering, such that after giving effect to the Offering and the application of
the net proceeds therefrom, the Company will have approximately $121.5 million
of borrowings available under the Credit Facility. The Credit Facility contains
certain covenants which, among other things, restrict the payment of dividends,
limit the Company's ability to incur additional debt, create liens, dispose of
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<PAGE>
assets merge or consolidate with another entity or make other investments or
acquisitions, and provide that the Company must maintain minimum amounts of
stockholders' equity and financial ratio coverages. See "Description of Certain
Indebtedness" and Note 5 of Notes to Consolidated Financial Statements.
The Company conducts business in several foreign currencies that are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
Company does not enter into foreign exchange contracts. It is the Company's
intent to utilize foreign earnings in the foreign operations for an indefinite
period of time and only repatriate those earnings when it is considered cost
effective. In addition, the Company's results of operations from foreign
activities are translated into U.S. dollars at the average prevailing rates of
exchange during the period reported, which average rates may differ from the
actual rates of exchange in effect at the time of the actual conversion into
U.S. dollars. The Company currently has no plans to repatriate significant
earnings from its international operations.
The Company's current and future operations and investments in certain
foreign countries are generally subject to the risks of political, economic or
social instability, including the possibility of expropriation, confiscatory
taxation, hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment income, capital
and other assets. The Company cannot predict whether any of such factors will
occur in the future or the extent to which such factors would have a material
adverse effect on the Company's international operations.
Seasonality
The Company's domestic operations have historically been seasonally
weaker in the first and fourth quarters of the year and have produced stronger
results in the second and third quarters. Sintel has experienced seasonal
weakness in the first quarter, but has produced relatively strong results in the
fourth quarter. This seasonality is primarily the result of customer budgetary
constraints and preferences and, to a lesser extent, the effect of winter
weather on outside plant activities. Certain U.S. customers, particularly the
RBOCs, tend to complete budgeted capital expenditures before the end of the year
and defer additional expenditures until the following budget year. Telefonica,
the Company's principal international customer, has historically rushed to
complete budgeted expenditures in the last quarter. Revenue anticipated from the
Company's newly formed Brazilian operations, MasTec Inepar, are not expected to
fluctuate seasonally.
Impact of Inflation
The primary inflationary factor affecting the Company's operations is
increased labor costs. Although the Company has not experienced significant
increases in labor costs to date, the low unemployment rate in the United States
has made it more difficult to find qualified personnel at low cost in some areas
where the Company operates. Continued shortages of labor could increase labor
costs for the Company in the future.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Consolidated Financial Statements.
9
<PAGE>
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
Page Number
Report of Independent Accountants F-1
(a)(i) Consolidated Financial Statements
Statements of Income for the three years ended
December 31, 1996 F-2
Balance Sheets at December 31, 1996 and 1995 F-3
Statements of Stockholders' Equity for the
three years ended December 31, 1996 F-4
Statements of Cash Flows for the three
years ended December 31, 1996 F-5
Notes to Consolidated Financial Statements F-10
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of MasTec, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of MasTec, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MasTec, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
December 5, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
For the Years Ended December 31,
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
Revenue $142,583 $218,859 $534,068
Costs of revenue 105,451 158,598 394,497
Depreciation and amortization 5,545 8,178 13,686
General and administrative expenses 20,595 28,918 72,392
------- ------- -------
Operating income 10,992 23,165 53,493
Interest expense 3,846 5,306 11,940
Interest and dividend income 1,550 3,501 3,480
Special charges-real estate and investment write-downs 0 23,086 0
Other income, net 1,348 2,250 2,553
------- ------- -------
Income from continuing operations before equity in earnings (losses) of unconso-
lidated companies, provision (benefit) for income taxes and minority interest 10,044 524 47,586
Equity in earnings (losses) of unconsolidated companies 247 (300) 3,040
Provision (benefit) for income taxes 2,058 (1,115) 14,665
Minority interest 0 161 93
------ ------ -------
Income from continuing operations 8,233 1,500 36,054
Discontinued operations:
Income (loss) from discontinued operations,
(net of applicable income taxes) 825 38 (177)
Net gain on disposal of discontinued operations net of a provision of $6,405 for
1995 to write down related assets to realizable values and including
operating losses during phase-out period, net of applicable income taxes 0 2,493 66
------- ------- -------
Net income $ 9,058 $ 4,031 $ 35,943
======= ======= =======
Pro forma data (1):
Income from continuing operations before equity in earnings (losses) of unconso-
lidated companies, pro forma provision for income taxes and minority interest 10,044 524 47,586
Equity in earnings (losses) of unconsolidated companies 247 (300) 3,040
Pro forma provision for income taxes (1) 3,541 148 17,492
Minority interest 0 161 93
Discontinued operations 825 2,531 (111)
------- ------- -------
Pro forma net income $ 7,575 $ 2,768 $ 33,116
======= ======= =======
Weighted average shares outstanding (2) 25,487 25,440 26,499
======= ======= =======
Pro forma earnings per share (1)(2):
Continuing operations $ 0.26 $ 0.01 $ 1.25
Discontinued operations 0.03 0.10 0.00
------- ------- -------
$ 0.29 $ 0.11 $ 1.25
======= ======= =======
<FN>
(1) Provision for income taxes and net income have been adjusted to reflect
a tax provision for companies which were previously S corporations.
(2) Amounts have been adjusted to reflect the three-for-two stock split
declared on February 28, 1997 and shares issued in connection with two
acquisitions accounted for under the pooling of interest method.
</FN>
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
----------------------------
<S> <C> <C>
1995 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,084 $ 10,989
Accounts receivable-net and unbilled revenue 57,825 318,967
Notes receivable 27,505 29,549
Inventories 3,600 5,737
Other current assets 28,020 35,529
------- -------
Total current assets 120,034 400,771
------- -------
Property and equipment-at cost 68,152 95,467
Accumulated depreciation (17,580) (28,290)
------- -------
Property and equipment-net 50,572 67,177
Investments in unconsolidated companies 14,847 30,209
Other assets 5,819 12,997
------- -------
TOTAL ASSETS $191,272 $511,154
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 28,842 $ 39,916
Accounts payable 21,675 166,993
Other current liabilities 16,489 28,651
------- -------
Total current liabilities 67,006 235,560
------- -------
Other liabilities 14,826 33,593
Long-term debt 39,201 125,018
Convertible subordinated debentures 9,625 0
------- -------
Total long-term debt 48,826 125,018
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock
2,780 2,780
Capital surplus 134,186 149,083
Retained earnings 15,636 49,070
Accumulated translation adjustments 1 (802)
Treasury stock
(91,989) (83,148)
Total stockholders' equity 60,614 116,983
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $191,272 $511,154
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1996
(In thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Accumulated
Issued Capital Retained Translation Treasury
Shares Amount Surplus Earnings Adjustment Stock Total
- ------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993, as reported 10,250 $ 1,025 $ 0 $ 9,918 $ 0 $ 0 $ 10,943
Acquisitions accounted for as poolings
of interest 1,371 137 5,315 5,452
Balance December 31, 1993 11,621 1,162 15,233 16,395
Net income 9,058 9,058
Distributions by Pooled Companies (595) (595)
Retained earnings of CT Group
transferred to capital surplus 11,165 (11,165) 0
Equity acquired in reverse
acquisition 16,185 1,618 122,969 (92,232) 32,355
Stock issuance costs for reverse
acquisition (18) (18)
Stock issued to employees
from treasury stock (22) 96 74
Stock issued for debentures
from treasury shares 1 1
- ------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 27,806 2,780 134,094 12,531 (92,135) 57,270
Net income 4,031 4,031
Distributions by Pooled Companies (926) (926)
Stock issued to 401(k)
Retirement Savings Plan from
treasury shares 92 146 238
Accumulated translation adjustment 1 1
- ------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 27,806 2,780 134,186 15,636 1 (91,989) 60,614
Net income 35,943 35,943
Distributions by Pooled Companies (2,509) (2,509)
Cumulative effect of translation (803) (803)
Stock issued from treasury stock
for options exercised 48 523 571
Tax benefit for stock option plan 513 513
Stock issued from treasury stock
for an acquisition 8,844 2,201 11,045
Stock issued for Debentures
from treasury stock 5,492 6,117 11,609
- ------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 27,806 2,780 149,083 49,070 (802) (83,148) 116,983
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Three Years Ended
December 31,
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 9,058 $ 4,031 $ 35,942
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest
0 (161) (93)
Depreciation and amortization 5,545 8,178 13,686
Equity in (earnings) losses of
unconsolidated companies
(247) 300 (3,040)
Special charges-real estate and
investments write downs 0 23,086 0
Gain on sale of assets (609) (2,823) (365)
Stock issued to employees from treasury stock
74 0 0
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable-net and unbilled revenue (10,241) (24,760) (13,057)
Inventories and other current assets 300 (2,207) (2,574)
Other assets 452 (2,617) (4,657)
Accounts payable 353 10,807 26,460
Income and deferred taxes 2,017 (8,338) 2,574
Other current liabilities (3,161) 451 (9,151)
Net assets of discontinued operations 1,035 963 1,148
Other liabilities (229) 1,032 (4,942)
------- ------- -------
Net cash provided by operating activities 4,347 7,942 41,931
------- ------- -------
Cash flows from investing activities:
Capital expenditures (6,028) (17,202) (8,386)
Cash acquired in acquisitions 6,585 148 1,130
Cash paid for acquisitions (1,850) (1,750) (6,164)
Notes to stockholders (3,570) 0 0
Distributions from unconsolidated companies 277 245 1,365
Investments in unconsolidated companies 0 (7,408) (1,212)
Investments in notes receivable 0 (25,000) 0
Repayment of notes receivable 0 443 1,273
Repayment of loans from stockholders 0 1,800 0
Net proceeds from sale of assets 664 24,269 9,404
------ ------- -------
and other non-core assets
Net cash used in investing activities (3,922) (24,455) (2,590)
------ ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
For the Years Ended December 31,
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
Cash flows from financing activities:
Proceeds from revolving credit facilities 5,825 46,125 17,476
Other borrowings 0 10,200 28,888
Repayment of notes to stockholders (500) (2,500) 0
Debt repayments (8,892) (40,091) (75,280)
Distribution by Pooled Companies (595) (926) (2,509)
Net proceeds from common stock issued
from treasury 0 238 792
Financing costs 0 (516) 0
------- ------- -------
Net cash (used in) provided by financing activities (4,162) 12,530 (30,633)
------- ------- -------
Net (decrease) increase in cash and cash equivalents (3,737) (3,983) 8,708
Net effect of translation on cash 0 0 (803)
Cash and cash equivalents - beginning of period 10,804 7,067 3,084
------- ------- -------
Cash and cash equivalents - end of period $ 7,067 $ 3,084 $ 10,989
======= ======= =======
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 4,241 $ 5,302 $ 10,530
Income taxes $ 1,731 $ ,527 $ 12,867
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
For the Years Ended December 31,
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
Acquisitions accounted for under purchase method of accounting:
Fair value of assets acquired:
Accounts receivable $ 21,152 $ 167 $248,087
Inventories 7,913 0 2,980
Other current assets 0 67 12,661
Property and equipment 41,955 2,688 13,148
Investments in unconsolidated companies 0 0 9,373
Real estate and other assets 42,195 50 6,385
------- ------ -------
Total non-cash assets 113,215 2,972 292,634
------- ------ -------
Liabilities 51,547 71 162,928
Long-term debt 32,247 93 78,966
------- ------ -------
Total liabilities assumed 83,794 164 241,894
------- ------ -------
Net non-cash assets acquired 29,421 2,808 50,740
Cash acquired 6,585 148 1,130
------- ------ -------
Fair value of net assets acquired 36,006 2,956 51,870
Excess over fair value of assets acquired 0 0 4,956
------- ------ -------
Purchase price $ 36,006 $ 2,956 $ 56,826
======= ====== =======
Note payable issued in acquisitions $ 1,851 $ 800 $ 36,561
Cash paid and common stock issued for acquisitions 34,155 1,750 17,340
Contingent consideration 0 406 2,250
Acquisition costs 0 0 675
------- ------ -------
Purchase price $ 36,006 $ 2,956 $ 56,826
======= ====== =======
Property acquired through financing arrangements $ 2,989 $ 9,452 $ 8,550
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities (cont.)
<S> <C>
December 31,
1995
Disposals:
Assets sold:
Accounts receivable 2,158
Inventories 1,770
Other current assets 22
Property and equipment 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
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
for the three years ended December 31, 1996
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
During 1994, MasTec sold equipment in exchange for a note receivable
for $631,000.
During 1994, MasTec issued $96,000 of Common Stock from treasury stock
to its employees. Capital surplus was reduced by $22,000.
In 1995, the Company's purchase of a 33% interest in Supercanal was
financed in part by the seller for $7 million. (See Note 2.)
During 1995, MasTec issued $146,000 of Common Stock from treasury
stock for purchases made by The MasTec, Inc. 401(k) Retirement Savings Plan.
Capital surplus was increased by $92,000.
In 1996, the Company issued approximately 198,000 shares of Common
Stock for an acquisition. Common Stock was issued from treasury at a cost of
$2.2 million.
In 1996, the Company converted $11.6 million of its 12% Convertible
Subordinated Debentures into Common Stock. Common Stock was issued from treasury
at a cost of $6.1 million. (See Note 6.)
In 1996, the Company's purchase of an additional 3% interest in a cable
television operator was financed in part by the sellers for $2 million. (See
Note 2.)
During 1996, MasTec issued $523,000 of Common Stock from treasury for
stock option exercises. Capital surplus was increased by $48,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
MasTec, Inc. (the "Company" or "MasTec") is one of the world's leading
contractors specializing in the build-out of telecommunications infrastructure.
The Company's principal business consists of the design, installation and
maintenance of the outside physical plant ("outside plant") for telephone and
cable television communications systems, including the installation of aerial,
underground and buried copper, coaxial and fiber optic cable networks and the
construction of wireless antenna networks for telecommunications service
companies such as local exchange carriers, competitive access providers, cable
television operators, long-distance carriers, and wireless phone companies. The
Company also installs central office equipment and designs, installs and
maintains integrated voice, data and video local and wide area networks inside
buildings ("inside wiring"). The Company believes it is the largest independent
contractor providing telecommunications infrastructure construction services in
the United States and Spain and one of the largest in Argentina, Chile and Peru.
The Company is able to provide a full range of infrastructure services
to its telecommunications company customers. Domestically, the Company provides
outside plant services to local exchange carriers such as BellSouth
Telecommunications, Inc. ("BellSouth"), U.S. West Communications, Inc., SBC
Communications, Inc., United Telephone of Florida, Inc. (a subsidiary of Sprint
Corporation) and GTE Corp. At December 31, 1996, MasTec had 21 exclusive,
multi-year service contracts ("master contracts") with regional bell operating
companies ("RBOCs") and other local exchange carriers to provide all of their
outside plant requirements up to a specific dollar amount per job and within
certain geographic areas. Internationally, the Company provides through its
wholly owned subsidiary Sistemas e Instalaciones de Telecomunicacion, S.A.
("Sintel") outside plant services, turn-key switching system installation and
inside wiring services to Telefonica de Espana, S.A. ("Telefonica") under
multi-year contracts similar to those in the U.S.
The Company was formed through the combination of Church & Tower and
Burnup & Sims, two established names in the U.S. telecommunications construction
services industry. On March 11, 1994, the shareholders of Church & Tower
acquired 65% of the outstanding common stock of Burnup & Sims in a reverse
acquisition (the "Burnup Acquisition"). Following the change in control, the
senior management of Burnup & Sims was replaced by Church & Tower management and
the name of Burnup & Sims was changed to "MasTec, Inc." Church & Tower is
considered the predecessor company to MasTec and, accordingly, the results of
Burnup & Sims subsequent to March 11, 1994 are included in the results of the
Company.
In July and August 1997, Wilde Construction, Inc. and two related
companies ("Wilde") and AIDCO, Inc. ("Aidco") and one related company were
merged with and into the Company through an exchange of common stock. The
mergers were accounted for as poolings of interest. Accordingly, the Company's
consolidated financial statements include the results of Wilde and Aidco for all
periods presented (see Note 2).
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of consolidation
The Consolidated Financial Statements include MasTec, Inc. and
its subsidiaries. All material intercompany accounts and transactions have
been eliminated. Certain prior year amounts have been reclassified to conform
to the current presentation.
Foreign Currency
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. The Company translates foreign currency financial statements by
translating balance sheet accounts at the exchange rate on the balance sheet
date and income statement accounts at the average exchange rate for the period.
Translation gains and losses are recorded in stockholders' equity, and
transaction gains and losses are reflected in income.
F-10
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue Recognition
Revenue and related costs for short-term telecommunications
construction projects are recognized as the projects are completed. Revenue
generated by certain long-term construction contracts are accounted for by the
percentage-of-completion method under which income is recognized based on the
estimated stage of completion of individual contracts. Losses, if any, on such
contracts are provided for in full when they become known. Billings in excess of
costs and estimated earnings on uncompleted contracts are classified as current
liabilities. Any costs in excess of billings are classified as current assets.
The Company also provides management, coordination, consulting and
administration services for construction projects. Compensation for such
services is recognized ratably over the term of the service agreement.
Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares during the period.
Outstanding stock options are considered common stock equivalents and are
included in the calculation using the treasury stock method.
The Company's Board of Directors declared a three-for-two stock split
in the form of a stock dividend for stockholders of record on February 3, 1997
payable on February 28, 1997. All earnings per share amounts have been
calculated as if the dividend had occurred on December 31, 1993.
In February 1997, the Financial Accounting Standards Board (the FASB)
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
(FAS 128). FAS 128 specifies new standards designed to improve the EPS
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. FAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company does not believe it will have any
material effect on its EPS calculation.
Cash and Cash Equivalents
The Company considers all short-term investments with maturities of
three months or less when purchased to be cash equivalents. The Company places
its temporary cash investments with high credit quality financial institutions.
At times, such investments may be in excess of the F.D.I.C. insurance limits.
The Company has not experienced any loss to date on these investments.
Inventories
Inventories (consisting principally of material and supplies) are
carried at the lower of first-in, first-out cost or market.
Property and Equipment, Net
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful life of the assets as follows: buildings and improvements -- 5
to 20 years, and machinery and equipment -- 3 to 7 years. Leasehold improvements
are amortized over the shorter of the term of the lease or the estimated useful
lives of the improvements. Expenditures for repairs and maintenance are charged
to expense as incurred. Expenditures for betterments and major improvements are
capitalized. The carrying amounts of assets sold or retired and related
accumulated depreciation are eliminated in the year of disposal and the
resulting gains and losses are included in income.
F-11
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Investments
The Company's investment in real estate located primarily in Florida,
acquired in connection with the Burnup Acquisition, is stated at its estimated
net realizable value. Investments in unconsolidated companies are accounted for
following the equity method of accounting (see Note 2).
Accrued Insurance
The Company is self-insured for certain property and casualty and
worker's compensation exposure and, accordingly, accrues the estimated losses
not otherwise covered by insurance.
Income Taxes
The Company records income taxes using the liability method. Under this
method, the Company records deferred taxes based on temporary taxable and
deductible differences between the tax bases of the Company's assets and
liabilities and their financial reporting bases. A valuation allowance is
established when it is more likely than not that some or all of the deferred tax
assets will not be realized.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This statement is effective
for fiscal years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments
of an Enterprise and Related Information" which establishes standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas, and major customers. This statement
requires a public business enterprise report financial and descriptive
information about its reportable operating segments. The financial information
is required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for financial statements for
periods beginning after December 15, 1997.
Management is currently evaluating the requirements of SFAS No. 130
and No. 131 and their applicability to the Company.
2. ACQUISITIONS AND INVESTING ACTIVITIES
International
Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel")
On April 30, 1996, the Company purchased from Telefonica, 100% of the
capital stock of Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel"),
a company engaged in telecommunications infrastructure construction services in
Spain, Argentina, Chile, and Peru. In Argentina, Chile and Peru, the Company
operates through unconsolidated joint ventures in which it holds interests
ranging from 38% to 50%. The purchase price for Sintel was Spanish Pesetas
("Pesetas") 4.9 billion (US$39.5 million at the then exchange rate of 124
Pesetas to one U.S. dollar). An initial payment of Pesetas 650 million ($5.1
million) was made at closing. An additional Pesetas 650 million ($4.9 million)
was paid on December 31, 1996, with the balance of the purchase price, Pesetas
F-12
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.6 billion (US$27.5 million), due in two equal installments on December 31,1997
and 1998. Prior to April 30, 1996, as part of the terms of the purchase and sale
agreement with Telefonica, Sintel sold certain buildings to Telefonica and
Telefonica repaid certain tax credits and made a capital contribution to Sintel
collectively referred to as the "Related Transactions". The total proceeds from
the Related Transactions were approximately $41 million. The assets and
liabilities resulting from the acquisition are disclosed in the supplemental
schedule of non-cash investing and financing activities in the Consolidated
Statements of Cash Flows. The Sintel acquisition gives the Company a significant
international presence. See Note 9 regarding geographic information.
The following information presents the unaudited pro forma condensed
results of operations for the years ended December 31, 1996 and 1995 as if the
Company's acquisition of Sintel and the Related Transactions had occurred on
January 1, 1995. The Sintel acquisition has been treated as a "purchase" as the
term is used under generally accepted accounting principles. Management's
preliminary estimate of fair value approximated that of the carrying value of
the net assets acquired after reflecting a reserve for involuntary employee
terminations of $12.4 million and deferred taxes of $4.3 million. At December
31, 1996, approximately $2.7 million remained outstanding related to the
termination reserve. The pro forma results, which include adjustments to
increase interest expense resulting from the debt incurred pursuant to the
Sintel acquisition ($700,000 and $2.4 million for 1996 and 1995, respectively),
offset by the reduction in interest and depreciation expenses resulting from the
Related Transactions ($1 million and $4.4 million for 1996 and 1995,
respectively) and a tax benefit at 35% for each period are presented for
informational purposes only and are not necessarily indicative of the future
results of operations or financial position of the Company or the results of
operations or financial position of the Company had the Sintel acquisition and
the Related Transactions occurred January 1, 1995.
<TABLE>
<CAPTION>
Pro forma results of operations
for the year ended December 31,
(in thousands)
<S> <C> <C>
1995 1996
---- ----
Revenue $ 474,361 $ 617,763
(Loss) income from continuing operations (14,218) 36,423
Net (loss) income (11,687) 36,312
Earnings (loss) per share:
Continuing operations $ (0.56) $ 1.37
Discontinued operations 0.10 .00
-------- --------
Net (loss) income $ (0.46) $ 1.37
======== ========
</TABLE>
The pro forma results for the year ended December 31, 1996 and 1995,
include special charges incurred by Sintel related to a restructuring plan of
$1.4 million and $21.1 million, net of tax, respectively.
On July 31, 1997, the Company completed its acquisition of 51% of
MasTec Inepar S/A-Sistemas de Telecomunicacoes, a newly formed Brazilian
telecommunications infrastructure contractor, for $29.4 million in cash payable
over eleven months and 250,000 shares of common stock. Goodwill related to this
acquisition amounted to $12.1 million is included in other long-term assets and
is being amortized over 15 years.
Domestic
During 1996 and 1995, the Company completed certain other acquisitions
which have also been accounted for under the purchase method of accounting and
the results of operations have been included in the Company's consolidated
financial statements from the respective acquisition dates. If the acquisitions
had been made at the beginning of 1996 or 1995, pro forma results of operations
would not have differed materially from actual results. Acquisitions made in
1996 were Carolina ComTec, Inc., a privately held company engaged in installing
and maintaining voice, data and video networks and Harrison-Wright Company Inc.,
one of the oldest telecommunications contractors in the southeastern United
States. In 1995, the Company acquired Utility Line Maintenance, a privately held
company engaged in the utility right of way clearance business.
In July 1997, the Company completed the acquisition of Wilde which
provides telecommunications and cable television infrastructure services in
F-13
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Minnesota, North and South Dakota, Iowa, Nebraska and other bordering states. In
August 1997, the Company completed the acquisition of Aidco, a company engaged
in the installation and maintenance of voice, data and video local-area networks
in the Western and Midwestern states. These acquisitions were consummated
through stock-for-stock exchanges in which the Company issued approximately
1,371,000 shares of common stock. The Company has accounted for these mergers
under the pooling of interest method. Accordingly, historical financial
information has been restated to reflect the mergers as though they occurred as
of the earliest period presented. These acquisitions are collectively referred
to as the "Pooled Companies".
During the nine months ended September 30, 1997, the Company completed
other acquisitions which have been accounted for under the purchase method of
accounting and the results of operations of which have been included in the
Company's condensed consolidated financial statements from the respective
acquisition dates. If the acquisitions had been made at the beginning of 1997 or
1996, pro forma results of operations would not have differed materially from
actual results. Acquisitions made in 1997 were Kennedy Cable Construction, Inc.,
GJS Construction Co. d/b/a Somerville Construction and Shanco Corporation, three
contractors servicing multiple systems operators such as Time Warner, Marcus
Cable Co. and Cox Communications in a number of states including Alabama,
Arizona, Florida, Georgia, New Jersey, New York, North Carolina, South Carolina
and Texas; and R.D. Moody and Associates, Inc., B&D Contractors of Shelby, Inc.,
Tele-Communications Corporation of Virginia, E.L. Dalton & Company, Inc., and
R.D. Moody and Associates of Virginia, Inc., five telecommunications and utility
contractors with operations primarily in the southeastern and southwestern
United States.
Intangible assets of approximately $20 million resulting from domestic
business acquisitions are included in other long-term assets and principally
consist of the excess acquisition cost over the fair value of the net assets
acquired (goodwill). Goodwill associated with domestic acquisitions is being
amortized on a straight-line basis over a range of 15-20 years. The Company
periodically reviews goodwill to assess recoverability.
Separate results of the Pooled Companies for the periods prior to the
consummation of the combinations, including a pro forma adjustment for income
taxes related to the Subchapter S status of certain Pooled Companies are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Pooled
MasTec Companies Combined
Year ended December 31, 1994
Total revenue......................... $ 111,294 $ 31,289 $ 142,583
Net income............................ $ 6,633 $ 942 $ 7,575
Year ended December 31, 1995
Total revenue......................... $ 174,583 $ 44,276 $ 218,859
Net (loss) income..................... $ (609) $ 3,377 $ 2,768
Year ended December 31, 1996
Total revenue......................... $ 472,800 $ 61,268 $ 534,068
Net income............................ $ 30,065 $ 3,051 $ 33,116
</TABLE>
Investing Activities
In July 1996, the Company contributed its 36% ownership interest in
Supercanal, S.A., a cable television operator in Argentina, to a holding
company. Concurrently, Multicanal, S.A., one of the leading cable television
operators in Argentina, acquired a 20% interest in the holding company for
approximately $17 million in cash. The Company's interest in the holding company
was reduced to approximately 28.8% as a result of Multicanal's investment. At
December 31, 1996, the Company's investment was $16.0 million.
In July 1995, the Company made a $25 million non-recourse term loan to
Devono Company Limited, a British Virgin Islands corporation ("Devono"). The
loan was collateralized by 40% of the capital stock of a holding company that
owns 52.6% of the capital stock of Consorcio Ecuatoriano de Telecomunicaciones,
S.A. ("Conecel"), one of two cellular phone operators in the Republic of
Ecuador. In June 1997, the Company converted its loan and accrued interest into
the stock of the holding company. In December 1997, the Company sold its
investment for $20.0 million in cash and the right to receive Conecel non-voting
stock upon a public offering by Conecel.
F-14
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Goodwill related to the Company's investments in unconsolidated
companies amounted to $38.3 million at December 31, 1996 and is being amortized
over a period of 17-20 years.
3. ACCOUNTS RECEIVABLE-NET
Accounts receivable are net of an allowance for doubtful accounts of
$1,404,000, $1,009,000 and $3,065,000 at December 31, 1994, 1995 and 1996,
respectively. The Company recorded a provision for doubtful accounts of
$268,000, $425,000 and $1,083,000 during 1994, 1995 and 1996, respectively. In
addition, the Company recorded write-offs of $596,000, $683,000 and $77,000
during 1994, 1995 and 1996, respectively and in 1996 transferred from other
accounts $883,000.
Accounts receivable include retainage which has been billed but is not
due until completion of performance and acceptance by customers, and claims for
additional work performed outside original contract terms. Retainage aggregated
$ 2.8 million and $4.1 million at December 31, 1995 and 1996, respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31, 1995 and
1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1996
---- ----
Land $ 7,030 $ 7,583
Buildings and improvements 4,528 6,754
Machinery and equipment 55,002 77,254
Office furniture and equipment 1,592 3,876
------- -------
68,152 95,467
Less-accumulated depreciation (17,580) (28,290)
------- -------
$ 50,572 $ 67,177
======= =======
</TABLE>
F-15
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. DEBT
<TABLE>
Debt is comprised of the following (in thousands):
<CAPTION>
At December 31,
<S> <C> <C>
1995 1996
Fleet Credit Facility at LIBOR plus 2.00%-2.25%
(7.75%-8.00% at December 31, 1995 and 7.75%-7.94%
at December 31, 1996) 34,244 46,865
Revolving credit facility, at MIBOR plus 0.30% (7.00% at December
31, 1996 due on November 1, 1998) 0 43,613
Other bank facilities, denominated in Spanish pesetas,
at interest rates from 8.1% to 9.3% at December 31, 1996 0 11,048
Notes payable for equipment, at interest rates from
7.5% to 8.5% due in installments through the year 2000 20,261 28,607
Notes payable for acquisitions, at interest rates from
7% to 8% due in installments through February 2000 8,382 32,253
Real estate mortgage notes, at interest
rates from 8.5% to 8.53% 2,531 2,548
12% Convertible Subordinated Debentures 12,250 0
------- -------
Total debt 77,668 164,934
Less current maturities (28,842) (39,916)
------- -------
Long term debt $ 48,826 $125,018
======== =======
</TABLE>
Not included in the preceding table at December 31, 1995 and 1996 is
approximately $2.2 million and $1.9 million, respectively, in capital leases
related to discontinued operations (see Note 13).
In June 1997, the Company obtained a $125 million revolving credit
facility ("Revolving Credit Facility"), from a group of financial institutions
led by BankBoston, N.A. maturing on June 9, 2000 to replace the Fleet Credit
Facility and certain other domestic debt. As a result of the prepayment of the
Fleet Credit Facility, deferred financing costs and a termination fee totaling
$690,000 were expensed in the second quarter of 1997.
Additionally, the Company has several credit facilities denominated in
Pesetas, one of which is a revolving credit facility with a wholly-owned finance
subsidiary of Telefonica. Interest on this facility accrues at MIBOR (Madrid
interbank offering rate) plus .30%. At December 31, 1996 the Company had $82.1
million (11.3 billion Pesetas) of debt denominated in Pesetas, including $27.4
million and $24.2 million, respectively remaining under the acquisition debt
incurred pursuant to the Sintel acquisition (see Note 2).
Debt agreements contain, among other things, restrictions on the
payment of dividends and require the observance of certain financial covenants
such as minimum levels of cash flow and tangible net worth.
In May 1996, the Company called its 12% Convertible Subordinated
Debentures (the "Debentures") effective June 30, 1996. The Debentures were
converted into Common Stock increasing the number of shares outstanding by
690,456.
F-16
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 1996 debt matures as follows:
1997 $ 39,916
1998 76,667
1999 9,717
2000 5,741
2001 4,548
after 2001 28,345
-------
Total $ 164,934
=======
STOCK OPTION PLANS
The Company's only employee stock option plan currently in effect is
the 1994 Stock Incentive Plan (the "1994 Plan"). However, options which were
outstanding under the Company's 1976 and 1978 stock option plans at the time of
the Burnup Acquisition remain outstanding in accordance with the terms of the
respective plans. Approximately 49,200 shares have been reserved for and may
still be issued in accordance with the terms of such plans. Compensation expense
of $589,000 and $51,000 was recorded in 1996 and 1995, respectively, related to
the 1976 plan. Shares underlying stock options and exercise prices have been
adjusted to reflect the three-for-two stock split declared in 1997 by the Board
of Directors.
The 1994 Plan authorizes the grant of options or awards of restricted
stock up to 1,200,000 shares of the Company's Common Stock, of which 300,000
shares may be awarded as restricted stock. As of December 31, 1996, options to
purchase 732,000 shares had been granted. Options become exercisable over a five
year period in equal increments of 20% per year beginning the year after the
date of grant and must be exercised within ten years from the date of grant.
Options are issued with an exercise price no less than the fair market value of
the Common Stock at the grant date.
The Company also adopted the 1994 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"). The Directors' Plan authorized the grant of
options to purchase up to 600,000 shares of the Company's Common Stock to the
non-employee members of the Company's Board of Directors. Options to purchase
112,500 shares have been granted to Board members through 1996. The options
granted become exercisable ratably over a three year period from the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant at an exercise price equal to the fair market value of
such shares on the date the option is granted.
In addition, during 1994 options to purchase 150,000 shares of Common
Stock at $3.83 per share were granted to a director outside the Directors' Plan
in lieu of the Director's Plan and annual fees paid to the director.
Compensation expense of $42,500 in connection with the issuance of this option
is being recognized annually over the five year vesting period. The options are
exercisable ratably over a five year period beginning the year after the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant.
F-17
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
The following is a summary of all stock option transactions:
<CAPTION>
<S> <C> <C> <C> <C>
Weighted Avg.
Weighted Avg. Exercise Fair Value of
Shares Exercise Price Price Options Granted
Outstanding December 31, 1994 407,700 $ 4.62 $ 0.10 - $ 5.29
Granted 303,000 8.48 $ 6.83 - $ 8.92 $ 4.22
Exercised (3,150) 5.29 $ 0.10 - $ 5.29
Canceled (32,250) 3.94 $ 0.10 - $ 8.92
------- ----
Outstanding December 31, 1995 675,300 6.11 $ 0.10 - $ 8.92
Granted 306,000 16.96 $ 7.42 - $ 28.58 $ 9.23
Exercised (81,600) 6.02 $ .10 - $ 8.92
Canceled (2,700) 5.29 $ 8.92 - $ 8.92
-------- ----
Outstanding December 31, 1996 897,000 $ 9.81 $ .10 - $ 28.58
======= ====
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg.
Range of Outstanding Remaining Exercise Excercisable Exercise
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
------------------------------------------------------------------------------------
0.10 17,850 6.4 $ 0.10 5,400 $ 0.10
1.33 21,000 6.4 1.33 9,570 1.33
3.83-5.29 281,250 7.2 4.51 85,470 4.51
6.68-8.92 368,400 8.7 8.28 38,700 8.83
21.25-28.58 208,500 9.6 21.38 0 0.00
------- --- ------ ------- ----
0.10 - 28.58 897,000 8.3 $ 9.82 139,140 $ 5.32
======= === ====== ======= ====
</TABLE>
As of December 31, 1996, the Company adopted the disclosure provisions
of Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." Accordingly, the Company is required to disclose pro
forma net income and earnings per share both for 1996 and 1995 as if
compensation expense relative to the fair value of the options granted had been
included in earnings. The fair value of each option grant was estimated using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996 and 1995, respectively: a five year expected life for all years;
volatility factors of 51% for both years; risk-free interest rates of 6.13% and
5.94%, respectively; and no dividend payments. Had compensation cost for the
Company's options plans been determined and recorded consistent with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1996
---- ----
Net income (loss):
As reported, including pro forma tax adjustment $ 2,671 $ 33,116
Pro forma 2,400 32,262
Earnings per share:
As reported, including pro forma tax adjustment $ 0.11 $ 1.25
Pro forma $ 0.09 $ 1.22
</TABLE>
The 1996 and 1995 pro forma effect on net income is not necessarily
representative of the effect in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995 and does not reflect a tax benefit related to the compensation expense as
such benefit would be reflected directly in stockholders' equity given that the
options are considered incentive stock options.
F-18
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. INCOME TAXES
On March 11, 1994, the Company became a taxable corporation and the
effect of recognizing the change in tax status of approximately $435,000 is
included in the provision for income taxes for the year ended December 31, 1994.
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
Current:
Federal $ 2,177 $ 5,541 $ 9,896
Foreign 5,347
State and local 375 (284) 1,536
------ ------ ------
Total current 2,552 5,257 16,779
------ ------ ------
Deferred:
Federal (422) (5,879) (1,895)
State and local (72) (493) (218)
------ ------ ------
Total deferred (494) (6,372) (2,113)
------ ------ ------
Provision (benefit) for income taxes 2,058 (1,115) 14,666
Discontinued operations 552 135 (70)
------ ------ ------
Total $ 2,610 $ (980) $ 14,596
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
The tax effects of significant items comprising the Company's net
deferred tax liability as of December 31, 1995 and 1996 are as follows (in
thousands):
<S> <C> <C>
1995 1996
---- ----
Deferred tax assets:
Accrued self insurance $ 2,773 $ 3,050
Operating loss and tax credit carry forward 543 525
Accrual for disposal of discontinued
operations 1,503 1,147
All other 2,708 4,774
------ ------
Total deferred tax assets 7,527 9,496
------ ------
Deferred tax liabilities:
Property and equipment 5,873 5,817
Asset revaluations 2,604 5,462
All other 2,820 1,718
------ ------
Total deferred tax liabilities 11,297 12,997
Valuation allowance 400 500
------ ------
Net deferred tax liabilities $ 4,170 $ 4,001
====== ======
</TABLE>
The net change in the valuation allowance for deferred tax assets in
1996 was an increase of $100,000. The change relates primarily to state capital
losses generated in the current year which management believes will more likely
than not be realized.
Deferred tax assets of $2,096,000 and $1,068,000 for 1996 and 1995,
respectively, have been recorded in current assets in the accompanying
consolidated financial statements.
F-19
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
U.S. statutory federal rate
applied to pretax income 34% 35% 35%
State and local income taxes 4 0 2
Effect of dividend exclusion (2) (49) 0
Change in tax status (8) 0 0
Foreign loss producing no tax benefit 0 62 0
Adjustment of prior years' taxes 0 (46) 0
Change in federal statutory tax rate 0 82 0
Change in state tax filing status 0 (77) 0
Income from S corporations accounted for as poolings (7) (240) (5)
Other (1) 20 (1)
-- ---- --
Provision (benefit) for income taxes 20% (213)% 31%
== ==== ==
</TABLE>
No provision was made in 1996 for U.S. income taxes on the
undistributed earnings of the foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time or repatriate such earnings only when tax effective to do so. At
December 31, 1996, undistributed earnings of the foreign subsidiaries amounted
to $12.5 million. If the earnings of such foreign subsidiaries were not
indefinitely reinvested, a deferred tax liability of $1.3 million would have
been required.
The Internal Revenue Service (the "IRS") is currently examining the tax
returns of Burnup & Sims for the fiscal years ended April 30, 1989 through April
30, 1993. The Company has filed a protest with the appellate level of the IRS
regarding assessments made for the years 1989 through 1991. Adjustments, if any,
as a result of this audit will be recorded as an adjustment to purchase
accounting.
8. CAPITAL STOCK
The Company has authorized 50,000,000 shares of Common Stock. At
December 31, 1996 and 1995, 27,805,849 shares of Common Stock were issued,
26,992,169 and 25,453,619 shares were outstanding (adjusted for the stock split
and pooling transactions) (see Note 2), respectively, and 813,680 and 2,352,230
were held in treasury, at cost (after giving effect to the stock split paid in
the form of a dividend from treasury stock), respectively.
At the date of the Burnup Acquisition, the Company transferred Church &
Tower's previously reported undistributed earnings and profits of approximately
$11,165,000 to capital surplus.
At December 31, 1996 and 1995, the Company had 5,000,000 shares of
authorized but unissued preferred stock.
F-20
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. OPERATIONS BY GEOGRAPHIC AREAS
The Company's principal source of revenue is derived from
telecommunications infrastructure construction services in the United States and
Spain. The Company did not have significant international operations in 1995 or
1994, accordingly, geographic information for 1996 and subsequent is presented
below:
For the Year Ended
December 31, 1996
Revenue
Domestic $ 345,913
International 188,155
-------
Total $ 534,068
=======
Operating income
Domestic $ 33,760
International 19,733
-------
Total $ 53,493
=======
At
December 31, 1996
Identifiable assets
Domestic $ 147,065
International 258,071
Corporate 106,018
-------
Total $ 511,154
=======
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.
10. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from providing
telecommunications infrastructure services to Telefonica and to BellSouth.
During 1994 and 1995, the Company derived revenue from BellSouth of
approximately $48.3 million and $73.1 million, respectively. For the year ended
December 31, 1996, approximately 31% and 13% 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). Accounts receivable from the Company's two largest customers at
December 31, 1995 and 1996 were $19.3 million and $194.2 million, respectively.
Although the Company's strategic plan envisions diversification of its customer
base, the Company anticipates that it will continue to be dependent on
Telefonica and its affiliates and BellSouth for a significant portion of its
revenue in the future.
11. COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors, and National Beverage
F-21
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Corporation ("NBC"), the Company's then-largest stockholder. The complaint
alleges, among other things, that the Company's Board of Directors and NBC
breached their respective fiduciary duties in approving certain transactions,
including the distribution in 1989 to the Company's stockholders of all of the
common stock of NBC owned by the Company and the exchange by NBC of shares of
common stock of the Company for certain indebtedness of NBC to the Company. The
lawsuit seeks to rescind these transactions and to recover damages in an
unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative
complaint against the Company, the then-members of its Board of Directors,
Church & Tower, Inc. and Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the
principal shareholders of Church & Tower, Inc. The 1993 lawsuit alleges, among
other things, that the Company's Board of Directors and NBC breached their
respective fiduciary duties by approving the terms of the acquisition of the
Company by the Mas family, and that Church & Tower, Inc. and its principal
shareholders had knowledge of the fiduciary duties owed by NBC and the Company's
Board of Directors and knowingly and substantially participated in the breach of
these duties. The lawsuit also claims derivatively that each member of the
Company's Board of Directors engaged in mismanagement, waste and breach of
fiduciary duties in managing the Company's affairs prior to the acquisition by
the Mas Family.
The Company believes that the allegations in each of the lawsuits are
without merit and intends to defend these lawsuits vigorously.
In August 1997, the Company settled its lawsuit with BellSouth arising
from certain work performed by a subcontractor of the Company from 1991 to 1993
for nominal consideration.
In November 1997, Church & Tower filed a lawsuit against Miami-Dade
County (the "County") in the Circuit Court of the Eleventh Judicial Circuit in
and for Dade County, Florida alleging breach of contract and seeking damages in
connection with the County's refusal to pay amounts due to Church & Tower under
a multi-year agreement to perform road restoration work for the Miami-Dade Water
and Sewer Department ("MWSD"), a department of the County, and the County's
wrongful termination of the agreement. The County has refused to pay amounts due
to Church & Tower under the agreement until alleged overpayments under the
agreement have been resolved. The County has also refused to award a new road
restoration agreement for MWSD to Church & Tower, which was the low bidder for
the new agreement. The Company believes that any amounts due to the County under
the existing agreement are not material and may be recoverable in whole or in
part from Church & Tower subcontractors who actually performed the work and
whose bills were submitted directly to the County.
The Company is a party to other pending legal proceedings arising in
the normal course of business, none of which the Company believes is material to
the Company's financial position or results of operations.
In 1990, Trilogy Communications, Inc. filed suit against Excom Realty,
Inc., a wholly owned subsidiary of the Company, for damages and declaratory
relief. The Company counterclaimed for damages. On May 1, 1995, the Company
settled its counterclaim for $1.3 million, which is recorded as other income in
the accompanying consolidated financial statements.
In connection with certain contracts, the Company has signed certain
agreements of indemnity in the aggregate amount of approximately $100.2 million,
of which approximately $62.3 million relate to the uncompleted portion of
contracts in process. These agreements are to secure the fulfillment of
obligations and performance of the related contracts.
Federal, state and local laws and regulations govern the Company's
operation of underground fuel storage tanks. The Company is in the process of
removing, restoring and upgrading these tanks, as required by applicable laws,
and has identified certain tanks and surrounding soil which will require
remedial cleanups.
12. FAIR VALUE
For certain of the Company's financial instruments, including cash and
cash equivalents, accounts and notes receivable, accounts payable and other
liabilities, the carrying amounts approximate fair value due to their short
maturities. Long-term floating rate notes are carried at amounts that
approximate fair value.
F-22
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company uses letters of credit to back certain insurance policies.
The letters of credit reflect fair value as a condition of their underlying
purpose and are subject to fees competitively determined in the market place.
The estimated fair values may not be representative of actual values of
the financial instruments that could have been realized as of year end or that
will be realized in the future.
13. DISCONTINUED OPERATIONS AND REAL ESTATE HELD FOR SALE
In the third quarter of 1995, the Company determined to concentrate
its resources and better position itself to achieve its strategic growth
objectives by disposing of all of the general products segment that the
Company acquired as part of the Burnup Acquisition. These operations and
assets include Southeastern Printing Company, Inc. ("Southeastern"), Lectro
Products, Inc. ("Lectro") and Floyd Theatres, Inc. ("Floyd Theatres").
In March 1995, the Company sold the indoor theater assets of Floyd
Theatres for approximately $11.5 million. A gain of $1.5 million, net of tax,
resulted from this transaction in the first quarter of 1995. In August 1995, the
Company sold the stock of Lectro for $11.9 million in cash and a note receivable
of $450,000. A gain of $5.9 million, net of tax, was recorded in the third
quarter of 1995 related to the sale of Lectro. In January 1997, the Company sold
the assets of Southeastern at its carrying value for approximately $2.1 million
in cash and a note for $500,000.
As part of the acquisition of Harrison-Wright (see Note 2), the Company
purchased the assets of Utility Pre-cast, Inc. The Company intends to sell the
pre-cast business and accordingly has reflected the net assets of approximately
$4.2 million as a discontinued operation.
Included in other current assets in the accompanying balance sheet is
approximately $15.7 million and $17.7 million of real estate held for sale at
December 31, 1996 and 1995, respectively.
Discontinued operations include management's best estimates of the
amounts expected to be realized on the sale of these assets. While the estimates
are based on current negotiations, the amounts the Company will ultimately
realize could differ materially in the near term from the amounts assumed in
arriving at the loss on disposal of the discontinued operations.
Summary operating results of discontinued operations, excluding net
gains on disposal and estimated loss during the phase-out period, are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
Revenue $ 29,902 $ 21,952 $ 12,665
====== ====== ======
Earnings (loss) before income taxes $ 1,377 $ 58 $ (288)
Provision (benefit) for income taxes 552 20 (111)
------- ------- ------
Net income (loss) from discontinued operations $ 825 $ 38 $ (177)
======= ======= ======
</TABLE>
F-23
<PAGE>
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter (2) Quarter (3) Quarter (4) Total
1995:
Revenue $ 40,422 $ 48,375 $ 60,092 $ 69,970 $218,859
====== ====== ======= ======= =======
Operating income $ 6,232 $ 4,814 $ 6,161 $ 5,958 $ 23,165
====== ====== ======= ======= =======
Income (loss) from
continuing operations $ 3,460 $ 3,789 $ (5,892) $ (1,120) $ 237
Income (loss) from
discontinued operations (6)
including gain (loss)
on disposal, net of taxes 1,709 205 1,551 (934) 2,531
------- ------ ------- ------- -------
Net income (loss) $ 5,169 $ 3,994 $ (4,341) $ (2,054) $ 2,768
======= ====== ======= ======= =======
Earnings per share (1) (5):
Income (loss) from continuing
operations $ 0.13 $ 0.15 $ (0.23) $ (0.05) $ 0.01
Income (loss) from discontinued
operations 0.07 0.00 0.06 (0.03) 0.10
------- ------ ------- ------ -------
$ 0.20 $ 0.15 $ (0.17) $ (0.08) $ 0.11
======= ====== ======= ====== =======
1996:
Revenue $ 70,670 $122,964 $162,208 $178,226 $534,068
======= ======= ======= ======= =======
Operating income $ 5,954 $ 10,194 $ 17,131 $ 20,214 $ 53,493
======= ======= ======= ======= =======
Income from
continuing operations (6) $ 3,371 $ 5,645 $ 10,752 $ 13,459 $ 33,227
(Loss) income from
discontinued operations
including gain (loss)
on disposal, net of taxes (14) 27 163 (287) (111)
------- ------- ------- ------ ------
Net income $ 3,357 $ 5,672 $ 10,915 $ 13,172 $ 33,116
======= ======= ======= ====== ======
Earnings per share (1) (5):
Income from continuing
operations $ 0.13 $ 0.22 $ 0.40 $ 0.49 $ 1.25
Income from discontinued
operations 0.00 0.00 0.00 (0.01) 0.00
------- ------- ------- ------- ------
$ 0.13 $ 0.22 $ 0.40 $ 0.48 $ 1.25
======= ======= ======= ======= ======
<FN>
- --------------------
(1) Earnings per share amounts have been adjusted to reflect the
three-for-two stock split declared by the Company's Board of Directors
on February 28, 1997 and shares issued in connection with two
acquisitions accounted for under the pooling of interest method.
(2) The Company acquired Sintel (see Note 2) on April 30, 1996.
(3) In the third quarter of 1995, the Company recorded a special charge of $15.4 million to write-down its
real estate held for sale.
(4) In the fourth quarter of 1995, the Company recorded an additional charge of $7.7 million to write-down
real estate held for sale and its investment in preferred stock.
(5) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share data does not
equal the total computed for the year due to changes in the weighted
average number of shares outstanding.
(6) Amounts and earnings per share have been adjusted to reflect a pro
forma tax provision for two acquisitions accounted for under the
pooling of interest method which were previously S corporations.
</FN>
</TABLE>
F-24
<PAGE>
EXHIBIT INDEX
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Coopers & Lybrand L.L.P.
23.6 Consent of Coopers & Lybrand L.L.P.
27.1 Financial data schedule.
E-1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-4 (No.333-9607) of our report dated
December 5, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this amendment no. 1 to Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 6, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-8 (No.333-22465) of our report dated
December 5, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this amendment no. 1 to Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 6, 1998
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-8 (No.33-55327) of our report dated
December 5, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this amendment no. 1 to Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 6, 1998
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-3 (No.333-11013) of our report dated
December 5, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this amendment no. 1 to Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 6, 1998
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-8 (No.333-30647) of our report dated
December 5, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this amendment no. 1 to Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 6, 1998
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MasTec, Inc. and subsidiaries on Form S-4 (No.333-30645) of our report dated
December 5, 1997, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1996 and 1995, and for the
years ended December 31, 1996, 1995, and 1994, which report is incorporated by
reference in this amendment no. 1 to Annual Report on Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Miami, Florida
February 6, 1998
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