Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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.)
8600 N.W. 36th Street, Miami, FL 33166
- --------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
-------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
12% Convertible Subordinated Debentures
due November 15, 2000 Philadelphia Stock Exchange
- --------------------------------------- -----------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
--------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X__ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Page 1 of 59
The number of shares of Common Stock outstanding as of March 21, 1996 was
16,056,298. The aggregate market value of the voting stock held by
non-affiliates of the registrant computed by reference to the closing price of
the registrant's Common Stock on the Nasdaq National Market on March 21, 1996
was $68,619,520. Directors, officers and 10% or greater stockholders are
considered affiliates for purposes of this calculation but should not
necessarily be deemed affiliates for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders to be held on June 3, 1996, which will be filed with the Commission
on or before April 30, 1996, are incorporated by reference into Part III.
Page 2 of 59
PART I
Item 1. BUSINESS
General
MasTec, Inc. (together with its subsidiaries, the "Company") is one of the
largest providers of construction services to the telecommunications industry in
the United States. The Company's principal business consists of the installation
and maintenance of aerial, underground and buried copper and fiber optic cable,
underground conduit, manhole systems and related construction
("telecommunications construction services") for local telephone companies,
including Regional Bell Operating Companies ("RBOCs") such as BellSouth
Telecommunications, Inc., U.S. West, Inc. and SBC Communications, Inc. (d/b/a
Southwestern Bell), and non-Bell local telephone companies such as Sprint Corp.,
and GTE Corp. (collectively, "telcos"). The Company also provides construction
services to non-telco public utilities that are similar to the
telecommunications construction services it provides to telcos. The Company also
provides telecommunication construction services to long-distance telephone
companies such as AT&T and MCI, competitive access providers ("CAPs"), and cable
television ("CATV") operators in the United States and to local and long-
distance telephone companies and CATV operators in Latin America.
The Company also provides services that are complimentary to the Company's
construction business, such as the installation and maintenance of traffic
control and signalization devices, the clearance of utility company rights of
way, the installation and maintenance of "smart highway" signalization devices
and the construction of transmission towers for wireless communication providers
such as cellular telephone and personal communication services ("PCS")
operators. These services are rendered to municipalities, public utilities,
private businesses and government agencies such as state departments of
transportation. The Company also designs, installs and maintains local area
communications networks ("LANs") for private businesses.
In addition, the Company provides general construction and project management
services to municipalities and state and local governments.
The Company has made investments in telecommunications systems in selected
markets in Latin America. The Company also operates a long-distance teleport
facility for the receipt and retransmission of voice, data and video traffic
from Latin America and the Caribbean to the United States.
The Company was formed through the combination of two established names in the
telecommunications construction services industry: Church & Tower and Burnup &
Sims. On March 11, 1994, the shareholders of Church & Tower, Inc. and Church &
Tower of Florida, Inc. (the "CT Group") acquired 65% of the outstanding common
stock of Burnup & Sims, Inc., a public company incorporated in Delaware in 1968
and listed on the Nasdaq National Market
("Burnup & Sims"), in a reverse acquisition (the "Acquisition"). Following the
change in control, the senior management of the combined entity was replaced by
the CT Group's management and the name of Burnup & Sims was changed to "MasTec,
Inc."
Page 3 of 59
Growth Strategy
The Company's strategy is to continue to grow its core telecommunications and
related construction business while leveraging existing resources to expand and
diversify its domestic and international revenue bases. To accomplish this
strategy, the Company plans to (i) obtain additional telecommunications
construction and related services contracts from existing and new domestic
customers through internal growth and expansion into international markets, (ii)
acquire other telecommunications construction contractors, and (iii) acquire and
develop additional lines of business that compliment the Company's core
telecommunications and related construction business. In addition, the Company
plans to continue to dispose of non-core businesses and assets acquired in the
Acquisition. The Company is also evaluating its investments in Latin American
telecommunications system to enhance their value to the Company. There can be
no assurance that the Company's growth strategy will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Growth Strategy."
Telecommunications and Related Construction Services
The Company's primary source of revenue is derived from the rendering of
telecommunications and related construction services under comprehensive
services contracts ("master contracts") with telco and non-telco public
utilities. Under master contracts, the Company generally has the exclusive
right to perform certain construction and maintenance services in a specified
geographic area during the contract period, which generally runs for three years
and may be extended for one or two additional years. Each master contract
contemplates hundreds of individual construction and maintenance projects valued
typically at less than $100,000 each. Most individual jobs require less than one
week to complete and typically involve the installation of conduit and fiber
optic or copper telephone lines, the setting of telephone poles, the repair or
maintenance of existing lines and the installation of manholes. The Company also
provides street and sidewalk restoration work under master contracts for non-
telco public utilities. Customers generally supply materials such as cable and
telephone equipment, and the Company provides the expertise, personnel, tools
and equipment necessary to perform the required services.
In addition to master contracts, the Company provides telecommunications and
related construction services to its customers pursuant to contracts awarded for
specific projects not contemplated by the master contract or the cost of which
exceeds specified dollar limitations set forth in the master contract. The type
of services provided under these contracts for specific projects is identical to
the type of services provided under the master contracts.
The Company also provides traffic signalization, clearance of utility rights
of way, "smart highway" installation, construction and installation of
transmission towers for wireless communications providers, and other
construction services complimentary to its core telecommunications construction
services business that are intended to diversify the Company's domestic customer
base and develop new revenue sources. These services are considered part of the
Company's core telecommunications and related construction services.
Page 4 of 59
In June 1994, the Company acquired Designed Traffic Installation, Inc.
("DTI"), an established Florida electrical contracting company that installs
traffic control signalization and lighting systems for streets and airport
runways. In July 1995, the Company acquired Utility Line Maintenance, Inc.
("ULM"), which is engaged in the business of clearing utility rights of way in
the southeastern United States. In February 1996, the Company acquired Carolina
Com-Tec, Inc., a company engaged in the business of installing and maintaining
voice, data and video communications networks. See Note 2 to the Consolidated
Financial Statements.
The Company's wholly-owned subsidiary, Church & Tower Fibertel, Inc., has
expanded its business to include designing and installing "smart highway"
systems, electronic systems which control highway messaging and lighting. The
Company also has formed MasTec Technologies, Inc., a wholly-owned subsidiary, to
market its installation and maintenance expertise in the developing area of
wireless telecommunications technology including cellular and PCS.
The Company's backlog of orders for telecommunications and related
construction services, which does not include work to be performed under master
contracts because such contracts are of indeterminate aggregate amount,
approximated $15.3 million at December 31, 1995. Substantially all of this
backlog is expected to be performed in 1996.
The Company's customers supply the majority of the raw materials and supplies
necessary to carry out the Company's contracted work. The Company is not
dependent on one supplier for any raw materials or supplies that the Company
obtains for its own account.
The rendition of telecommunication construction services to RBOCs under master
contracts accounts for a majority of the Company's revenue. BellSouth
Telecommunications, Inc. accounted for approximately 42% of the Company's total
revenue in 1995.
The telecommunications and related construction services business of the
Company is subject to some seasonality, and the Company in some years has
experienced a reduction in revenue during the months of November, December and
January relative to other months. This reduction is due, in large part, to
reduced expenditures and work order requests of the Company's customers,
particularly RBOCs, at the end of their budgetary years, which typically end in
December. Severe weather conditions and variances in the level of customers'
capital expenditures influenced by prevailing interest rates and the allowance
or disallowance of rate increases by regulatory authorities also may affect
demand for the Company's services.
Revenue from the Company's telecommunications construction services in foreign
markets accounted for less than 3% and 1% of revenue in 1995 and 1994,
respectively. The Company had no revenue from foreign sources in 1993.
Page 5 of 59
General Construction Services
From time to time, the Company provides general construction and project
management services to municipalities and state and local governments. The
Company's project management services consist of the overall coordination from
design to build phases of such construction projects, including pre-construction
management, bonding requirements, coordination of subcontractors, inspections
and assurances of on-time delivery. All such projects are awarded through a
competitive bidding process. Currently, the Company is acting as the project
manager for improvements to a water pumping station operated by the Miami-Dade
Water and Sewer Authority, construction of a detention facility for the Broward
County Sheriff's Office, and construction of several primary learning centers
for the Dade County School system. The Company's backlog for general
construction services approximated $48.6 million at December 31, 1995,
substantially all of which is expected to be performed in the next 18 months.
Telecommunications Operations
As of December 31, 1995, the Company had invested in the following
telecommunications businesses in or servicing Latin America and the Caribbean.
Supercanal. In October 1995, the Company acquired a 33% equity interest in
Supercanal, S.A., a CATV operator in Argentina, as well as interests ranging
from 14% to 35% in four other related companies. In February 1996, the Company
acquired an additional 3% of the CATV operator.
Teleport. In November 1995, the Company purchased an FCC-licensed
international long-distance teleport facility for the reception and
retransmission of voice, data and video from Latin America and the Caribbean to
the United States.
TPP. In December 1995, the Company agreed to acquire a 28.6% interest in
Telecomunicaciones Publicas y Privadas, S.A. de C.V., a Mexican public pay
telephone company, with an option to purchase an additional 21.4%.
In addition, in July 1995, the Company made a $25 million term loan the
("Devono Loan") expiring in April 1996 to Devono Company Limited, a British
Virgin Islands company ("Devono"). The loan is collateralized by a pledge of 40%
of the outstanding capital stock of Cempresa S.A., an Ecuadorian corporation
that is wholly-owned by Devono ("Cempresa"). Cempresa, in turn, owns 52.6% of
the outstanding capital stock of Consorcio Ecuatoriano de Telecomunicaciones
S.A., a cellular telephone company in Ecuador. Pursuant to the loan agreement,
the Company may elect to be repaid by Devono transferring the pledged shares of
Cempresa to the Company.
Competition
The Company competes with independent third parties in most of the markets in
which it operates. Most companies engaged in the same or similar business tend
to operate in a specific, limited geographic area, although larger competitors
may bid on a particular project without regard to location. Although the
Company is one of the largest providers of telecommunications construction
services to the telecommunications industry in the United States, neither the
Company nor any of its competitors can be considered as dominant in the industry
on a national basis. The Company also faces competition from the in-house
construction and maintenance departments of RBOCs, which employ personnel who
perform some of the same types of services as those provided by the Company.
Page 6 of 59
The Company also faces competition in the international markets in which it
operates and expects to operate, both with respect to its telecommunications and
related construction services business and its investment in telecommunications
operations. In its efforts to acquire interests in Latin American and Caribbean
telecommunications companies, the Company has competed with large international
companies and consortiums with significantly greater experience and resources
than the Company.
Discontinued Operations
Prior to the Acquisition, Burnup & Sims had acquired and operated certain
businesses and other assets which were unrelated to its telecommunication
construction services and related businesses. Following the Acquisition, the
Company's new management focused its efforts on the Company's core construction
and related businesses and commenced divesting the Company's non-core businesses
and assets. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations_Overview-Operational Improvements" and "-Discontinued
Operations" and Note 16 to the Consolidated Financial Statements. The Company
continues to own and operate the following non-core businesses, which management
expects to sell or otherwise dispose of within the next 12 months: (a)
Southeastern Printing Company, Inc. ("Southeastern") a lithographic printing
business that produces high fidelity color literature and labels printed by the
flexographic process; and (b) Floyd Theaters, Inc. ("Floyd Theaters"), which
currently operates six outdoor theaters that exhibit first, second and third run
films of various major motion picture distributors.
Employees
As of December 31, 1995, the Company (excluding discontinued operations) had
2,313 full-time employees, of which 1,943 were hourly employees and 370 were
salaried employees. The Company believes its relations with its employees are
good.
Item 2. PROPERTIES
The Company's corporate headquarters is currently located in leased office
space in Miami, Florida. In October 1995, the Company purchased a three-story
building in Miami, Florida, which will serve as its principal headquarters once
renovations are completed in the first half of 1996.
The Company also has regional offices located in Miami, Tampa, Atlanta and
Austin. The Company's principal operations are conducted from field offices,
equipment yards and temporary storage locations of which 13 are owned and 30 are
subject to short-term or cancelable leases. The Company does not consider any
specific owned or leased facility to be indispensable to its operations since
most of the Company's services are performed on the customers' premises or on
public rights of way. In addition, the Company believes that equally suitable
alternative locations are available in all areas where it currently does
business.
In November 1995, the Company purchased an FCC-licensed long-distance Teleport
facility located on four acres in Miami, Florida.
Page 7 of 59
Southeastern owns a 60,000 square-foot printing plant in Stuart, Florida.
Floyd Theatres leases one and owns six drive-in theaters located on
approximately 66 acres in various Florida cities. In addition to its operating
properties, the Company owns approximately 1,960 acres of undeveloped land
throughout central and southwest Florida, and a 124,000 square foot
manufacturing plant located on approximately 43 acres of land in Freehold, New
Jersey. The Company is actively attempting to dispose of all of these assets to
concentrate its resources on its core telecommunications construction and
related businesses.
Certain of the Company's properties, equipment and vehicles are encumbered
pursuant to loan agreements. See Note 6 to the Consolidated Financial
Statements regarding the Company's credit facilities.
Item 3. LEGAL PROCEEDINGS
The following is a summary of material legal proceedings involving the
Company.
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit against Burnup & Sims, the members of
its Board of Directors, and National Beverage Corporation ("NBC"). The complaint
alleges, among other things, that Burnup & Sims' Board of Directors and NBC, as
Burnup & Sims' then largest stockholder, breached their respective fiduciary
duties in approving certain transactions, including the distribution to Burnup &
Sims' stockholders of all of the common stock of NBC owned by Burnup & Sims and
the exchange by NBC of shares of common stock of Burnup & Sims for certain
indebtedness of NBC held by Burnup & Sims. The lawsuit seeks to rescind these
transactions and to recover damages in an unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative complaint
against Burnup & Sims, the members of its Board of Directors, the CT Group, and
Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal stockholders of the
CT Group. The 1993 lawsuit alleges, among other things, that the Burnup & Sims
Board of Directors and NBC breached their respective fiduciary duties by
approving the terms of the Acquisition and also claims derivatively that each
member of the Burnup & Sims Board of Directors engaged in mismanagement, waste
and breach of their fiduciary duties in managing Burnup & Sims' affairs. On
March 7, 1994, the Delaware court in which these suits were filed denied
plaintiff's motion to enjoin the Acquisition.
Each of the foregoing lawsuits is in discovery and no trial date has been set.
The Company believes that the allegations in each of the lawsuits are without
merit, and intends to defend these lawsuits vigorously.
The Company is involved in a lawsuit filed by BellSouth Telecommunications,
Inc. arising from certain work performed by a subcontractor of the Company from
1991 to 1993 and a second lawsuit filed by the County of Gilpin, Colorado,
against the Company in connection with work performed for U.S. West, Inc. during
1992. The amounts claimed against the Company in these two lawsuits in the
aggregate total approximately $1.4 million. Both lawsuits were filed in
November 1995 and are in the early stages of discovery. The Company believes
that the allegations asserted by BellSouth and Gilpin County in these lawsuits
are without merit and intends to defend these lawsuits vigorously.
Page 8 of 59
The Company also is a defendant in a lawsuit between parties unrelated to the
Company regarding enforcement of a purchase agreement to which the Company is
not a party. The plaintiffs in the lawsuit allege that one of the other
defendants in the lawsuit was acting as agent for the Company. The plaintiffs
seek damages in excess of $500,000 against all defendants. The litigation is in
the early stages and the Company has filed a motion to dismiss the complaint,
which motion is pending. The Company believes that the allegations asserted
against the Company in this lawsuit are without merit and intends to defend this
lawsuit vigorously.
All of the claims asserted in the lawsuits described above, with the exception
of the second lawsuit filed by Alfred Kahn in 1994, arise from activities
undertaken prior to March 11, 1994, the date of the Acquisition.
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 condition or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no vote of security holders during the fourth quarter of the last
fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the Executive Officers
of the Company, indicating all positions and offices with the Company held by
each such person, and each such person's principal occupation or employment
during the past five years. The executive officers hold office for one year or
until their successors are elected by the Board of Directors. Jorge Mas is the
son of Jorge L. Mas. There are no other family relationships among the directors
or officers of the Company.
Name Age Present principal position and
office with the Company
---------------- ---- -------------------------------
Jorge L. Mas 56 Chairman of the Board of Directors
Jorge Mas 33 President and Chief Executive Officer
Ismael Perera 47 Senior Vice President-Operations
Edwin D. Johnson 39 Senior Vice President-Chief Financial Officer
Ubiratan Simoes Rezende 48 Senior Vice President-International Operations
Carlos A. Valdes 32 Senior Vice President
Jose M. Sariego 41 Senior Vice President-General Counsel
Carmen M. Sabater 31 Corporate Controller
Nancy J. Damon 46 Corporate Secretary
Jorge L. Mas was elected Chairman of the Board of Directors of the Company
on March 11, 1994, the effective date of the Acquisition. Mr. Mas has been the
President and Chief Executive Officer of Church & Tower of Florida, Inc., the
Company's largest subsidiary, since 1969.
Jorge Mas has served as President and Chief Executive Officer of the Company
since March 11, 1994. Prior to that time and during the past five years, Mr.
Mas served as the President and Chief Executive Officer of Church & Tower, Inc.
(and its predecessor company, Communications Contractors, Inc.). In addition,
Mr. Mas is the Chairman of the Board of Directors of Neff Corporation, Atlantic
Real Estate Holding Corp. and U.S. Development Corp.(all private companies
Page 9 of 59
controlled by Mr. Mas) and, during all or a portion of the past five years, has
served as the President and Chief Executive Officer of these corporations.
Ismael Perera has served as Senior Vice President-Operations of the Company
since March 11, 1994. Prior to that time, he served as the Vice President-
Operations of Church & Tower, Inc. from August 1993 until March 1994. From 1970
until July 1993, Mr. Perera served in various capacities in network operations
for BellSouth Telecommunications, Inc., including most recently as a Senior
Director of Network Operations since 1985.
Edwin D. Johnson was elected Senior Vice President - Chief Financial Officer
of the Company in March 1996. During the last 10 years, Mr. Johnson served in
various capacities with Attwoods plc., a British waste services company,
including chief financial officer and member of the board of directors for the
past three years.
Ubiratan Simoes Rezende was elected as Senior Vice President - International
Operations of the Company in March 1996. From August 1995 to March 1996, Mr.
Rezende was Dean of Graduate Studies and International Programs at La Roche
College. From 1991 to 1993, Mr. Rezende was visiting professor of the Paul
Nitze School of Advanced International Studies at Johns Hopkins University, and
from 1979 to 1992 he was a professor at the Center of Social and Economic
affairs at the University of Santa Catarina in Brazil. Mr. Rezende also has
served as Chief of Staff of the Organization of American States and as Executive
Vice President of the holding company for the Perdigao Group, the second largest
food processing company in Brazil.
Carlos A. Valdes has served as Senior Vice President since March 11, 1994.
Prior to that time, Mr. Valdes served as the Chief Financial Officer of Church &
Tower, Inc. from 1991 to 1994 and as Vice President of First Union National Bank
of Florida N.A. from 1986 to 1991.
Jose M. Sariego has served as Senior Vice President-General Counsel since
September 1995. Prior to joining the Company, Mr. Sariego was Senior Corporate
Counsel and Secretary of Telemundo Group, Inc., a Spanish language television
network, from August 1994 to August 1995. From January 1990 to August 1994, Mr.
Sariego was a partner in the Miami office of Kelley Drye & Warren, an
international law firm.
Carmen M. Sabater has served as the Corporate Controller of the Company
since April 1994. Prior to joining the Company, Mrs. Sabater was a Senior
Manager (1993-1994) and Manager (1989-1993) with Deloitte & Touche LLP.
Nancy J. Damon has served as the Corporate Secretary of the Company since
March 11, 1994. Prior to that time, Ms. Damon served as a paralegal at the
Company from February 1990 until March 1994.
Page 10 of 59
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following information relates to the Company's common equity, par value
$.10 per share (the "Common Stock"), which currently is listed on the Nasdaq
National Market under the symbol MASX (formerly BSIM). At March 21, 1996, there
were 5,236 stockholders of record of the Company's Common Stock. The high and
low closing quotations of the Common Stock for each quarter of the last two
fiscal years, as reported by Nasdaq, are set forth below:
1995 1994
High Low High Low
First Quarter $ 13 1/2 $ 10 1/8 $ 9 1/8 $ 5 15/16
Second Quarter $ 13 1/8 $ 9 3/4 $ 9 $ 6 3/4
Third Quarter $ 13 1/8 $ 10 $ 8 1/2 $ 7
Fourth Quarter $ 13 1/4 $ 9 1/8 $ 10 1/4 $ 7
The above quotations reflect interdealer prices, without retail mark up, mark
down or commission, and may not necessarily represent actual transactions.
The Company did not declare any cash dividends for the year ended December 31,
1995. See Note 6 to the Consolidated Financial Statements for
information concerning restrictions contained in the Company's credit facilities
regarding the payment of dividends. See Note 12 to the Consolidated Financial
Statements for information concerning the distribution of subchapter S earnings
to the CT Group shareholders in connection with the Acquisition.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial information of
the Company and selected combined financial information of the CT Group 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 or the Combined Financial Statements, as the case may be, 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.
Page 11 of 59
Year ended December 31,
1995 1994 1993 1992 1991
(a-b) (c) (c) (c)
(In thousands, except per share amounts)
Income statement data:
Revenue $174,583 $111,294 $44,683 $34,136 $ 31,588
Costs of revenue 130,762 83,952 28,729 22,163 22,970
-------- -------- -------- -------- --------
Gross profit 43,821 27,342 15,954 11,973 8,618
General and administrative
expenses 19,081 13,022 9,871 3,289 2,796
Depreciation and
amortization 6,913 4,439 609 371 359
-------- -------- -------- -------- --------
Operating income 17,827 9,881 5,474 8,313 5,463
Interest expense (d) 4,954 3,587 133 33 29
Interest and
dividend income(e) 3,349 1,469 315 207 227
Special charge-real estate
and investments write-downs 23,086 0 0 0 0
Other income (expense), net 2,028 1,009 (81) 209 85
(Losses) equity in earnings
of unconsolidated
companies and minority
interest (139) 247 1,177 (416) (446)
(Benefit) provision for
Income taxes(f) (1,835) 3,211 2,539 3,113 1,992
-------- -------- -------- -------- --------
(Loss) income from
continuing operations(f) $ (3,140) $ 5,808 $ 4,213 $ 5,167 $ 3,308
======== ======== ======== ======== ========
Average shares outstanding 16,046 16,077 10,250 10,250 10,250
(g) (g) (g)
(Loss) primary earnings
per share from
continuing operations $ (0.20) $ 0.36 $ 0.41 $ 0.50 $ 0.32
Balance sheet data:
Property and equipment, net $44,571 $40,102 $ 4,632 $ 3,656 $ 2,406
Total assets 170,163 142,452 21,325 23,443 11,733
Total long-term debt 44,226 35,956 3,579 855 371
Stockholders' equity(h) 50,504 50,874 10,943 15,690 9,436
- -------------------------
(a) Includes the results of the CT Group for the full year 1994, the results
of Burnup & Sims from March 11, 1994 through the end of 1994, and the
results of DTI from June 22, 1994 through the end of 1994.
Page 12 of 59
(b) The 1994 results of operations have been reclassified to reflect the
discontinuation of certain non-core operations of the Company. Net
assets of discontinued operations at December 31, 1995, have been
segregated in the consolidated balance sheet. See Note 16 to the
Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations_Overview_Discontinued Operations."
(c) Includes the results and financial condition of the CT Group only. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations-Overview-The Acquisition."
(d) Included is interest due to stockholders from outstanding notes amounting
to $135,000 for the year ended December 31, 1995 and $223,000 for the
year ended December 31, 1994.
(e) Included is interest accrued from notes from stockholders amounting to
$289,000 for the year ended December 31, 1995, and $304,000 for the year
ended December 31, 1994.
(f) The CT Group was not subject to income taxes because it was an S
corporation and, as a consequence, income from continuing operations has
been adjusted to reflect a pro forma provision for income taxes.
(g) Reflects the shares of common stock of the Company received by the former
shareholders of the CT Group pursuant to the Acquisition and not the
outstanding shares of common stock of the CT Group.
(h) See Note 12 to the Consolidated Financial Statements regarding
distributions made to the CT Group shareholders in connection with the
Acquisition.
Page 13 of 59
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company was formed through the combination of two established names in
the telecommunications construction services industry: Church & Tower and Burnup
& Sims. On March 11,1994, the shareholders of the CT Group acquired 65% of the
outstanding common stock of Burnup & Sims in a reverse acquisition (the
"Acquisition"). Following the change in control, the senior management of
Burnup & Sims was replaced by the CT Group's management and the name of Burnup &
Sims was changed to "MasTec, Inc."
Under generally accepted accounting principles, the Acquisition was
accounted for as a reverse acquisition whereby the CT Group is considered the
predecessor to the combined entity. Consequently, the financial information
included in this Annual Report on Form 10-K for the years ended December 31,
1993, 1992 and 1991 are of the CT Group only. The information for the year
ended December 31, 1994 includes the results of the CT Group for the year ended
December 31, 1994 the results of Burnup & Sims from March 11, 1994 to the end of
1994, and the results of DTI from June 22, 1994 (the date the Company acquired
DTI) to the end of 1994. See Note 2 to the Consolidated Financial Statements.
As part of the Acquisition, the S corporation election of the CT Group was
terminated.
Operational Improvements
Following the Acquisition, the Company implemented a number of strategic
initiatives to improve operating efficiencies and profitability. Management
identified and renegotiated or canceled several unprofitable master contracts
with RBOCs and implemented procedures to monitor bids to ensure that new
contracts are in accordance with prescribed terms. Management also reorganized
and reoriented Burnup & Sims' operations to increase their efficiency, maximize
buying power and take advantage of available business opportunities.
Additionally, management took steps to increase activities of the Company in
regions in which it suffered from overcapacity and implemented utilization
procedures at the corporate level to promote the efficient use of equipment and
machinery between operating units. Finally, during 1995, management invested
approximately $5 million to replace equipment and machinery used in Burnup &
Sims' operations in the central and eastern United States. The Company believes
that the integration of Burnup & Sims and the CT Group has been substantially
completed, although it intends to continue to reorganize operations of the
Company to further increase efficiencies.
Growth Strategy
Following the Acquisition, the Company has followed a two-pronged strategy
of growth through internal growth and expansion and through acquisitions. See
"Business - Growth Strategy." As part of the growth strategy, the Company has
sold or offered for sale a number of non-core businesses and assets acquired in
the Acquisition. Through March 31, 1996, the Company had acquired the stock or
assets of several companies in the telecommunications construction and related
services business and had disposed of the stock or assets of two of its non-core
subsidiaries as well as certain other assets, as more fully described in "-
Discontinued Operations" and "- Special Charge - Real Estate and Investments
Write Downs." The Company intends to continue to grow internally and through
acquisitions, and to continue to dispose of non-core assets. The Company is
Page 14 of 59
evaluating its investments in Latin American telecommunications systems to
enhance their value to the Company. The success of the Company's growth
strategy will be dependent in part on the Company obtaining additional external
financing which it is currently seeking. Although the Company believes that
additional external financing will be obtained, there can be no assurance that
the Company will be able to obtain financing for this purpose.
The Company's growth strategy presents certain inherent risks, including
building and expanding the facilities and operations of the Company and in
integrating existing operations with new acquisitions.
Discontinued Operations
In the third quarter of 1995, the Company determined to concentrate
resources and better position itself to achieve its strategic growth objectives
by disposing of its non-core businesses acquired from Burnup & Sims as a result
of the Acquisition (previously accounted for as the "general products segment").
See Note 16 to the Consolidated Financial Statements and "Business -
Discontinued Operations." The general products segment included the operations
of Southeastern, Floyd Theatres, and Lectro Products, Inc. ("Lectro"), each
subsidiaries of the Company. On March 17, 1995, the Company sold the indoor
theater assets of Floyd Theatres, consisting of 21 theaters, for approximately
$11.5 million, of which $7.0 million was applied to repay a portion of the
Company's 12% Convertible Subordinated Debentures (the "Debentures") and $1.8
million was applied to satisfy liabilities of Floyd Theatres not assumed by the
buyer, the remaining proceeds were used to satisfy transaction costs incurred by
the Company and to finance internal growth. A gain of $1.5 million, net of tax,
resulted from this transaction in the first quarter of 1995.
On August 9, 1995, the Company sold the stock of Lectro for $11.9 million
in cash and a promissory note in the principal amount of $450,000. Proceeds
from the sale, net of transaction expenses, were $11.3 million. A gain of $5.9
million, net of tax, resulted from this transaction in the third quarter of
1995. The proceeds were applied to repay $10.0 million borrowed by the Company
under the Company's Senior Facility Agreement with Shawmut Capital Corporation
(the "Senior Facility Agreement"), with the excess invested in short-term
investments. See Note 16 to the Consolidated Financial Statements. A portion of
the promissory note ($250,000) is subject to adjustment based on the ultimate
collectibility of the accounts receivable of Lectro as of June 30, 1995. Any
changes in proceeds as a result of any adjustments are not expected to be
material.
The outdoor theater operations of Floyd Theatres, consisting of six drive-
in theatres, are currently being marketed for sale for the underlying real
estate value. In addition, the Company has received offers to purchase
Southeastern. Based on the estimated net realizable value of Floyd Theatres'
real estate and the offers for Southeastern, a loss on disposition of
approximately $6.4 million, net of tax relating to the remaining discontinued
operations was recorded in 1995.
The financial statements of the Company for the period ended December 31,
1993 included in this Annual Report on Form 10-K do not include the discontinued
operations because these operations were not part of the CT Group during that
period. The results of operations of the Company for the periods ended
December 31, 1995 and 1994 have been reclassified to reflect the discontinuation
of these operations. Revenue of the discontinued operations for the year ended
December 31, 1995 and 1994 were $21.9 million and $29.9 million, respectively.
Page 15 of 59
Net assets of discontinued operations at December 31, 1995, have been segregated
in the consolidated balance sheet. See Note 16 to the Consolidated Financial
Statements.
Special Charge - Real Estate and Investments Write Downs
In the third quarter of 1995, the Company decided to accelerate the pace of
its disposal of non-core real estate assets by offering the majority of these
assets in a bulk sale. As a result of this decision, the Company recorded a
special charge of $15.4 million to adjust the carrying values of its real estate
investments to estimated net realizable value based on offers received by the
Company to dispose of certain real estate in a bulk transaction. The original
value assigned to the real estate investments contemplated the disposition of
the properties on an individual basis and no consideration had previously been
given to a bulk sale. In the fourth quarter of 1995, the Company recorded an
additional charge of $7.7 million to reflect the value realized upon a sale of
certain real estate and the Company's preferred stock investment in early 1996.
These assets were sold at prices and in a manner designed to facilitate their
immediate disposal so that the Company could concentrate its resources on its
core telecommunications construction business. See also Note 5 to the
Consolidated Financial Statements.
Results of Operations
The Company generates revenue primarily from telecommunication construction
and related services and general construction services. Telecommunication
construction and related services are provided to telephone companies, public
utilities, CATV operators, other telecommunications providers and private
businesses. General construction services generally consist of design-and-build
projects which the Company undertakes with private businesses and state and
local governmental authorities. See "Business."
Costs of revenue includes subcontractor costs and expenses, materials not
supplied by the customer, fuel, equipment rental, insurance, operations payroll
and employee benefits.
General and administrative expenses include management salaries, bonuses
and benefits, rent, travel, telephone and utilities, professional fees and
clerical and administrative overhead.
Page 16 of 59
The following table sets forth certain historical consolidated financial
data as a percentage of revenue for the years ended December 31, 1995, 1994 and
1993.
Year ended December 31,
1995 1994(1) 1993(1)
Revenue 100.0 % 100.0 % 100.0 %
Costs of revenue (exclusive of depreciation and
amortization shown separately) 74.9 % 75.4 % 64.3 %
Gross margin 25.1 % 24.6 % 35.7 %
General and administrative expenses 10.9 % 11.7 % 22.1 %
Depreciation and amortization 4.0 % 4.0 % 1.4 %
Interest expense 2.8 % 3.2 % 0.3 %
Interest and dividend income and other
income, net 3.1 % 2.2 % 0.5 %
Special charge- real estate and investments
write-downs 13.2 % 0.0 % 0.0 %
(Loss) income from
continuing operations(1) (1.8)% 5.2 % 9.4 %
(1) Income from continuing operations as a percent of revenue has been adjusted
to reflect a tax provision as though the Company had been subject to taxation as
a C Corporation.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue increased by approximately $63.3 million or 57% from
$111.3 million in 1994 to $174.6 million in 1995, primarily due to expansion
into new contract areas and the full year's effect in 1995 of acquisitions in
1994, including the Acquisition. See Note 2 of the Consolidated Financial
Statements. Revenue generated under the Company's master contracts was $113.6
million and $76.2 million or 65% and 68% for 1995 and 1994, respectively.
Costs of revenue (exclusive of depreciation and amortization shown
separately). Costs of revenue as a percentage of revenue decreased from 75.4%
in 1994 to 74.9% in 1995, primarily due to improved margins resulting from
improved operating efficiencies, improved productivity due to the use of more
modern equipment, and the Company's renegotiation of an unprofitable master
contract assumed as part of the Acquisition.
General and administrative expenses. General and administrative expenses as
a percentage of revenue declined from 11.7% in 1994 to 10.9% in 1995. General
and administrative expenses increased by approximately $6.1 million from 1994 to
1995 due primarily to the impact of the Acquisition as the 1994 results exclude
the results of operations (including general and administrative expenses) for
Burnup & Sims from January 1 to March 11, 1994. Additionally, the Company
expended approximately $1.6 million in 1995 related to pursuing and monitoring
investment opportunities abroad.
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue was 4.0% in both 1995 and 1994. Depreciation expense
increased from $4.4 million in 1994 to $6.9 million in 1995 primarily due to a
fleet replacement program related to the Burnup & Sims fleet acquired in the
Acquisition and an increase in capital expenditures resulting from expansion
into new contract areas.
Page 17 of 59
Interest expense. Interest expense increased from $3.6 million in 1994 to
$5.0 million in 1995 primarily due to new borrowings used for equipment
purchases, to fund the Devono Loan and to make investments in unconsolidated
companies. See Note 2 to Consolidated Financial Statements.
Interest and dividend income and other income, net. Interest and dividend
income increased from $1.5 million in 1994 to $3.3 million in 1995 as a result
of dividends earned on the preferred stock investment acquired in the
Acquisition and the interest accrued on the Devono Loan. See
"Business_Telecommunications Operations." Other income increased by $1.0
million from 1994 to 1995 as a result of a $1,350,000 favorable settlement of a
lawsuit. See Note 14 to the Consolidated Financial Statements.
Special Charge-Real Estate and Investments Write-Downs. See "_Special
Charge_Real Estate and Investments Write Downs" for a discussion of the special
charge for the write-down of certain real estate and other assets of the
Company. See also Note 5 to the Consolidated Financial Statements.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenue. Revenue increased by approximately $66.6 million or 149% from
$44.7 million in 1993 to $111.3 million in 1994. Revenue in telecommunications
and related construction services increased $71.6 million as a result of the
Acquisition and other acquisitions in 1994 and increased $4.2 million due to
additional volume in 1994 under master contracts in effect at December 31, 1993.
These increases in revenue were offset by a decline of $9.2 million in revenue
from the Company's general construction services segment due to the completion
of a significant project in the latter part of 1993.
Costs of revenue. Costs of revenue (exclusive of depreciation and
amortization shown separately) increased as a percentage of revenue from 64.3%
in 1993 to 75.4% in 1994, primarily due to less profitable operations acquired
in connection with the Acquisition.
General and administrative expenses. General and administrative expenses
increased by approximately $3.2 million from 1993 to 1994 but decreased to 11.7%
of revenue in 1994 compared to 22.1% of revenue in 1993. In the fourth quarter
of 1993, in anticipation of the change in tax status resulting from the
Acquisition, bonuses were paid to certain employee/shareholders of the CT Group,
which significantly increased the general and administrative expenses of the
Company for 1993. Additionally, non-recurring expenses associated with
provisions for litigation and environmental expenditures were made in 1993.
Excluding the bonuses and nonrecurring expenses, general and administrative
expenses as a percentage of revenue would have been 11.3% in 1993.
Depreciation and amortization. Depreciation and amortization expenses
increased to $4.4 million in 1994, or 4.0% of revenue, from $609,000 or 1.4% of
revenue in 1993. The increase is primarily a result of (i) amortization of
certain costs associated with the acquisitions made in 1994 and (ii) an increase
in depreciation due to the purchase of new equipment as part of a fleet
replacement program for the CT Group fleet implemented in the latter part of
1993.
Page 18 of 59
Interest expense. Interest expense increased from $133,000 in 1993 to $3.6
million in 1994 due to (i) notes issued to pay for acquisitions made in 1994
other than the Acquisition, (ii) debt incurred to the CT Group shareholders in
connection with the Acquisition and (iii) debt assumed from Burnup & Sims
following the Acquisition.
Interest and dividend income and other income, net. Interest and dividend
income increased from $315,000 in 1993 to $1.5 million in 1994 due to dividend
income earned on the preferred stock acquired in the Acquisition and interest
earned in rates issued to stockholders prior to the Acquisition. Other income
increased $1.1 million from a net expense of $81,000 in 1993 to $1.0 million of
income in 1994, primarily due to gains recognized on the sale of machinery and
equipment of $609,000 and the rental of certain equipment.
The equity in earnings of unconsolidated companies decreased in 1994 by
$940,000 from 1993. During 1993, the Company recorded income of approximately
$1,187,000 related to its joint venture for the removal of debris related to
Hurricane Andrew. The project undertaken by this joint venture was
substantially completed in 1993.
Upon consummation of the Acquisition, the CT Group's election to be treated
as an S Corporation was terminated and accordingly, the Company recognized a net
deferred tax asset of approximately $435,000 related to deductible temporary
differences. This benefit was included in the provision for income taxes for
1994. The Company was not subject to taxation in 1993 and prior years as the
result of its S corporation election under the Internal Revenue Code.
See Note 1 in the Consolidated Financial Statements as to the impact of the new
accounting standards to be implemented during 1996. The effect of which the
Company does not believe to be material.
Liquidity and Capital Resources
The Company's primary sources of liquidity during 1995 were cash flows from
operations, borrowings under credit facilities and proceeds from the sale of
discontinued operations. Cash and cash equivalents decreased by $4.5 million
from $5.6 million at December 31, 1994 to $1.1 million at December 31,1995
primarily due to capital expenditures related to the Company's growth, debt
repayments, investments, and businesses acquired.
Cash of $5.6 million was generated from operations in 1995 compared to $3.6
million in 1994. The increase in 1995's operating cash flows represents improved
results in the Company's telecommunications and related construction services
segment. Impacting cash generated from operations was an increase in receivables
resulting from the growth in the Company's core business.
As of December 31, 1995, working capital was approximately $44.6 million
compared to working capital of approximately $22.3 million at December 31, 1994.
Included in working capital at December 31, 1995, are the net assets of the
discontinued operations, notes receivable, real estate and preferred stock held
for sale. The Company anticipates disposal of these assets in 1996. Proceeds
from the sale of these assets will be used to further the Company's growth
strategy.
Page 19 of 59
As a result of expansion into new contract areas and a continuing a fleet
replacement program, the Company increased capital expenditures for equipment in
1995 to $18.3 million, an increase of approximately $12.6 million from 1994.
Additionally, the Company has invested $4.6 million in its corporate
headquarters and other operating facilities, of which $2.8 million has been
financed. The Company also invested $1.1 million in a teleport facility, all of
which has been financed. See Note 2 to the Consolidated Financial Statements.
The Company estimates investing approximately $14.0 million in 1996 to continue
its fleet replacement program and to support anticipated growth.
On July 14, 1995, the Company made the Devono Loan. To fund the Devono
Loan, the Company used $5.0 million of working capital and borrowed $20.0
million under the Company's credit facility with Shawmut Capital Corporation
(the "Shawmut Credit Facility"), $10.0 million of which was repaid with proceeds
from the sale of Lectro. See Note 2 to the Consolidated Financial Statements.
A portion of the net proceeds ($7.0 million) from the sale of the indoor
theater assets of Floyd Theatres was used to prepay a portion of the Company's
outstanding Debentures on April 17, 1995. In addition, on November 15, 1995, the
Company made a scheduled sinking fund payment of $2.6 million under the
Debentures.
In October 1995, the Company acquired a 33% interest in Supercanal, S.A.,
an Argentine cable television company in Mendoza, Argentina, as well as
interests in a newspaper, magazine and radio station. The purchase price was
$13.6 million, $6.6 million of which was paid at closing and $7.0 million of
which is payable over 24 months at 8% interest. The Company financed the $6.6
million at closing by drawing upon its existing Shawmut Credit Facility. In
March 1996, the Company acquired an additional 3% of Supercanal, S.A. in
exchange for $2.0 million and its interest in the radio station and newspaper.
The $2.0 million for the 3% interest is payable over nine months at 12%
interest.
The Company has entered into an agreement to acquire 28.6% of a Mexican pay
telephone company for $6.0 million, with an option to acquire an additional
21.4%. At December 31, 1995, the Company had invested $670,000 representing a
4.3% interest. See Note 2 to the Consolidated Financial Statements.
In February 1996, the Company purchased for $6,750,000 the outstanding
stock of Carolina Com-Tec, Inc., a company engaged in installing and maintaining
voice, data and video networks. The stockholders of Carolina Com-Tec, Inc.
received $1.0 million at closing, a $2.0 million note due June 1, 1996, and a
$1.5 million 8% note payable in quarterly installments over four years. The
balance of the purchase price is payable over the next four years based on
future pre-tax earnings of Carolina Com-Tec, Inc.
In March 1996, the Company sold its investment in preferred stock and was
repaid certain receivables due the Company from the buyer for a total
consideration of $6.3 million, the proceeds of which have been invested in
short-term investments.
Page 20 of 59
As the Company pursues its growth strategy, it continues to evaluate
domestic and international acquisitions that would augment its current
telecommunications and related construction services business by providing a
broader geographical reach and more diversified customer base. The Company
anticipates that these acquisitions, as well as operating cash requirements,
capital expenditures and debt service, will be funded from cash flow generated
by operations, sale of non-core assets, and external sources of financing.
See Note 6 of the Consolidated Financial Statements for a description of
the Company's principal credit facilities, including the Shawmut Credit
Facility. The Shawmut Credit Facility requires the Company to achieve certain
cash flow benchmarks and to maintain a minimum net worth and other financial
ratios, all of which were met as of December 31, 1995.
Impact of Inflation
The primary inflationary factor affecting the Company's operations is
increased labor costs. The Company's revenue is principally derived from
services performed under master contracts, which typically include provisions to
increase contract prices on an annual basis based on increases in the
Construction Price Index. Accordingly, the Company believes that increases in
labor costs will not have a significant impact on its results of operations.
Environmental matters
The Company is in the process of removing, restoring and upgrading
underground fuel storage tanks. As explained more fully in the notes to the
Consolidated Financial Statements, the Company does not expect the costs of
completing this process to be material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On March 11, 1994, the date of the Acquisition, the Board of Directors of
the Company dismissed Deloitte & Touche LLP as the Company's independent
auditors and retained Price Waterhouse L.L.P. as the Company's independent
auditors. The dismissal was previously reported on a Form 8-K filed on March 18,
1994.
On May 8, 1995, the Board of Directors dismissed Price Waterhouse L.L.P. as
the Company's independent auditors and retained Coopers & Lybrand L.L.P. as the
Company's independent auditors. These events were previously reported on
Forms 8-
K filed on May 8, 1995 and June 27, 1995.
Page 21 of 59
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and nominees for director of the
Company set forth under the caption "Election of Directors" of the Company's
Proxy Statement for the 1996 Annual Meeting of Stockholders (the "Proxy
Statement") is incorporated by reference into this Annual Report on Form 10-K.
Information concerning the executive officers of the Company is included in Part
I under the caption "Executive Officers of the Company" in reliance upon General
Instruction G to Form 10-K and Instruction 3 of Item 401(b) of Regulation S-K.
Item 11. EXECUTIVE COMPENSATION
The information concerning executive compensation set forth under the
caption "Executive Compensation" of the Company's Proxy Statement is
incorporated by reference into this Annual Report on Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information concerning security ownership set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" of the
Company's Proxy Statement is incorporated by reference into this Annual Report
on Form 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" of the Company's Proxy Statement is incorporated by
reference into this Annual Report on Form 10-K.
Page 22 of 59
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page Number
Report of Independent Accountants 24
(a)(i) Consolidated Financial Statements
Statements of Income
for the three years ended December 31, 1995 25
Balance Sheets at December 31, 1995 and 1994 27
Statements of Stockholders' Equity
for the three years ended December 31, 1995 29
Statements of Cash Flows for the three
years ended December 31,1995 30
Notes to Consolidated Financial Statements 35
(b) Report on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended December 31, 1995.
(c) Index to Exhibits 57
Page 23 of 59
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 (formerly the Church & Tower Group) as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. 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, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 22, 1996
Page 24 of 59
Part II - Financial Information
Item 8. Financial Statements
MasTec, Inc.
CONSOLIDATED STATEMENTS OF INCOME
for the three years ended December 31, 1995
(In Thousands Except Per Share Amounts)
1995 1994 1993
Revenue $ 174,583 $ 111,294 $ 44,683
Costs of revenue (exclusive of depreciation
and amortization shown separately below) 130,762 83,952 28,729
---------- ---------- ---------
Gross profit 43,821 27,342 15,954
General and administrative expenses 19,081 13,022 9,871
Depreciation and amortization 6,913 4,439 609
---------- ---------- ---------
Operating income 17,827 9,881 5,474
Interest expense
Borrowings 4,819 3,364 133
Notes to stockholders 135 223 0
Interest and dividend income (3,060) (1,165) (315)
Interest on notes from stockholders (289) (304) 0
Special charge-real estate and
investments write-downs 23,086 0 0
Other (income) expense, net (2,028) (1,009) 81
---------- ---------- ---------
(Loss) income from continuing operations
before equity in (losses) earnings of
unconsolidated companies, income
taxes and minority interest (4,836) 8,772 5,575
(Losses) equity in earnings of
unconsolidated companies (300) 247 1,187
(Benefit) provision for income taxes (1,835) 2,325 0
Minority interest 161 0 (10)
---------- ---------- ---------
(Loss) income from continuing operations (3,140) 6,694 6,752
Discontinued operations (Note 16):
Income from discontinued operations
(net of applicable income taxes) 38 825 0
Net gain on disposal of discontinued
operations net of a provision of $6,405 to
write down related assets to realizable
values and including operating losses
during phase-out period (net of
applicable income taxes) 2,493 0 0
---------- ---------- ---------
Net (loss) income $ (609) $ 7,519 $ 6,752
========== ========== =========
Unaudited pro forma data:
Income before income taxes 0 10,396 6,752
Provision for income taxes (1) 0 3,763 2,539
---------- ---------- ---------
Pro forma net (loss) income (1) $ (609) $ 6,633 $ 4,213
========== ========== =========
Page 25 of 59
MasTec, Inc.
CONSOLIDATED STATEMENTS OF INCOME
for the three years ended December 31, 1995
(In Thousands Except Per Share Amounts)
1995 1994 1993
Pro forma net (loss) income (1) $ (609) $ 6,633 $ 4,213
========== ========== =========
Weighted Average shares outstanding 16,046 16,077 10,250
(Loss) earnings per share (1):
Continuing operations $ (0.20) $ 0.36 $ 0.41
Discontinued operations 0.16 0.05 0.00
---------- ---------- ---------
$ (.04) $ 0.41 $ 0.41
========== ========== =========
(1) Net income and earnings per share amounts for 1994 and 1993 have been
adjusted to include a provision for income taxes as though the Company had been
subject to taxation for the entire year. See Note 17 for quarterly financial
data and reported earnings per share.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 26 of 59
MasTec, Inc.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
As of December 31, 1995 and 1994
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 1,076 $ 5,612
Accounts receivable-net and
unbilled revenue 49,057 33,122
Notes receivable 25,892 715
Inventories 2,819 4,111
Deferred and refundable income taxes 1,116 1,368
Theater assets held for sale 0 7,414
Net assets of discontinued operations 6,400 0
Investment in preferred stock 5,100 0
Real estate held for sale 12,292 0
Other current assets 1,448 700
---------- ----------
Total current assets 105,200 53,042
---------- ----------
Property and equipment -at cost 55,806 46,204
Accumulated depreciation (11,235) (6,102)
---------- ----------
Property-net 44,571 40,102
---------- ----------
Investments in unconsolidated
companies 14,847 284
Investment in preferred stock 0 9,000
Notes receivable from stockholders 1,770 3,570
Real estate investments 0 34,604
Other assets 3,775 1,850
---------- ----------
TOTAL ASSETS $ 170,163 $ 142,452
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 27 of 59
MasTec, Inc.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
as of December 31, 1995 and 1994
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 27,863 $ 8,229
Current portion of notes
payable to stockholders 0 1,000
Accounts payable 19,026 8,512
Accrued insurance 3,016 4,227
Accrued compensation 1,804 2,193
Accrued interest 601 631
Accrued income taxes 1,627 0
Other current liabilities 6,696 5,966
---------- ----------
Total current liabilities 60,633 30,758
---------- ----------
Deferred income taxes 5,238 16,286
Accrued insurance 7,439 6,893
Other liabilities 2,123 1,685
---------- ----------
Total other liabilities 14,800 24,864
---------- ----------
Long-term debt 34,601 15,206
Notes payable to stockholders 0 1,500
Convertible subordinated debentures 9,625 19,250
---------- ----------
Total long-term debt 44,226 35,956
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 134,186 134,094
Retained earnings 5,663 6,272
Accumulated translation adjustments 1 0
Treasury stock (91,989) (92,135)
---------- ----------
Total stockholders' equity 50,504 50,874
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 170,163 $ 142,452
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 28 of 59
MASTEC, INC .
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years ended December 31, 1995
(In Thousands)
Common Stock Accumulated
Issued Capital Retained Translation Treasury
Shares Amount Surplus Earnings Adjustment Stock Total
Balance December 31, 1992 10,250 $ 1,025 $ $ 14,666 $ $ $ 15,691
Net income 6,752 6,752
Distributions to stockholders (11,500) (11,500)
- --------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 10,250 1,025 9,918 10,943
Net income 7,519 7,519
Retained earnings of CT Group
transferred to capital surplus 11,165 (11,165) 0
Equity acquired in reverse
acquisition 16,185 1,618 122,969 (92,232) 32,355
Stock issuance costs for
reverse acquisition (18) (18)
Stock issued to employees
from treasury stock (22) 96 74
Stock issued for debentures
from treasury shares 1 1
- --------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 26,435 2,643 134,094 6,272 (92,135) 50,874
Net loss (609) (609)
Stock issued to 401(k)
Retirement Savings Plan from
treasury shares 92 146 238
Accumulated translation adjustment 1 1
- --------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 26,435 $ 2,643 $ 134,186 $ 5,663 $ 1 $(91,989) $ 50,504
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
Page 29 of 59
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31, 1995
(In Thousands)
1995 1994 1993
---------- ---------- ---------
Cash flows from operating activities:
Net (loss) income $ (609) $ 7,519 $ 6,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,913 5,474 609
Minority interest (161) 0 10
Equity in losses (earnings) of
unconsolidated companies 300 (247) (1,187)
Special charge-real estate and
investments write downs 23,086 0 0
Gain on sale of discontinued operations (2,667) 0 0
(Gain) loss on sale of assets (156) (609) 283
Stock issued to employees from treasury stock 0 74 0
Changes in assets and liabilities net of
effects of acquisitions and divestitures:
Accounts receivable-net and unbilled
revenue (20,322) (8,249) 2,577
Inventories and other current assets (1,626) (128) 111
Other assets (2,545) 511 (538)
Accounts payable and accrued expenses 10,929 139 (968)
Accrued and refundable income taxes 1,754 1,133 0
Other current liabilities (1,194) (2,900) 762
Net assets of discontinued operations 963 0 0
Deferred income taxes (10,092) 884 0
Other liabilities 1,023 (9) 0
---------- ---------- ---------
Net cash provided by operating activities 5,596 3,592 8,411
---------- ---------- ---------
Cash flows used in investing activities:
Capital expenditures (14,668) (4,272) (2,036)
Investment in notes receivable (25,000) 0 0
Investments in unconsolidated companies (7,408) 0 (660)
Notes to stockholders 0 (3,570) 0
Repayment of notes to stockholders 1,800 0 0
Cash acquired in acquisitions 148 6,585 0
Cash paid in acquisitions (1,750) (1,850) 0
Proceeds from sale of assets 2,934 664 0
Repayment of notes receivable 443 0 0
Distributions from unconsolidated companies 245 277 1,484
Net proceeds from sale of
discontinued operations 21,293 0 0
---------- ---------- ---------
Net cash used in investing activities (21,963) (2,166) (1,212)
---------- ---------- ---------
Page 30 of 59
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31, 1995
(In Thousands)
1995 1994 1993
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from Term Loan 12,000 1,000 0
Proceeds from Equipment Loan 12,500 0 0
Proceeds from Revolver 21,625 0 0
Financing costs (516) 0 0
Proceeds from note payable 5,450 0 989
Debt repayments (26,966) (5,244) (948)
Debt repayments - Revolver (10,000) 0 0
Repayments of notes from stockholders (2,500) (500) 0
Distributions to shareholders 0 0 (8,500)
Net proceeds from common stock issued
from treasury 238 0 0
---------- ---------- ---------
Net cash provided by (used in)
financing activities 11,831 (4,744) (8,459)
---------- ---------- ---------
Net decrease in cash and cash equivalents (4,536) (3,318) (1,260)
Cash and cash equivalents -
beginning of period 5,612 8,930 10,190
---------- ---------- ---------
Cash and cash equivalents -
end of period $ 1,076 $ 5,612 $ 8,930
========== ========== =========
Cash paid during the period:
Interest $ 4,984 $ 3,984 $ 134
Income taxes $ 7,527 $ 1,695 $ 0
The accompanying notes are an integral part of these consolidated financial
statements.
Page 31 of 59
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31, 1995
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1995
----------
Acquisition of ULM:
Fair value of assets acquired:
Accounts receivable $ 167
Other current assets 67
Property 2,688
Other assets 50
----------
Total non-cash assets 2,972
----------
Liabilities 71
Long-term debt 93
----------
Total liabilities assumed 164
----------
Net non-cash assets acquired 2,808
Cash acquired 148
----------
Purchase price $ 2,956
----------
Note payable issued to ULM stockholder $ 800
Cash paid for acquisition 1,750
Contingent consideration 406
----------
Purchase price $ 2,956
==========
Sale of Lectro:
Assets sold:
Accounts receivable $ 2,158
Inventories 1,770
Other current assets 22
Property 1,832
Other assets 4
----------
Total non-cash assets 5,786
----------
Liabilities 1,878
Long-term debt 343
----------
Total liabilities 2,221
----------
Net non-cash assets sold $ 3,565
==========
Sale Price $ 12,350
Transaction costs (521)
Note receivable (450)
----------
Net cash proceeds $ 11,379
==========
Page 32 of 59
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31, 1995
(In Thousands)
1994
----------
Acquisition of Burnup & Sims:
Fair value of net assets acquired:
Accounts receivable, net of allowances of $1,482 $ 18,274
Inventories and other current assets 7,524
Investments 9,000
Property 40,685
Real estate investments and other assets 32,645
----------
Total non-cash assets $ 108,128
----------
Liabilities $ 49,559
Long-term debt 31,776
----------
Total liabilities assumed $ 81,335
----------
Net non-cash assets acquired 26,793
Cash acquired 6,362
----------
Net value of assets acquired $ 33,155
==========
Purchase price $ 33,155
==========
Acquisition of DTI:
Fair value of net assets acquired:
Accounts receivable $ 2,878
Inventories and other current assets 389
Property 1,270
Real estate investments and other assets 550
----------
Total non-cash assets $ 5,087
----------
Liabilities 1,988
Long-term debt 471
----------
Total liabilities assumed $ 2,459
----------
Net non-cash assets acquired 2,628
Cash acquired 223
----------
Purchase price $ 2,851
----------
Note payable issued to DTI's stockholders $ 1,851
Cash paid for acquisition 1,000
----------
Purchase Price $ 2,851
==========
Page 33 of 59
MasTec, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
for the three years ended December 31, 1995
1995 1994
---------- ----------
Acquisition of assets of Buchanan:
Fair value of net assets acquired:
Equipment $ 3,828
Liabilities assumed 2,978
----------
Cash paid for acquisition $ 850
==========
Property acquired through financing
arrangements $ 9,452 $ 2,989
========== ==========
Property acquired through capital leases $ 0 $ 1,764
========== ==========
In 1995, the Company's purchase of Supercanal was financed in part by the seller
for $ 7 million.
During 1995, MasTec issued $146,000 of common stock from treasury for purchases
made by the MasTec, Inc. 401(k) Retirement Savings Plan. Capital surplus was
increased by $92,000.
During 1994, MasTec sold equipment in exchange for a note receivable for
$631,000.
During 1994, MasTec issued $96,000 of common stock from treasury to its
employees. Capital surplus was reduced by $ 22,000.
During 1993, the CT Group declared distributions to stockholders of $11,500,000.
Of the amounts declared, $8,500,000 was paid in cash in 1993, $500,000 in 1994
and $2,500,000 was paid in 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 34 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of business
The Company's principal business consists of the installation and
maintenance of aerial, underground and buried copper and fiber optic cable,
underground conduit, manhole systems and related construction for local
telephone companies, including Regional Bell Operating Companies such as
BellSouth Telecommunications, Inc., U.S. West, Inc. and SBC Communications,
Inc. (d/b/a Southwestern Bell), and non-Bell local telephone companies such
as Sprint Corp. and GTE Corp. (collectively, "telcos"). The Company also
provides construction services to non-telco public utilities that are similar
to the telecommunications construction services it provides to telcos. The
Company also provides telecommunications construction services to long-distance
telephone companies, competitive access providers, and cable television
operators primarily in the United States and to local and long-distance
telephone companies and CATV operators in Latin America.
The Company also provides services that are complimentary to the Company's
construction business, such as the installation and maintenance of traffic
control and signalization devices, the clearance of utility company rights
of way, the installation and maintenance of "smart highway" signalization
devices and the construction of transmission towers for personal
communication services providers. These services are rendered to
municipalities, public utilities, private businesses and government
agencies such as state departments of transportation. The Company also
designs, installs and maintains local area communications networks for
private businesses.
In addition, the Company also provides general construction and project
management services to municipalities and state and local governments.
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 (the "Company" or "MasTec"). All material intercompany
accounts and transactions have been eliminated. Certain prior year amounts
have been reclassified to conform to the current presentation. The 1994
income statement has been reclassified to reflect the discontinuation of
certain non-core operations acquired as part of the Acquisition (as defined
below). (See Note 16.)
Page 35 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The Combined Financial Statements for the years ended December 31, 1993
include the accounts of Church & Tower of Florida, Inc. ("CTF") and Church
& Tower, Inc. and its majority owned joint venture ("CT"), collectively
referred to as the "CT Group". All material intercompany accounts and
transactions have been eliminated.
On March 11, 1994, the CT Group acquired Burnup & Sims Inc. ("Burnup &
Sims") in a purchase transaction accounted for as a reverse acquisition
(the "Acquisition"). (See Note 2.)
Revenue recognition
Revenue and related costs for short-term construction projects, which
includes master contracts, are recognized when the projects are completed.
Revenue from 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 when they become known. Billings in
excess of costs and estimated earnings on uncompleted contracts are
classified as current liabilities. Any costs in excess of billings are
classified as current assets.
The Company also provides management, coordination, consulting and
administration services for construction projects. Compensation for such
services is recognized ratably over the term of the service agreement.
Earnings per share
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares during the period.
Outstanding stock options are considered common stock equivalents and are
included in the calculation using the treasury stock method. In computing
the 1995 loss per share, stock options are not considered because they have
an anti-dilutive effect.
Fully diluted earnings per share, assuming conversion of the Debentures
with corresponding adjustments for interest expense, net of tax, is not
presented because the effect of conversion is anti-dilutive . Earnings per
share for the year ended December 31, 1993 was computed using the number of
shares outstanding after giving retroactive effect to the 10,250,000 shares
received by the former shareholders of the CT Group.
Cash and cash equivalents
The Company considers all short-term investments with maturities of three
or less when purchased to be cash equivalents. At December 31, 1995 and
1994, cash and cash equivalents included time deposits of $470,000 and $1.4
million, respectively.
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.
Page 36 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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.
Investments
The Company's investment in preferred stock, consisting of 150,000 shares
of 7% cumulative preferred stock with a liquidation value of $15,000,000,
and in real estate located primarily in Florida, acquired in connection
with the Acquisition, are stated at their estimated fair value. (See Note 5
regarding special charge to adjust the value of the Company's real estate
and investments held for sale.) Investments in unconsolidated companies
are accounted for following the equity method of accounting.
Accrued insurance
The Company is self-insured for certain health care, property and casualty
and worker's compensation exposure and, accordingly accrues the estimated
losses not otherwise covered by insurance.
Income taxes
Prior to March 11, 1994, the CT Group was taxed under the Subchapter S
provisions of the Internal Revenue Code (IRC), which provide that taxable
income be included in the federal income tax returns of the individual
stockholders. Accordingly, no provision for income taxes has been recorded
in the combined statements of income for the year ended December 31, 1993.
As a result of the Acquisition, the Company became a taxable corporation
and effective for the year ended December 31, 1994, 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.
Page 37 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
Environmental expenditures
Environmental expenditures that result from the remediation of an existing
condition caused by past operations are expensed. Liabilities are
recognized when cleanup requirements are probable and the cost can be
reasonably estimated.
Changes in accounting standards
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long Lived Assets to be
Disposed Of", is effective for fiscal years beginning after December 15,
1995. This statement requires that long lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. This pronouncement is not expected to have a material
impact on the financial statements of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" is effective for
transactions entered into in fiscal years that begin after December 15,
1995. This pronouncement establishes financial accounting and reporting
standards for stock-based employee compensation plans. It encourages, but
does not require companies to recognize compensation expense for grants of
stock, stock options and other equity instruments to employees based on new
fair value accounting rules. Companies that choose not to adopt the new
fair value accounting rules will be required to disclose pro forma net
income and earnings per share under the new method. The Company
anticipates adopting the disclosure provisions of SFAS No. 123, although
the impact of such disclosure has not been determined.
2. ACQUISITIONS AND INVESTING ACTIVITIES
Burnup & Sims
The CT Group was acquired, through an exchange of stock, effective March
11, 1994, by Burnup & Sims, a publicly traded company with business
activities similar to the CT Group. As a result of the Acquisition, the
stockholders of the CT Group received approximately 65% of the shares of
Burnup & Sims in exchange for 100% of the shares of the CT Group.
Immediately following the Acquisition, the name of Burnup & Sims was
changed to MasTec, Inc. and its fiscal year end was changed to December 31.
Under generally accepted accounting principles, the Acquisition was
accounted for as a reverse acquisition whereby the CT Group was considered
the acquirer and, therefore, the 1993 financial statements presented are
those of the CT Group only. In addition, the results for the year ended
December 31, 1994 include the operations of the CT Group during all of 1994
and the operations of Burnup & Sims from March 11, 1994 to December 31, 1994.
The purchase price "paid" by the CT Group for Burnup consisted of the
market value of Burnup & Sims Common Stock not acquired by CT Group
shareholders in the merger, which equaled $32,355,000 (5,777,592 shares
outstanding at an average market price of $5.60 per share) and $800,000 of
acquisition costs incurred by the CT Group, resulting in a total purchase
price of $33,155,000.
Page 38 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
DTI
On June 22, 1994, the Company acquired all of the outstanding shares of
stock of Designed Traffic Installation Company ("DTI"), for $1,000,000 in
cash and a promissory note in the amount of $1,851,000 in a transaction
accounted for as a purchase. The Company may also pay an additional amount
contingent upon certain specific percentages of net pretax earnings earned
by DTI over the next four years. An estimate of such contingent
consideration based on earnings has been recorded in the accompanying
financial statements.
Buchanan
On July 26, 1994, the Company purchased from Buchanan Contracting Company
machinery and equipment and the seller's rights under two master contracts
with BellSouth Telecommunications, Inc. covering the Montgomery, Alabama
and Memphis, Tennessee areas, the name "Buchanan Contracting Company
Incorporated" and certain leases for $850,000 in cash, a promissory note of
$1,061,000 and an assumption of debt related to the equipment purchased of
$1,917,000. The acquisition was accounted for as a purchase.
Devono Loan
On July 14, 1995 the Company made a $25.0 million term loan to Devono
Company Limited, a British Virgin Islands corporation ("Devono"), at an
annual interest rate of 15% for a term of 180 days (the "Devono Loan").
Devono may extend the term of the Devono Loan at an annual interest rate of
17.5% for two additional ninety day periods, the first of which 90-day
extensions has been exercised. The Devono Loan is non-recourse to Devono,
and, in the event of a default, the Company's sole recourse will be to its
security interest in 40% of the outstanding and issued shares of the common
stock of an Ecuadorian company that owns a 52.6% interest in Consorcio
Ecuatoriano de Telecomunicaciones, S.A., a company operating a cellular
phone network in the Republic of Ecuador. Pursuant to the loan agreement,
the Company may elect to be repaid by Devono transferring the pledge shares
of Cempresa to the Company.
ULM
On July 17, 1995, the Company purchased for $2.96 million the outstanding
stock of Utility Line Maintenance, Inc. ("ULM"), a company engaged in the
utility right of way clearance business. The stockholder of ULM received
$1.75 million at closing, a 48 month 8% note for $800,000 with the balance
of the purchase price to be paid over the next four years based on future
pre-tax earnings of ULM.
Triduct/Sealand
On October 10, 1995, the Company purchased from Sealand Construction and
Engineering Systems, Inc. and Triduct Corporation (collectively referred
to as "Sealand") certain machinery and equipment and the seller's rights
under two master contracts with BellSouth Telecommunications, Inc. covering
the Huntsville and Decatur, Alabama area for approximately $2.1 million.
Page 39 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
Supercanal
On October 19, 1995, the Company acquired a 33% interest in Supercanal,
S.A., a CATV operator in Argentina, as well as interests in a magazine, a
newspaper and a radio station. The total purchase price was $13.6 million,
$6.6 million of which was paid at closing and $7.0 million of which is
payable over 24 months at 8% interest. In March 1996, the Company acquired
an additional 3% of Supercanal, S.A. in exchange for $2.0 million and the
Company's interest in the radio station and newspaper.
Teleport
Also in November 1995, the Company, purchased an FCC-licensed international
long distance teleport facility for the reception and retransmission of
voice, data and video from Latin America and the Caribbean to the United
States. The purchase price for the teleport facility, which is located on
four acres in Miami, Florida, was approximately $750,000. As of December
31, 1995, the Company had invested approximately $600,000 in
telecommunications and other equipment in the facility.
TPP
In November 1995, the Company agreed to purchase 28.6% of
Telecomunicaciones Publicas y Privadas, S.A. de C.V. ("TPP"), a Mexican
public pay telephone company, for $6.0 million, with an option to purchase
an additional 21.4%. At December 31, 1995, the Company had invested
$670,000 representing a 4.3% interest.
The costs of certain acquisitions described above were allocated to the
estimated fair value of acquire assets and liabilities assumed based on
independently and internally generated information obtained to date. The
most significant adjustment to the balance sheet resulting from the
acquisitions are disclosed in the supplemental schedule of non-cash
investing and financing activities in the consolidated statement of cash
flows.
In February 1996, the Company purchased for $6,750,000 the outstanding
stock of Carolina Com-Tec, Inc., a company engaged in installing and
maintaining voice, data and video networks. The stockholders of Carolina
Com-Tec, Inc. received $1.0 million at closing, a $2.0 million note due
June 1, 1996, and a $1.5 million 8% note payable in quarterly installments
over four years. The balance of the purchase price is payable over the next
four years based on future pre-tax earnings of Carolina Com-Tec, Inc.
The following information presents the unaudited pro forma consolidated
results of operations for the year ended December 31, 1994 of MasTec as if
the Burnup & Sims and DTI acquisitions had occurred at the beginning of
1994, after giving effect to certain adjustments, including depreciation of
assets acquired, reduced interest income as a result of the redemption of
subordinated debentures and other receivables of Burnup & Sims, and the
related income tax effect of the adjustments, including the conversion to a
taxable corporation. The unaudited pro forma results presented below
reflects reclassification of discontinued operations.
Page 40 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(In Thousands Except Per Share Amounts)
1994
Revenue $ 130,660
Income from continuing operations $ 3,561
Net income $ 4,079
Earnings per share from continuing operations $ 0.22
Earnings per share $ 0.25
These results are presented for informational purposes only and are not
necessarily indicative of the results of operations or financial position
of MasTec had the Burnup & Sims and DTI acquisitions occurred at the
beginning of 1994 or of future results of the combined companies.
3. ACCOUNTS RECEIVABLE-NET
Accounts receivable are net of an allowance for doubtful accounts of
$1,146,000, $1,404,000, and $250,000 at December 31, 1995, 1994 and 1993
respectively. The Company had no allowance at December 31, 1992. The
Company recorded a provision for doubtful accounts of $425,000, $268,000
and $250,000 during 1995, 1994 and 1993, respectively. In addition, the
Company recorded write-offs of $683,000, $596,000 and $0 during 1995, 1994
and 1993, respectively.
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 $2,561,000 and $1,491,000 at December 31, 1995 and 1994,
respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment was comprised of the following as of December 31,
1995 and 1994 (in thousands):
1995 1994
Land $ 5,645 $10,878
Buildings and improvements 5,362 3,879
Machinery and equipment 43,605 30,354
Office furniture and equipment 1,194 1,093
-------- --------
55,806 46,204
Less-accumulated depreciation (11,235) (6,102)
-------- --------
$44,571 $40,102
======== ========
Page 41 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
5. REAL ESTATE AND INVESTMENTS WRITE-DOWNS
In the third quarter of 1995, the Company decided to accelerate the pace of
its disposal of non-core real estate assets by selling the majority of
these assets in a bulk sale. Primarily as a result of the Company's
decision, the Company recorded a special charge of $15.4 million to adjust
the carrying values of its real estate investments to estimated net
realizable value based on offers received by the Company to dispose of
certain real estate in a bulk transaction. The original value assigned to
the real estate investments contemplated the disposition of the properties
on an individual basis and no consideration had previously been given to a
bulk sale. In February 1996, the Company sold 342 acres of real estate
resulting in an additional charge of $3.2 million was recorded in the
fourth quarter of 1995 to reduce the carrying value of such real estate to
the value realized.
In March 1996, the Company sold its investment in preferred stock and was
repaid certain receivables due the Company from the buyer for a total
consideration of $6.3 million, the proceeds of which have been invested in
short-term investments.
Page 42 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
6. DEBT:
Debt is summarized as follows as of December 31, 1995 and 1994 (in thousands):
1995 1994
Revolver, at LIBOR plus 2.00%
(7.25% at December 31, 1995) $ 10,982 $ 0
Term Loan, at LIBOR plus 2.25%
(7.88% at December 31, 1995) 10,126 0
Term Loan, at 7.7% fixed 636 1,144
Equipment Loan, at LIBOR, plus 2.25%
(7.88% at December 31, 1995) 12,500 0
Other note payables for equipment, at 7.42%
due in monthly installments through the
year 2000 5,352 0
Note payable for equipment, at interest
rates from 6.0% to 9.5% due in installment
through the year 2000 9,330 3,899
Note payable, at 7% due in four semi-annual
installments through July 1996 958 1,851
Note payable, at 7% due in eight quarterly
installments through July 1, 1996 265 796
Note payable, at 8% due in 48 monthly
installments through June 1999 701 0
Note payable, at 8% due in 24 monthly
installments through October 1997 6,458 0
Real estate mortgage note, at 8.53%, monthly
installments of $12.5 commencing February 1996,
with a final installment of $2,200 in the
year 2001 2,070 0
Real estate mortgage note, at 9.5% quarterly
due November 1996 461 0
12% Convertible Subordinated Debentures 12,250 21,875
Term Loan, at prime rate plus 0.5%
(9% at December 31, 1994) 0 8,294
Term Loan, at Prime rate plus 0.5%
(9% at December 31, 1994) 0 1,000
Notes payable to stockholders, at prime rate
plus 2% (10.5% at December 31, 1994) 0 2,500
Capital leases, at interest rates from 6% to
12% due in installments through the year 2000 0 3,826
------------ ------------
Total Debt 72,089 45,185
Less Current Maturities (27,863) (9,229)
------------ ------------
Long Term Debt $ 44,226 $ 35,956
============= ============
Not included in the preceding table at December 31, 1995 is approximately
$2.2 million in capital leases related to discontinued operations (see Note
16).
Page 43 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The 12% Convertible Subordinated Debentures (the "Debentures") require an
annual payment to a sinking fund, which commenced November 15, 1990,
calculated to retire 75% of the issue prior to maturity. The Company has
the option to redeem all or part of the Debentures prior to the due date by
paying the principal amount at face value. The Debentures are convertible
into Common Stock at an adjusted conversion price of $16.79 per share. At
December 31, 1995, approximately 730,000 shares were reserved for
conversion. The terms of the Debentures include certain restrictions on
the payment of dividends. On April 17, 1995, the Company prepaid $7.0
million of the Debentures.
The Company maintains a $40.0 million credit facility with Shawmut Capital
Corporation n/k/a Fleet Capital Corporation (the "Shawmut Credit
Facility"). The Shawmut Credit Facility is comprised of three
sub-facilities: a $12.0 million term loan (the "Term Loan") collateralized
by certain equipment, a $15.5 million revolving loan (the "Revolver")
collateralized by receivables and inventory and a $12.5 million equipment
revolver term loan (the "Equipment Loan") collateralized by new or used
equipment purchased under the Equipment Loan facility. The Company used a
portion of the proceeds of the Term Loan to repay $10.4 million in term
loans outstanding at December 31, 1994. The remaining portion of the Term
Loan was used primarily to finance new equipment purchases and costs
associated with obtaining the Shawmut Credit Facility.
Interest on the Term Loan and Equipment Loan accrue, at the Company's
option, at the rate of prime or 2.25% over LIBOR. Interest on the Revolver
accrues, at the Company's option, at the rate of prime or 2.00% over LIBOR.
The Shawmut Credit Facility required the Company to pay a commitment fee of
$162,500 and an unused line fee at an annual rate of one quarter of one
percent of the amount of the unused facility. The Term Loan is payable in
quarterly installments based upon a ten year amortization. The Equipment
Loan is payable in quarterly installments based on a four year amortization
commencing January 1996. The Shawmut Credit Facility expires in January 2000.
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.
The Company has letters of credit outstanding totaling $3.8 million. These
letters of credit were issued primarily as security to the Company's
insurance administrators as part of its self-insurance program.
At December 31, 1995 debt matures as follows:
1996 $ 27,863
1997 14,416
1998 10,831
1999 9,691
2000 3,264
after 2000 6,024
--------
Total $ 72,089
========
Page 44 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. LEASED PROPERTIES
The Company leases certain operating equipment, offices and equipment yard
facilities under cancelable and noncancelable agreements.
Future minimum lease payments under all leases with initial or remaining
noncancelable lease terms in excess of one year at December 31, 1995 are as
follows (in thousands):
Operating
Leases
1996 $ 577
1997 373
1998 104
---------
Total minimum lease payments $ 1,054
=========
Lease agreements frequently include renewal options and require that the Company
pay for utilities, taxes, insurance and maintenance expense. Options to purchase
are also included in some lease agreements, particularly capital leases.
See note 6 regarding capital leases of discontinued operations.
8. STOCK OPTION PLANS
The Company had two non-qualified stock option plans (the "1976 and 1978
Plans") which were replaced by the 1994 Stock Incentive Plan (the "1994 Plan").
The 1976 Plan provides that options may be exercised in four increments
beginning 18 months subsequent to the date of grant. Upon exercise of the
option, the Company will reduce the optionee's purchase price by an amount
equal to the increase in the fair market value on the exercise date of the
shares being purchased over the fair market value of such shares on the
date the option was granted. The purchase price, however, cannot exceed
85% of the fair market value of such shares on the exercise date, and in no
event can the exercise price be less than $.10 per share. The holder of
the option has the alternative right to cancel such option and instead to
exercise stock appreciation rights entitling the holder to receive cash
under certain circumstances. The 1978 Plan provides that options may be
exercised in four increments beginning one year subsequent to the date of
grant. There is no subsequent adjustment of the purchase price. Approximately
26,100 shares have been reserved for and may still be issued in accordance
with the terms of options issued under the 1976 and 1978 Plans.
The 1994 Plan authorized the grant of options or awards of up to 800,000 shares
of the Company's Common Stock of which 200,000 shares of common stock may be
awarded as restricted stock. As of December 31, 1995, options to purchase
279,100 shares had been granted, 22,120 of which were exercisable at
December 31, 1995. 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 10 years from the date of grant. Options are issued with
an exercise price no less than the fair market value of the shares at the grant
date.
Page 45 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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 400,000 shares of the Company's common
stock to the non-employee members of the Company's Board of Directors.
Options to purchase 45,000 shares have been granted to two Board members,
5,000 of which are exercisable at December 31, 1995. 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.
Approximately 1,200,000 shares of Common Stock have been reserved for
issuance under the 1994 Plan and Director Plan.
In addition, during 1994 options to purchase 100,000 shares of common stock
at $5.75 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.
The following is a summary of all stock option transactions:
Exercise
Shares Price
Outstanding December 31, 1993 0
Options outstanding under acquired plans 32,800 $ 0.10-$2.00
Granted 240,500 $ 5.75-$7.94
Exercised (1,500) $ 2.00
Canceled 0
-------- ------------
Outstanding December 31, 1994 271,800 $ 0.10-$ 7.94
Granted 202,000 $10.25-$13.38
Exercised (2,100) $ 0.10-$ 7.94
Canceled (21,500) $ 0.10-$13.38
-------- ------------
Outstanding December 31, 1995 450,200 $ 0.10-$13.38
========
Page 46 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. INCOME TAXES
Prior to March 11, 1994, the Company was an S Corporation under the IRC
and, therefore, the results of operations for the year ended December 31,
1993, do not include a provision for income taxes, as the income of the
Company passed directly to the stockholders.
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 for income taxes consists of the following (in thousands):
1995 1994
Current
Federal $ 4,821 $ 2,444
State (284) 375
-------- --------
4,537 2,819
-------- --------
Deferred
Federal (5,879) (422)
State (493) (72)
-------- --------
(6,372) (494)
-------- --------
(Benefit) provision for income taxes (1,835) 2,325
Discontinued operations 135 552
-------- --------
Total $(1,700) $ 2,877
======== ========
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 31, 1995 and 1994 are as follows (in thousands):
1995 1994
Deferred tax assets:
Accrued self insurance $ 2,773 $ 2,619
Operating loss and tax credit carryforward 543 422
Accrual for disposal of discontinued
operations 1,503 0
All other 2,708 2,639
-------- --------
Total deferred tax assets $ 7,527 $ 5,680
-------- --------
Deferred tax liabilities:
Property and equipment $ 5,873 $ 4,070
Asset revaluations 2,604 15,219
All other 2,820 2,241
-------- --------
Total deferred tax liabilities $ 11,297 $ 21,530
-------- --------
Valuation allowance 400 0
-------- --------
Net deferred tax liabilities $ 4,170 $ 15,850
========= =========
Page 47 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
The net change in the valuation allowance for deferred tax assets in 1995
was an increase of $400,000. The change relates primarily to foreign net
operating losses generated in the current year.
Deferred tax assets of $1,068,000 and $436,000 for 1995 and 1994,
respectively, have been recorded in current assets in the accompanying
consolidated financial statements.
A reconciliation of the difference between actual income tax expense and
income taxes for continuing operations computed at the federal statutory
tax rate is as follows:
1995 1994
U.S. federal statutory rate
applied to pretax income (35) % 34 %
State and local taxes (2) 5
Effect of dividend exclusion (5) (2)
Change in tax status 0 (9)
Foreign loss producing no tax benefit 6 0
Adjustment of prior years' taxes (5) 0
Change in federal statutory tax rate 9 0
Change in state tax filing status (8) 0
Other 3 (2)
------ ------
(Benefit) Provision for income taxes (37) % 26 %
======= ======
The Internal Revenue Service is currently auditing the tax returns of
Burnup & Sims for the fiscal years ended April 30, 1989 through April 30,
1993. Adjustments, if any, as a result of this audit will be recorded as
an adjustment to purchase accounting.
10. CAPITAL STOCK
The Company has authorized 50,000,000 shares of its $.10 par value Common
Stock. At December 31, 1995 and 1994, 26,434,814 shares of Common Stock
were issued, 16,055,056 and 16,038,581 shares were outstanding,
respectively, and 10,379,758 and 10,396,233 were held in treasury,
respectively. At December 31, 1993, the Company's stockholders' equity was
retroactively restated to account for the Acquisition in March 1994. The
restatement gives effect to the number of shares of Common Stock received
by the CT Group shareholders at the date of the Acquisition.
At the date of the Acquisition, the Company transferred the CT Group's
previously reported undistributed earnings and profits of approximately
$11,165,000 to capital surplus.
At December 31, 1995, the Company had 5,000,000 shares of authorized but
unissued preferred stock.
Page 48 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. BUSINESS SEGMENTS:
Business segment information is summarized as follows (in thousands):
1995 1994 1993
---------- ---------- ---------
Revenue:
Telecommunication construction services $ 172,010 $ 110,609 $ 34,010
General construction services 2,539 685 10,673
Telecommunication operations 34 0 0
---------- ---------- ---------
Total $ 174,583 $ 111,294 $ 44,683
========== ========== =========
(Loss) income from continuing operations
before equity in (losses)earnings of
unconsolidated companies, income taxes
and minority interest:
Telecommunication construction services $ 14,969 $ 11,291 $ 9,351
General construction services 1,410 140 2,266
Telecommunication operations (1,241) 0 0
Corporate (19,974) (2,659) (6,042)
---------- ---------- ---------
Total $ (4,836) $ 8,772 $ 5,575
========== ========== =========
Identifiable assets:
Telecommunication construction services $ 92,082 $ 64,668 $ 17,405
General construction services 2,115 1,344 400
Telecommunication operations 45,135 0 0
Corporate and discontinued operations 30,831 76,440 3,520
---------- ---------- ---------
Total $ 170,163 $ 142,452 $ 21,325
========== ========== =========
Depreciation and amortization expense:
Telecommunication construction services $ 6,454 $ 4,329 $ 609
Telecommunication operations 2 0 0
Corporate 457 110 0
---------- ---------- ---------
Total $ 6,913 $ 4,439 $ 609
========== ========== =========
Capital expenditures:
Telecommunication construction services $ 20,431 $ 5,901 $ 2,036
Telecommunication operations 1,061 0 0
Corporate and discontinued operations 2,628 3,124 0
---------- ---------- ---------
Total $ 24,120 $ 9,025 $ 2,036
========== ========== =========
The Company's operations are organized into three principal business
segments, telecommunications and related construction services, general
construction services, and telecommunications operations. There are no
material intersegment sales or transfers. Identifiable assets are those
assets used for operations in each business segment. Corporate assets are
principally invested in cash, preferred stock, real estate, and the net assets
of the discontinued operations. (See Note 16 regarding discontinued operations.)
Page 49 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. RELATED PARTY TRANSACTIONS:
The Company rents and purchases construction equipment from affiliates. During
1995, 1994 and 1993, the Company incurred approximately $544,000, $617,000 and
$249,000, respectively, of equipment rental expense and purchased approximately
$332,000, $528,000 and $1,432,000 respectively,from these affiliates.
Additionally, at December 31, 1995 and 1994 the Company had recorded $106,000
and $169,000 as amounts due from affiliates. These amounts are included in
accounts receivable in the accompanying balance sheets.
During 1993, the Company declared distributions of Subchapter S earnings to
stockholders of $11,500,000. Of the amounts declared, $2,500,000, $500,000
and $8,500,000 were paid in cash during 1995, 1994 and 1993, respectively.
Notes receivable from stockholders bear interest at the prime rate plus 2%
(10.5% at December 31, 1995). Interest on the notes is payable annually
with principal due on July 15, 1996.
The Company also leases one equipment storage facility from a stockholder
at an annual rent of $48,000 expiring on October 31, 1998.
13. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company provides telecommunications and related construction services
primarily to BellSouth Telecommunications, Inc. Revenue from this entity
for the years ended December 31, 1995, 1994 and 1993 were approximately
$73.1 million, $48.3 million and $29.1 million, respectively. Accounts
receivable from the Company's three largest customers at December 31, 1995
and 1994 were $19.3 million and $11.6 million, respectively.
In addition, the Company recognized revenue from a municipality in connection
with a construction project of approximately $10.7 million during the year
ended December 31, 1993.
14. COMMITMENTS AND CONTINGENCIES:
In 1990 and 1993 purported class action and derivative complaints were
filed against the Company, members of its Board of Directors and the
Company's then largest stockholders. The 1993 complaint also named CT and
CTF and their principal shareholders. The complaints generally alleged,
among other things, that the defendants breached their fiduciary duties in
connection with certain corporate transactions which occurred prior to the
Acquisition and certain other matters which allegedly could have impacted
the terms of the Acquisition. The 1993 complaint also claims derivatively
that each member of the Board of Directors engaged in mismanagement, waste
and breach of their fiduciary duties in managing the Company's affairs.
Page 50 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
In November 1993, Albert Kahn filed a class action and derivative complaint
against Burnup & Sims, the members of its Board of Directors, the CT Group,
and Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal stockholders
of the CT Group. The 1993 lawsuit alleges, among other things, that the
Burnup & Sims Board of Directors and NBC breached their respective fiduciary
duties by approving the terms of the Acquisition and also claims derivatively
that each member of the Burnup & Sims Board of Directors engaged in
mismanagement, waste and breach of their fiduciary duties in managing
Burnup & Sims' affairs. On March 7, 1994, the Delaware court in which these
suits were filed denied plaintiff's motion to enjoin the Acquisition.
The Company is involved in a lawsuit filed by BellSouth Telecommunications,
Inc. arising from certain work performed by a subcontractor of the Company
from 1991 to 1993 and a second lawsuit filed by the County of Gilpin,
Colorado, against the Company in connection with work performed for U.S.
West, Inc. in 1992. The amounts claimed against the Company in these two
lawsuits in the aggregate total approximately $1.4 million. Both lawsuits
were filed in November 1995 and are in the early stages of discovery. The
Company believes that the allegations asserted by BellSouth and Gilpin
County are without merit and intends to defend these lawsuits vigorously.
The Company also is a defendant in a lawsuit between parties unrelated to
the Company regarding enforcement of a purchase agreement to which the
Company is not a party. The plaintiffs in the lawsuit allege that one of
the other defendants in the lawsuit was acting as agent for the Company.
The plaintiffs seek damages in excess of $500,000 against all defendants.
The litigation is in the early stages and the Company has filed a motion to
dismiss the complaint, which motion is pending. The Company believes that
the allegations asserted against the Company in this lawsuit are without
merit and intends to defend this lawsuit vigorously.
The Company believes that the allegations in these complaints are without
merit, and intends to defend these lawsuits vigorously.
All of the claims asserted in the lawsuits described above, with the
exception of the second lawsuit filed by Alfred Kahn in 1994, arise from
activities undertaken prior to March 11, 1994, the date of the Acquisition.
The Company is also a defendant in other legal actions arising in the
normal course of business. The Company believes, that the amount provided
in the financial statements of the Company are adequate to cover the
estimated losses expected to be incurred in connection with these matters.
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.
Page 51 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
In connection with certain construction contracts, the Company has signed
certain agreements of indemnity in the aggregate amount of approximately
$93.4 million, of which approximately $49.5 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. Included in these
amounts are $57.8 million, of which $28.2 million relate to the uncompleted
portion of contracts in process related to the general construction services
segment. Management believes that no losses will be sustained from these
agreements.
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. In this respect, the Company recorded in l993
approximately $566,000 in provisions for costs to be incurred in connection
with these cleanups. The Company does not expect future costs to be
incurred in connection with these clean-ups to exceed the amounts which
have been accrued in the accompanying financial statements.
15. FAIR VALUE
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts and notes receivable, accounts payable, other accrued
liabilities, and notes payable the carrying amounts approximate fair value
due to their short maturities. Long term floating rate notes are carried
at amounts that approximate fair value. As a result of the acquisitions
described in Note 2, other financial instruments, including the Debentures
and the investment in preferred stock, were recorded at their estimated
fair values at the acquisition date. The estimated fair values were based
on quoted market rates and third party valuations for instruments with
similar risk terms and maturities. (See Note 5.)
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.
16. DISCONTINUED OPERATIONS
In the third quarter of 1995, the Company determined to concentrate its
resources and better position itself to achieve its strategic growth
objectives by disposing of all of the general products segment that the
Company acquired as part of the Acquisition. (See Note 2.) These operations
and assets include Southeastern Printing Company, Inc. ("Southeastern"),
Lectro Products, Inc. ("Lectro") and Floyd Theatres, Inc. ("Floyd Theatres").
In March 1995, the Company sold the indoor theater assets of Floyd Theatres
for approximately $11.5 million of which $1.8 million was used to satisfy
liabilities not assumed by the buyer and transaction costs incurred. A gain
Page 52 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
of $1.5 million net of tax, resulted from this transaction in the first quarter.
A portion of the proceeds ($7.0 million) was used to prepay a portion of the
Debentures. In August 1995, the Company sold the stock of Lectro for
$11.9 million in cash and a note receivable (the "Note") of $450,000. Proceeds,
net of transaction expenses were $11.3 million. A gain of $5.9 million, net of
tax was recorded in the third quarter. The proceeds were used to repay
$10.0 million borrowed to finance the Devono Loan. A portion of the
Note ($250,000) is subject to adjustment based on ultimate collectability of
Lectro's accounts receivable as of June 30,1995. Any changes in proceeds from
the Note as a result of any adjustments are not expected to be material.
The remaining outdoor theatre operations of Floyd are currently being
marketed for sale as either operating facilities or for the underlying real
estate value. In the third quarter of 1995, the Company recorded a
provision of $3.2 million, net of tax, related to Floyds' real estate to
reflect a bulk sale value and estimated losses during the phase-out period.
The Company has received offers to sell Southeastern. Based on these
offers, a loss on disposal of $1.8 million, net of tax, has been recorded.
Disposal of these non-core assets is anticipated to be completed in 1996.
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):
December 31, 1995 December 31, 1994
Revenue $ 21,952 $ 29,902
========= ===========
Earnings before income taxes $ 58 $ 1,377
Provision for income taxes 20 552
--------- -----------
Net income from discontinued operations $ 38 $ 825
========= ===========
The following comprises the net assets of discontinued operations at
December 31, 1995 (in thousands)
Receivables, net $ 1,432
Inventory 1,047
Property, plant and equipment, net 9,101
Other assets 51
Land held for sale 964
Less:
Capital leases 2,140
Accounts payables 280
Accrued liabilities and reserve for loss on disposal 3,775
---------
$ 6,400
=========
(See statement of cash flows for discontinued operations disposed of
during 1995).
Page 53 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
17. QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except earnings per share)
1995(1): First Second Third Fourth
Quarter Quarter Quarter(2)Quarter(3) Total
Revenue $ 34,623 $ 39,174 $ 46,642 $ 54,144 $ 174,583
========= ========= ========= ========= ==========
Operating income $ 4,497 $ 6,036 $ 3,696 $ 3,598 $ 17,827
========= ========= ========= ========= ==========
Income (loss) from
continuing operations $ 2,452 $ 4,447 $ (7,438) $ (2,601) $ (3,140)
Income (loss) from
discontinued operations
including gain (loss)
on disposal, net of taxes 1,709 205 1,551 (934) 2,531
--------- --------- --------- --------- ----------
Net income (loss) $ 4,161 $ 4,652 $ (5,887) $ (3,535) $ (609)
========= ========= ========= ========= ==========
Earnings per share:
Income (loss) from continuing
operations $ 0.15 $ 0.28 $ (0.46) $ (0.16) $ (0.20)
Income (loss) of discontinued
operations 0.11 0.01 0.10 (0.06) 0.16
--------- --------- --------- --------- ----------
$ 0.26 $ 0.29 $ (0.36) $ (0.22) $ (0.04)
========= ========= ========= ========= ==========
(Dollars in Thousands, Except Earnings Per Share)
1994(1): First Second Third Fourth
Quarter(5) Quarter Quarter Quarter(6) Total(7)
Revenue $ 14,350 $ 27,305 $ 36,056 $ 33,583 $ 111,294
========= ========= ========= ========= ==========
Operating income 1,156 1,915 3,717 3,093 9,881
========= ========= ========= ========= ==========
Income from continuing
operations 625 1,109 2,136 1,938 5,808
Income (loss) of
discontinued operations 91 474 470 (210) 825
--------- --------- --------- --------- ----------
Net income $ 716 $ 1,583 $ 2,606 $ 1,728 $ 6,633
========= ========= ========= ========= ==========
Earnings per share:
Income from continuing
operations $ 0.04 $ 0.07 $ 0.13 $ 0.12 $ 0.36
Income (loss) of
discontinued operations 0.00 0.03 0.03 (0.01) 0.05
--------- --------- --------- --------- ----------
$ 0.04 $ 0.10 $ 0.16 $ 0.11 $ 0.41
========= ========= ========= ========= ==========
Page 54 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) Results of operations have been reclassified for discontinued
operations. (See Note 16.)
(2) 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. (See Note 5.)
(3) 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 (See Note 5.)
(4) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share data in 1995 does
not equal the total computed for the year due to changes in the average
number of shares outstanding.
(5) The first quarter of 1994 has been presented on a pro forma basis to
include a provision for income taxes as though the Company had been subject
to taxation during the entire quarter.
(6) In the fourth quarter of 1994, the Company recorded certain
adjustments related to other quarters which increased net income by
approximately $207,000, the effect of which on previously recorded quarters
was not significant. Also contributing to the increase was a successful
settlement of litigation.
(7) Net income and earnings per share amounts for 1994 have been adjusted
to include a provision for income taxes as though the Company had been
subject to taxation for the entire year.
Page 55 of 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 29,
1996.
MasTec, Inc.
(Registrant)
/s/Edwin D. Johnson
- -------------------------------
Edwin D. Johnson
Senior Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
The undersigned directors and officers of MasTec, Inc. hereby constitute and
appoint Edwin D. Johnson and Jose M. Sariego and each of them with full power to
act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below this Annual Report on Form 10-K and any
and all amendments thereto and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratify and confirm all that such attorneys-in-fact, or any
of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 29, 1996.
/s/ Jorge Mas /s/ Samuel C. Hathorn, Jr.
- --------------------------- --------------------------
Jorge Mas Samuel C. Hathorn, Jr.
President and Chief Executive Officer Director
(Principal Executive Officer)
/s/ Jorge L. Mas /s/ William A. Morse
- ------------------------------- ----------------------------
Jorge L. Mas William A. Morse
Chairman of the Board Director
/s/ Arthur B. Laffer /s/ Jose S. Sorzano
- ------------------------------- ----------------------------
Arthur B. Laffer Jose S. Sorzano
Director Director
/s/ Eliot C. Abbott
- -------------------------------
Eliot C. Abbott, Director
Page 56 of 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
**********
EXHIBIT INDEX
3.1 Certificate of Incorporation and By-laws of the Company, filed as
Exhibit 3(i) to Company's Registration Statement on Form S-8 (File
No. 33-55327), and incorporated by reference herein.
4.1 Indenture dated as of November 15, 1980 between the Company and Chemical
Bank, filed as Exhibit 4.4 to the Company's Registration Statement on
Form S-7 (File No. 2-69549) and incorporated by reference herein.
10.1 Certificate of Designations of Series C 7% Preferred Stock of National
Beverage Corp., filed as Exhibit 4(c) to the Company's Form 10-K for the
fiscal year ended April 30, 1986 and incorporated by reference herein
10.2 Stock Purchase Agreement dated June 22, 1994, between MasTec, Inc. and
Designed Traffic Installation Co. filed as Exhibit 2 to the Company's
Form 8-K dated July 6, 1994 and incorporated by reference herein.
10.3 Loan and Security Agreement dated January 29, 1995, between the Company,
and Barclays Business Credit, Inc., filed as Exhibit 10 to the Company's
Form 8-K dated February 9, 1995 and incorporated by reference herein.
10.4 Loan Agreement dated July 14, 1995 between the Company and Devono Company
Limited, filed as Exhibit 10 to the Company's Form 10-Q for the quarter
ended June 30, 1995 and incorporated by referenced herein.
10.5 Amendment to Loan and Security Agreement dated February 29, 1996 between
the Company and Fleet Capital Corporation.
10.6 Stock Option Agreement dated March 11, 1994 between the Company and
Arthur B. Laffer.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial data schedule
Page 57 of 59
Exhibit 21
Subsidiaries of the Registrant
Set forth below is a list of the significant subsidiaries of the Company as of
December 31, 1995.
Burnup & Sims Communication Services, Inc.
Burnup & Sims ComTec, Inc.
Burnup & Sims Network Designs
Burnup & Sims of California, Inc.
Burnup & Sims of Texas, Inc.*
Burnup & Sims of the Carolinas, Inc.
Burnup & Sims TelCom of Florida, Inc.
Burnup & Sims TSI, Inc.
Church & Tower, Inc.+
Church & Tower Fiber Tel, Inc.
Church & Tower of Florida, Inc.+
Church & Tower of TN, Inc.
Designed Traffic Installation Co., Inc.+
Floyd Theatres, Inc.
LatLink Corporation
MasTec International, Inc.
MasTec Teleport, Inc.
Southeastern Printing Company, Inc.+
Utility Line Maintenance, Inc. @
All jurisdictions of incorporation for the subsidiaries are in Delaware
except the following: *Texas, +Florida, @ Georgia. All operating subsidiaries
of the Company are 100% owned, with the exception of MasTec Teleport, Inc. which
is 80% owned.
Page 58 of 59
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-8 (No.33-55327) of our report dated
March 22, 1996, on our audits of the consolidated financial statements of
MasTec, Inc. and subsidiaries as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994, and 1993, which report is incorporated by
reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 28, 1996
Page 59 of 59