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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------- to -------
Commission file number 0-3797
MasTec, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 59-1259279
- - - - --------------------------------------------- ------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
8600 N.W. 36th Street, Miami, FL 33166
----------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(305) 599-1800
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(Registrant's telephone number, including area code)
Not Applicable
- - - - ---------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--------------- -----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding as of September 30, 1994
---------------------- -----------------------------------------
$ .10 par value 16,037,337
Page 1 of 22
MasTec, Inc.
Form 10-Q
September 30, 1994
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements
of Income for the Three and Nine Month Periods Ended
September 30, 1994 and 1993 3
Unaudited Condensed Consolidated Balance Sheet
as of September 30, 1994 and Condensed
Combined Balance Sheet as of December 31, 1993 4
Unaudited Condensed Consolidated Statements
of Cash Flows for the Nine Month Period
Ended September 30, 1994 and 1993 6
Unaudited Consolidated Statement of Shareholders'
Equity for the Nine Month Period Ended September 30,
1994 9
Notes to Condensed Consolidated
Financial Statements (Unaudited) 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature page 22
Page 2 of 22
Part I - Financial Information
Item 1. Financial Statements
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
-------- -------- --------- --------
Revenues $ 45,780 $ 8,878 $ 99,553 $ 37,034
-------- -------- --------- --------
Costs and Expenses
Costs of Revenues (exclusive of 34,427 6,029 75,602 23,660
depreciation and amortization shown
separately below)
General and Administrative 5,021 1,042 11,373 4,145
Depreciation and Amortization 1,881 184 4,143 553
Interest Expense -
Borrowings 1,140 34 2,362 115
Notes to Shareholders 60 0 180 0
Interest and Dividend Income (411) (90) (1,020) (193)
Other (401) (21) (593) (75)
-------- -------- --------- --------
Total Costs and Expenses 41,717 7,178 92,047 28,205
Income Before Income Taxes, 4,063 1,700 7,506 8,829
Equity in Earnings (Losses) of
Unconsolidated Joint Ventures and
Minority Interest
Provision for Income Taxes 1,510 0 1,905 0
-------- -------- --------- --------
Income Before Equity in Earnings 2,553 1,700 5,601 8,829
(Losses) of Unconsilidated Joint Ventures
and Minority Interest
Equity in Earnings (Losses) of
Unconsolidated Joint Ventures 53 (393) 190 (1,393)
Minority Interest 0 (2) 0 (8)
-------- -------- --------- --------
NET INCOME $ 2,606 $ 1,305 $ 5,791 $ 7,428
======== ======== ========= ========
Unaudited Pro Forma Data:
Income Before Income Taxes 1,305 7,428
Provision for Income Taxes 503 2,860
-------- -------- --------- --------
Net Income $ 2,606 $ 802 $ 5,791 $ 4,568
======== ======== ========= ========
Average Shares Outstanding 16,054 10,250 16,052 10,250
Earnings Per Share $ 0.16 $ 0.08 $ 0.36 $ 0.45
The accompanying notes are an integral part of these financial statements.
Page 3 of 22
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1994 1993
--------- ---------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 9,353 $ 8,930
Accounts Receivable-Net and Unbilled Revenues 33,033 6,751
Inventories 4,480 0
Deferred and Refundable Income Taxes 4,506 0
Other 930 186
--------- ---------
Total Current Assets 52,302 15,867
--------- ---------
Investments in Preferred Stock and
Long-Term Notes Receivable 11,403 0
Notes Receivable from Shareholders 3,570 0
--------- ---------
Total Investments 14,973 0
--------- ---------
Property-At Cost 63,840 6,066
Accumulated Depreciation (5,269) (1,434)
--------- ---------
Property-Net 58,571 4,632
--------- ---------
Real Estate Investments and Other Assets 25,866 826
--------- ---------
TOTAL ASSETS $ 151,712 $ 21,325
========= =========
The accompanying notes are an integral part of these financial statements.
Page 4 of 22
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
SEPTEMBER 30, DECEMBER 31,
1994 1993
--------- ---------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Maturities of Debt $ 7,285 $ 508
Current Portion of Notes Payable to Shareholders 1,000 500
Accounts Payable 6,201 2,265
Accrued Insurance 4,468 818
Accrued Compensation 2,270 241
Accrued Interest 1,298 0
Accrued Income Taxes 2,585 0
Other 7,312 2,443
--------- ---------
Total Current Liabilities 32,419 6,775
--------- ---------
Other Liabilities 31,223 28
--------- ---------
Long-Term Debt 15,549 1,079
Notes Payable to Shareholders 1,500 2,500
Convertible Subordinated Debentures 21,875 0
--------- ---------
Total Long-Term Debt 36,808 3,579
--------- ---------
Shareholders' Equity
Common Stock 2,643 1,025
Capital Surplus 134,053 0
Retained Earnings 4,596 9,918
Treasury Stock (92,146) 0
--------- ---------
Total Shareholders' Equity 49,146 10,943
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 151,712 $ 21,325
========= =========
The accompanying notes are an integral part of these financial statements.
Page 5 of 22
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
--------- ---------
Cash Flows from Operating Activities:
Net Income $ 5,791 $ 7,428
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 4,143 553
Minority Interest in Earnings of Consolidated Joint 0 8
Equity in (Earnings) Losses of Unconsolidated Joint (190) 1,393
Gain on Sale of Assets (365) 0
Changes in Assets and Liabilities Net of Effects of
Acquisitions:
Accounts Receivable-Net and Unbilled Revenues (8,946) 1,204
Inventories and Other Current Assets 910 (136)
Accounts Payable and Accrued Expenses 478 945
Interest and Income Taxes 374 0
Other Current Liabilities (621) (1,331)
Other Assets (237) 63
Other Liabilities 561 0
--------- ---------
Net Cash Provided by Operating Activities 1,898 10,127
--------- ---------
Cash Flows from Investing Activities:
Capital Expenditures (2,318) (1,764)
Investments in Unconsolidated Joint Ventures (140) (660)
Loans to Shareholders (3,570) 0
Cash Acquired in Reverse Acquisition of
Burnup & Sims 6,291 0
Cash Acquired in Acquisition of DTI 223 0
Cash Paid in Acquisition of DTI (1,000) 0
Cash Paid in Acquisition of Assets of
Buchanan Contontracting (850) 0
Proceeds from Sale of Assets 670 0
Distributions from Unconsolidated Joint Ventures 75 65
--------- ---------
Net Cash (Used) by Investing Activities (619) (2,359)
--------- ---------
The accompanying notes are an integral part of these financial statements.
Page 6 of 22
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In Thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
--------- ---------
Cash Flows from Financing Activities:
Debt Borrowings 1,000 0
Proceeds from Note Payable 0 989
Debt Repayments (1,356) (863)
Repayments of Notes Payable to Shareholders (500) 0
Distributions to Shareholders 0 (3,920)
--------- ---------
Net Cash (Used) by Financing Activities (856) (3,794)
--------- ---------
Net Increase in Cash and Cash Equivalents 423 3,974
Cash and Cash Equivalents - Beginning of Period 8,930 10,190
--------- ---------
Cash and Cash Equivalents - End of Period $ 9,353 $ 14,164
========= =========
Cash Paid (Refunded) During the Period:
Interest $ 2,167 $ 115
Income Taxes (23) 0
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Reverse Acquisition of Burnup & Sims
Fair Value Of Assets Net Acquired:
Accounts Receivables $17,941
Inventories And Other Current Assets 7,066
Investments 11,403
Property 48,029
Real Estate Investments And Other Assets 23,754
-------
Total Non-Cash Assets 108,193
-------
Liabilities 46,341
Long-Term Debt 35,098
-------
Total Liabilities Assumed 81,439
-------
Net Non-Cash Assets Acquired 26,754
Cash Acquired 6,291
-------
Purchase Price $33,045
=======
The accompanying notes are an integral part of these financial statements.
Page 7 of 22
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
(In Thousands)
(Unaudited)
Supplemental Disclosure of Non-Cash Investing and
Financing Activities (continued)
Acquisition of DTI
Fair Value Of Assets Net Acquired:
Accounts Receivables $2,878
Inventories And Other Current Assets 389
Property 1,347
Real Estate Investments And Other Assets 491
-------
Total Non-Cash Assets 5,105
-------
Liabilities 1,764
Long-Term Debt 674
-------
Total Liabilities Assumed 2,438
-------
Net Non-Cash Assets Acquired 2,667
Cash Acquired 223
-------
Purchase Price $2,890
=======
Note Payable issued to DTI's Shareholders $1,890
Cash Paid for Acquisition 1,000
-------
Purchase Price $2,890
=======
Acquisition of Assets of Buchanan:
Fair Value Of Assets Acquired $3,828
Liabilities Assumed 2,978
-------
Cash Paid for Acquisition $850
=======
Property Acquired Through Financing Arrangements $651
=======
Property Acquired Through Capital Leases $2,186
=======
The accompanying notes are an integral part of these financial statements.
Page 8 of 22
MasTec, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In Thousands)
Common Capital Retained Treasury
Stock Surplus Earnings Stock Total
-------------------------------------------------
Balance December 31, 1993 $1,025 $0 $9,918 $0 $10,943
Net Income 5,791 5,791
Equity Acquired in Reverse
Acquisition 1,618 122,951 (92,232) 32,337
Stock issued to Employees from
Treasury Shares (11) 86 75
Retained Earnings transferred
to Capital Surplus 11,113 (11,113) 0
-------------------------------------------------
Balance September 30, 1994 $2,643 $134,053 $4,596 ($92,146) $49,146
=================================================
The accompanying notes are an integral part of these financial statements.
Page 9 of 22
MasTec
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
1. CONSOLIDATION AND PRESENTATION
On March 11, 1994, Church & Tower, Inc. ("CT") and Church & Tower of
Florida, Inc. ("CTF" and, together with CT, "CT Group"), privately held
corporations under common control, were acquired (the "Burnup Acquisition")
through an exchange of stock, by Burnup & Sims Inc. ("Burnup"), a Delaware
public company. Immediately following the Burnup Acquisition, the name of
Burnup was changed to MasTec, Inc. ("MasTec" or the "Company") and its
fiscal year end was changed to December 31.
The accompanying unaudited condensed consolidated financial statements of
MasTec have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for
Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all
information and notes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with
the audited combined financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1993.
The financial information furnished reflects all adjustments, consisting
only of normal recurring accruals which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations for the periods presented. The results of operations are not
necessarily indicative of future results of operation or financial position
of MasTec.
Under generally accepted accounting principles, the Burnup Acquisition was
accounted for as a purchase by the CT Group and, therefore, the 1993
financial statements presented are those of the CT Group only. In
addition, the results for the nine months ended September 30, 1994, include
the operations of the CT Group during such period and the operations of
Burnup during the period March 11, 1994, through September 30, 1994, as
well as those of Designed Traffic Installation Company ("DTI") and Buchanan
Contracting Company ("Buchanan") as described below (collectively referred
to as Acquisitions).
On June 22, 1994, the Company acquired all of the outstanding shares of
DTI, a Florida corporation, for $1,000,000 in cash and a promissory note
in the amount of $1,890,000 ("the DTI Acquisition") 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. The cost of the DTI Acquisition has been
allocated to the fair value of the assets acquired and liabilities assumed
(See Consolidated Statement of Cash Flows). The Company has not finalized
the allocation of the purchase price but believes that a substantial
portion ultimately will be allocated to machinery, equipment and
receivables. The additional contingent consideration based on earnings is
not currently determinable and, has therefore, not been recorded in the
accompanying financial statements.
On July 26, 1994, the Company purchased from Buchanan machinery and
equipment, the rights to two master contracts covering the Montgomery,
Alabama and Memphis, Tennessee areas, with Bell South Telecommunications,
the name "Buchanan Contracting Company Incorporated" and certain leases for
Page 10 of 22
MasTec
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
$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.
The following information presents the unaudited pro forma condensed
results of operations for the nine months ended September 30, 1994 and 1993
of MasTec as if the Acquisitions had occurred on January 1, 1993.
Adjustments have been made related to purchase accounting and other matters
related to the Acquisitions. These results are presented for informational
purposes only and are not necessarily indicative of the future results of
operations or financial position of MasTec or the results of operations or
financial position of MasTec had the Acquisitions occurred on January 1,
1993.
PRO FORMA RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(In Thousands Except Per Share Amounts)
1994 1993
---------- -----------
(Unaudited) (Unaudited)
Revenues $ 124,593 $ 148,675
Net Income (Loss) 2,904 (573)
Income (Loss) Per Share $ 0.18 $ (0.04)
Pro forma revenues in 1994 decreased by $24.1 million mainly as a result of
the completion in the latter part of 1993 of a construction project, an
offshore utilities services contract, which was substantially completed in
1993 and the divestiture of a subsidiary in 1994 (See Note 8).
The net pro forma result for the comparable period improved by
approximately $3.5 million from a net loss of $573,000 to a net income of
$2.9 million mainly due to the restructuring and closing during early 1994
of certain unprofitable Burnup areas of operation and the write-off of
tangible assets related to such.
The most significant adjustments to the balance sheet resulting from the
Acquisitions are disclosed in the supplemental schedule of non-cash
investing activities in the statement of cash flows. The purchase price
"paid" by the CT Group for Burnup consisted of the market value of Burnup
stock not acquired by CT Group shareholders in the merger of $32,355,000
(5,777,592 shares outstanding at an average market value of $5.60 per
share) and $690,000 in acquisition costs incurred by the CT Group,
resulting in a total purchase price of $33,045,000.
2. Related Party Transactions
Notes Receivable from shareholders bear interest at the prime rate plus 2%
(9.25% at September 30, 1994). See Note 4 regarding amounts payable to
shareholders.
Page 11 of 22
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 (Unaudited)
3. Other Liabilities
Other Liabilities are summarized as follows (Dollars in Thousands):
September 30, December 31,
1994 1993
Deferred Income Taxes $ 21,495 $ 0
Accrued Insurance 7,624 0
Other 2,104 28
--------------- ----------
$ 31,223 $ 28
=============== ==========
4. Debt
Debt is summarized as follows (Dollars in Thousands):
September 30, December 31,
1994 1993
Term Loan payable to Bank, at
prime plus 1/2% (7.75% at September 30,
1994, due June 1995) $ 8,536 $ 0
Term Loan payable to Bank at prime rate
plus 1/2%, due December 30, 1994 1,000 0
Term Loan payable to Bank, at 7.7% 1,228 1,587
Notes Payable to Shareholders, at
prime plus 2% (9.25% at September 30,1994) 2,500 3,000
Capital Leases and Other, at Interest
Rates from 6% to 12% due in
installments through the year 2000 6,494 0
Other, 7% due in four semi-annual
installments through July 10, 1996 1,890 0
Other, 7% due in eight quarterly installments
through July 1, 1996 1,061 0
12% Convertible Subordinated Debentures
due 2000 24,500 0
---------- ----------
Total Debt 47,209 4,587
Less Current Maturities (8,285) (1,008)
---------- ----------
Non-Current Debt $ 38,924 $ 3,579
========== ==========
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 a conversion price of $16.79 per share. At September
30, 1994, approximately 1,459,000 shares were reserved for conversion.
Page 12 of 22
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 (Unaudited)
The Company is negotiating with a lender the refinancing of its Term Loan.
Accordingly, although the Term Loan is scheduled to mature during the next
twelve months, it is expected that the Company will not be required to use
working capital during the ensuing year for the repayment of the Term Loan.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants.
5. Earnings Per Share and Capital Stock
Earnings per share is based on the weighted average number of common shares
outstanding. Fully diluted earnings per share is not presented as the
effect of common stock equivalents is anti-dilutive or not material.
Earnings per share for the nine months ended September 30, 1993, gives
retroactive effect to the 10,250,000 shares received by the former
stockholders of the CT Group.
At September 30, 1994, the Company had 50,000,000 shares of $.10 par value
common stock (the "Common Stock") authorized and 16,037,337 shares
outstanding, and 5,000,000 shares of authorized but unissued preferred
stock.
6. Stock Option Plans
Options to purchase 163,100 shares of Common Stock under the Company's 1976
and 1978 Stock Option Plans (the "1976 and 1978 Plans") were exercised on
March 11, 1994, as well as stock appreciation rights with respect to 55,965
shares. These plans were replaced by the 1994 Stock Incentive Plan (the
"1994 Plan"). Approximately 31,300 options remain outstanding under the
1976 and 1978 Plans and may be still exercised in accordance with the terms
of plans.
In connection with the Burnup Acquisition, the Company's stockholders
approved the 1994 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan") and the 1994 Plan. The Directors' Plan authorized
options to purchase up to 400,000 shares of the Company's common stock
issuable to the non-employee members of the Company's Board of Directors.
Options to purchase 30,000 shares have been granted to Board members, none
of which are exercisable at September 30, 1994. The options permit the
on-employee director to exercise for a period of up to ten years from the
date of grant at an exercise price equal to the fair market value of such
shares on the date the option is granted.
The 1994 Plan authorized options to purchase up to 800,000 shares of the
Company's Common Stock of which 200,000 shares may be awarded as restricted
stock. At March 11,1994, options to purchase 125,500 had been granted.
Options become exercisable over a five year period in equal increments of
20% per year beginning the year after the date of grant and must be
exercised at an exercise price no less than the fair market value of the
shares at the grant date. At September 30, 1994 none of these shares are
exercisable.
Page 13 of 22
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
7. Income Taxes
The CT Group had elected to be treated as an S Corporation under the
Internal Revenue Code ("IRC") and, therefore the results of operations for
the nine months ended September 30, 1993, do not include a provision for
income taxes, as the income of the CT Group passed directly to the
stockholders.
On March 11, 1994, the CT Group's election to be treated as an S
Corporation was terminated. The income tax provision for the nine months
ended September 30, 1994, includes the operations of the CT Group and
Burnup for the period from March 11, 1994, (date of Burnup Acquisition)
through September 30, 1994. The effect of recognizing a net deferred tax
asset of approximately $435,000 at March 11, 1994, in connection with the
change in tax status, is included in the provision for income taxes for the
nine months ended September 30, 1994.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Deferred income taxes reflect the net effects of (a) temporary
differences between carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax liability as of
September 30, 1994 are as follows (in thousands of dollars):
Tax Effect of Taxable Temporary Differences:
Differences between book and tax basis of property $ 21,464
Other 3,206
----------
24,670
----------
Tax Effect of Deductible Temporary Differences:
Reserves not currently deductible (5,167)
Operating loss carryforwards (624)
Tax credit carryforwards (112)
-----------
(5,903)
-----------
Valuation allowance 615
-----------
Net deferred tax liability $ 19,382
===========
There was no change in the valuation allowance for the period ended
September 30, 1994.
Page 14 of 22
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
8. Contingencies
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was
filed on December 1990 by a stockholder of the Company in the Court of
Chancery of the State of Delaware in and for New Castle County against the
Company, the members of the Board of Directors, and against National
Beverage Corporation ("NBC"), as a purported class action and derivative
lawsuit. In May 1993, plaintiff amended its class action and shareholder
derivative complaint (the "Amended Complaint"). The class action claims
allege, among other things, that the Board of Directors, and NBC as its
then largest stockholder, breached their respective fiduciary duties in
approving (i) the distribution to the Company's stockholders of all of the
common stock of NBC owned by it (the "Distribution") and (ii) the exchange
by NBC of 3,846,153 shares of Common Stock for certain indebtedness of NBC
held by the Company (the "Exchange") (the Distribution and the Exchange are
hereinafter referred to as the "1991 Transaction"), and allegedly placing
the interests of NBC ahead of the interests of the other stockholders of
the Company. The derivative action claims allege, among other things, that
the Board of Directors had breached its fiduciary duties by approving
executive officer compensation arrangements, by financing NBC's operations
on a current basis, and by permitting the interests of the Company to be
subordinated to those of NBC. In the lawsuit, plaintiff seeks to rescind
the 1991 Transaction and to recover damages in an unspecified amount.
The Amended Complaint alleges that the Special Transaction Committee that
approved the 1991 Transaction was not independent and that, therefore, the
1991 Transaction was not protected by the business judgment rule or
conducted in accordance with a settlement agreement (the "1990 Settlement")
entered into in 1990 pertaining to certain prior litigation. The Amended
Complaint also makes other allegations which involve (i) further violations
of the 1990 Settlement by the Company's engaging in certain transactions
not approved by the Special Transaction Committee; (ii) the sale of a
subsidiary of the Company to a former officer of the Company, (iii) the
timing of the 1991 Transaction and (iv) the treatment of executive stock
options in the 1991 Transaction. In November 1993, plaintiff filed a class
action and derivative complaint, Civil Action 13248, (the "1993 Complaint")
against the Company, the members of the Board of Directors, CT, CTF, Jorge
Mas Canosa, Jorge Mas and Juan Carlos Mas (CT, CTF, Jorge Mas Canosa, Jorge
Mas and Juan Carlos Mas are referred to as the "CT Defendants"). In
December 1993, plaintiffs amended the 1993 Complaint ("1993 Amended
Complaint"). The 1993 Amended Complaint alleges, among other things, that
(i) the Board of Directors and NBC, as the Company's largest stockholder at
the time, breached their respective fiduciary duties by approving the
Acquisition Agreement and the Redemption (as defined in the Proxy Statement
dated February 10, 1994) which, according to the allegations
of the 1993 Complaint, benefits Mr. Caporella at the expense of the
Company's stockholders, (ii) the CT Defendants had knowledge of the
fiduciary duties owed by NBC and the Board of Directors and knowingly and
substantially participated in their breaches thereof, (iii) the Special
Transaction Committee of the Board of Directors which approved the
Acquisition Agreement and Redemption was not independent and, as such, was
not in accordance with the 1990 Settlement, (iv) the Board of Directors
breached its fiduciary duties by failing to take an active and direct role
Page 15 of 22
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
in the sale of the Company and failing to ensure the maximization of
stockholder value in the sale of control of the company, and (v) the Board
of Directors and NBC, as the Company's largest stockholder at the time,
breached their respective fiduciary duties by failing to disclose
completely all material information regarding the Acquisition Agreement and
the Redemption.
The 1993 Complaint also claims derivatively that each member of the Board
of Directors engaged in mismanagement, waste and breach of their fiduciary
duties in managing the Company's affairs. On November 29, 1993, plaintiff
filed a motion for an order preliminarily and permanently enjoining the
Acquisition and the Redemption. On March 7, 1994, the court heard arguments
with respect to plaintiff's motion to enjoin the Acquisition and Redemption
and on March 10, 1994, the court denied plaintiff's request for injunctive
relief.
The Company believes that the allegations in the complaint, the Amended
Complaint, the 1993 Complaint and the 1993 Amended Complaint are without
merit, and intends to vigorously defend these actions.
William C. Deviney, Jr. v. Burnup & Sims Inc., et al., Civil Action No.
152350 was filed in the Chancery Court of the First Judicial District of
Hines County, Mississippi on May 3, 1993. The plaintiff in this action
filed suit seeking specific performance of alleged obligations of the
Company pursuant to a stock purchase agreement and related agreements
entered into in 1988. Pursuant to the agreements, the Company sold to
plaintiff a minority interest in a utilities services subsidiary and
granted to plaintiff an option to purchase the remaining stock if certain
conditions were satisfied. On July 5, 1994 a final judgement was entered
for the plaintiff, and in satisfaction thereof, the following transactions
occurred on July 15, 1994: (1) the ownership in the utilities services
subsidiary was transferred to the plaintiff in consideration of $400,000,
representing the initial investment of the Company; (2) an assignment of
master contracts was executed; (3) various intercompany receivables were
settled resulting in a $580,000 payment by the plaintiff to Company; and
(4) $200,000 of attorneys fees was paid to the plaintiff. The Company
accounted for this transaction as a purchase accounting adjustment,
accordingly, the settlement will have no adverse effect on the current
financial position of the Company.
On March 22, 1993, Jorge Gamez, as Personal Representative of the Estate of
Jorge A. Gamez, deceased, filed a suit against the Church & Tower, Inc., a
Florida Corporation, et al., Civil Action 93-07318 CA 20, filed in the
Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida
on and amended on April 20, 1994, to include MasTec, Inc. In October 1994,
the Company settled its suit with Jorge Gamez for $1,382,000 of which
$1,000,00 was paid by the Company's insurance carrier. The cost to the
Company had been provided for in the prior fiscal year.
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 certain tanks, as required by the
applicable laws, and has identified these tanks and surrounding soil which
will require remedial cleanups. At September 30, 1994, $630,000 had been
Page 16 of 22
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 (Unaudited)
accrued for site remediation and is reflected in the accompanying
Consolidated Balance Sheet as part of "Other Current Liabilities."
The Company is also a defendant in other legal actions arising in the
normal course of business.
Management believes, based on consultations with legal counsel, that the
amount reserved in the accompanying financial statements is adequate to
cover the estimated losses expected to be incurred in connection with these
matters.
Page 17 of 22
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
September 30, 1994
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
- - - - ---------------------------------------------------------------------------
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and related notes thereto.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1994 vs. Three Months Ended September 30,
1993
- - - - ---------------------------------------------------------------------------
The results for the quarter ended September 30, 1993 include three months
of operations of the CT Group only. (See Note 1 to the Condensed
Consolidated Financial Statements.)
Revenues for the quarter increased by approximately $36.9 million primarily
resulting from the inclusion of revenues from acquired companies
(approximately $33.5 million) coupled with increases in utilities services
revenue of $5.3 million resulting from customers increasing work orders,
offset by a $1.9 million decrease in revenues from the Company's
construction services segment due to the completion of a project included
in last year's results.
Costs of revenues as a percentage of revenues increased from 67% in 1993 to
approximately 75% in 1994, due to lower margins realized on certain Burnup
contracts and costs associated with starting new utilities service
contracts.
General and administrative expenses increased by approximately $4 million
due primarily to the impact of the Burnup Acquisition. However, as a
percent of revenue, expenses decreased from 12% in 1993 to 11% in 1994, as
a result of enhanced administrative efficiencies and economies of scale.
Depreciation and amortization increased as a percentage of revenues from 2%
in 1993 to 4% in 1994, primarily as a result of adjustments in asset
values made in connection with the Burnup Acquisition.
Interest expense increased primarily due to debt assumed and the incurrence
of indebtedness to shareholders pursuant to the Burnup Acquisition.
The increase in interest and dividend income resulted from the Burnup
Acquisition. Other income increased due to the rental of certain equipment
to a third party and gains realized on the sale of machinery and equipment.
Equity in earnings of unconsolidated joint ventures increased due to
estimated losses incurred during the first nine months of 1993 resulting
from the nonpayment of certain change orders, of which certain claims were
subsequently settled.
Page 18 of 22
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
September 30, 1994
The provision for income taxes approximates 37% of pretax income for the
three months ended September 30, 1994 and was affected by state income
taxes and preferred stock dividends. The CT Group was not subject to
taxation in 1993 as it had elected to be treated as an S Corporation under
the IRC.
Nine months Ended September 30, 1994 vs Nine Months Ended September 30,
1993
- - - - ---------------------------------------------------------------------------
The results for the nine months ended September 30, 1994 include nine
months of operations of the CT Group, operating results of Burnup for the
period March 11, 1994 through September 30, 1994, of DTI for the period
June 22, 1994 to September 30, 1994 and of Buchanan for the period July 22,
1994 to September 30, 1994. (See Note 1 to the Condensed Consolidated
Financial Statements.)
Revenues for the nine months ended September 30, 1994 increased by
approximately $62.5 million primarily resulting from the inclusion of
revenues generated by acquired companies (approximately $70.7 million),
offset by an $8.6 million decrease in revenues from the Company's
construction services segment.
Cost of revenues as a percentage of revenues increased from 64% in 1993 to
76% in 1994, due to lower margins realized on certain Burnup contracts and
costs associated with starting new utilities services contracts.
General and administrative expenses increased by approximately $7.2 million
due primarily to the impact of the Acquisition.
Depreciation and amortization increased as a percentage of revenues from 1%
in 1993 to 4% in 1994, primarily as a result of the acquisitions and
additional depreciation expense resulting from a fleet replacement program
implemented in the latter part of 1993.
Interest expense increased due to debt assumed and the incurrence of
indebtedness to shareholders pursuant to the Burnup Acquisition.
The increase in interest and dividend income resulted from the Burnup
Acquisition.
Upon consummation of the Acquisition, the CT Group's election to be treated
as an S Corporation was terminated and, accordingly, the Company recognized
a net deferred tax asset of approximately $435,000 related to deductible
temporary differences. This benefit was reduced by a provision for the
results of operations of the consolidated group for the period March 11,
1994 to September 30, 1994 at an effective tax rate of 37%. The CT Group
was not subject to tax in 1993 as it had elected to be treated as an S
Corporation under the IRC.
Page 19 of 22
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
September 30, 1994
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
September 30, 1994 vs. December 31, 1993
- - - - ---------------------------------------------------------------------------
The Company's cash position increased to approximately $9.4 million at
September 30, 1994 from $8.9 million at December 31, 1993. Cash of $1.9
million was generated by improved operating activities reduced by changes
in various components of working capital, particularly an increase in
accounts receivable. This increase in receivables was primarily the result
of an increase in revenues. Cash of $619,000 was used in investing
activities, including $6.5 million provided by acquisitions, $3.6 million
loaned to shareholders to pay taxes on the earnings of the CT Group under
Subchapter S status, $1 million used for the DTI Acquisition and $850,000
used for the purchase of the assets of Buchanan as discussed in Note 1 to
the Condensed Consolidated Financial Statement. Cash of $1.9 million was
used during the nine months ended September 30, 1994 for debt repayments.
The Company borrowed $1 million to finance one of its Acquisitions during
the period.
Significant adjustments to the balance sheet were recorded as a result of
the Acquisitions, (see Note 1 to the Condensed Consolidated Financial
Statements) as more fully detailed in the supplemental schedule of non-cash
investing activities of the Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1994.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants.
(See Note 4 to the Condensed Consolidated Financial Statements.)
The Company anticipates that operating cash requirements, capital
expenditures, and debt service will substantially be funded from cash flow
generated by operations, as well as, trade and external financing. The
Company is currently negotiating the refinancing of certain existing debt
and the extension of new credit facilities.
The Company currently has no additional material commitments for capital
expenditures; however, it is continuously evaluating the need for equipment
fleet improvements and replacements.
Page 20 of 22
MasTec, Inc.
PART II - OTHER INFORMATION
September 30, 1994
Item 1. Legal Proceedings
See the description under Note 8 to the Condensed Consolidated
Financial Statements which is hereby incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Item 27. Article 5 - Financial Data Schedule
(b) Reports on Form 8-K.
On September 1, 1994, the Company filed Form 8-K/A reporting information
under Item 7(a) thereof regarding the financial statements of Designed
Traffic Installation, Co. acquired by the Company on June 22, 1994 .
Page 20 of 22
MasTec, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: November 14 , 1994 /s/ Carlos A. Valdes
________________________
Carlos A. Valdes
Sr. Vice-President - Finance
(Principal Financial Officer)
and
Authorized Officer of the
Registrant
Page 22 of 22