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 March 31, 1995
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.
-----------------------------------------------------
(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
----------------------------------------------------
(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.
Outstanding as of
Class of Common Stock March 31, 1995
----------------------- ------------------
$ 0.10 par value 16,041,213
Page 1 of 21
MasTec, Inc. Form 10-Q
March 31, 1995 Index
PART I FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Statements
of Income for the Three Month Period Ended
March 31, 1995 and March 31, 1994 . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets
as of March 31, 1995 (Unaudited) and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . 4
Unaudited Condensed Consolidated Statements
of Cash Flows for the Three Month Period
Ended March 31, 1995 and March 31, 1994 . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) . . . . . . . . . . . . 9
Item 2 - Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . 17
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . 20
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . 21
Page 2 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
THREE MONTHS ENDED
MARCH 31,
1995 1994
(Unaudited) (Unaudited)
----------- -----------
Revenues $ 43,562 $ 17,157
----------- -----------
Costs and Expenses
Costs of Revenues (exclusive of
depreciation and amortization
shown separately below) 32,014 13,190
----------- -----------
Gross Profit 11,548 3,967
General and Administrative 4,992 2,107
Depreciation and Amortization 1,605 553
----------- -----------
Operating Income 4,951 1,307
Other Expense (Income)
Interest Expense-
Borrowings 1,162 327
Notes to Shareholders 69 60
Interest and Dividend Income (397) (135)
Interest on Notes from Shareholders (98) 0
Gain on Sale of Theatre Assets (2,304) 0
Other, Net (82) (104)
----------- -----------
(1,650) 148
----------- -----------
Income before income taxes, equity in
earnings (losses) of unconsolidated
joint venture and minority interest 6,601 1,159
Equity in earnings (losses) of
unconsolidated joint ventures (11) 45
Provision (Credit) for Income Taxes 2,443 (398)
----------- -----------
Income before minority interest 4,147 1,602
Minority interest 14 0
----------- -----------
NET INCOME $ 4,161 $ 1,602
=========== ===========
Average Shares Outstanding 16,170 16,045
Earnings Per Share $ 0.26 $ 0.10
The accompanying notes are an integral part of these financial statements.
Page 3 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1995 1994
(Unaudited) (Audited)
----------- -----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 18,296 $ 5,612
Accounts Receivable-Net and Unbilled
Revenues 41,009 33,837
Inventories 3,894 4,111
Deferred and Refundable Income Taxes 1,503 1,368
Theatre Assets held for Sale 0 7,414
Other 1,524 700
----------- -----------
Total Current Assets 66,226 53,042
----------- -----------
Property and Equipment - At Cost 50,551 50,104
Accumulated Depreciation (7,428) (6,102)
----------- -----------
Property - Net 43,123 44,002
Investment in Preferred Stock 9,000 9,000
Notes Receivable from Shareholders 3,570 3,570
Real Estate Investments 30,696 30,704
Other Assets 2,079 2,134
----------- -----------
TOTAL ASSETS $ 154,694 $ 142,452
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 4 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
MARCH 31, DECEMBER 31,
1995 1994
(Unaudited) (Audited)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Debt $ 7,443 $ 8,229
Current Portion of Notes Payable
To Shareholders 1,000 1,000
Accounts Payable 12,261 8,512
Accrued Insurance 3,770 4,227
Accrued Compensation 1,876 2,193
Accrued Interest 1,272 631
Accrued Taxes 2,789 0
Other 5,659 5,966
----------- -----------
Total Current Liabilities 36,070 30,758
----------- -----------
Deferred Income Taxes 17,667 17,938
----------- -----------
Accrued Insurance - Non-Current 8,332 6,893
----------- -----------
Other Liabilities 19 33
----------- -----------
Long-Term Debt
Long-Term Debt 16,793 15,206
Notes Payable to Shareholders 1,500 1,500
Convertible Subordinated Debentures 19,250 19,250
----------- -----------
Total Long-Term Debt 37,543 35,956
----------- -----------
Shareholders' Equity
Common Stock 2,643 2,643
Capital Surplus 134,098 134,094
Retained Earnings 10,433 6,272
Treasury Stock (92,111) (92,135)
----------- -----------
Total Shareholders' Equity 55,063 50,874
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 154,694 $ 142,452
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 5 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
MARCH 31,
1995 1994
----------- -----------
(Unaudited)
Cash Flows from Operating Activities:
Net Income $ 4,161 $ 1,602
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating Activities:
Minority Interest in Consolidated
Joint Ventures (14) 0
Depreciation and Amortization 1,605 553
Equity in (Earnings) Losses of Unconsolidated
Joint Ventures 11 (45)
(Gain) on Sale of Theatre Assets (2,304) 0
(Gain) on Sale of Assets (24) 0
Changes in Assets and Liabilities Net of
Effect of Reverse Acquisition of Burnup:
Accounts Receivable-Net and Unbilled
Revenues (7,172) (2,115)
Inventories and Other Current Assets (91) (730)
Other Assets 34 (128)
Accounts Payable and Accrued Expenses 3,616 744
Accrued Income Taxes 2,654 (1,047)
Other-Current Liabilities (307) (1,164)
Deferred Taxes (271) 1,066
Other Liabilities 1,439 836
----------- -----------
Net Cash Provided (Used) by
Operating Activities 3,337 (428)
----------- -----------
Cash Flows from Investing Activities:
Cash Acquired in Reverse Acquisition 0 6,362
Capital Expenditures (843) (278)
Distribution from Unconsolidated Joint Ventures 0 65
Loans to Shareholders 0 (3,570)
Net Proceeds from Sale of Theatre Assets 9,718 0
Proceeds from Sale of Assets 544 0
----------- -----------
Net Cash Provided by Investing Activities 9,419 2,579
----------- -----------
(Continued)
The accompanying notes are an integral part of these financial statements.
Page 6 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Cash Flows from Financing Activities:
Proceeds from Term Loan 12,000 0
Debt Repayments (11,584) (142)
Financing Costs (516) 0
Net Proceeds from Common Stock
issued from Treasury 28 0
----------- -----------
Activities Net Cash (Used) by Financing (72) (142)
----------- -----------
Net Increase in Cash and Cash Equivalents 12,684 2,009
Cash and Cash Equivalents -
Beginning of Period 5,612 8,930
----------- -----------
Cash and Cash Equivalents - End of Period $ 18,296 $ 10,939
=========== ===========
Supplemental disclosures of Cash Flow information:
Cash Paid During the Period:
Interest $ 590 $ 77
Income Taxes $ 92 $ 0
(Continued)
The accompanying notes are an integral part of these financial statements.
Page 7 of 21
MasTec, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(In Thousands)
THREE MONTHS ENDED
MARCH 31,
1995 1994
----------- -----------
(Unaudited)
Supplemental Schedule of non-cash investing activities:
Reverse Acquisition of Burnup
Fair Value of Net Assets Acquired:
Accounts Receivables $ 18,274
Inventories and Other Current Assets 7,524
Investment 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
===========
Property Acquired:
Through Financing Arrangements $ 385 $ 0
=========== ===========
The accompanying notes are an integral part of these financial statements.
Page 8 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (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 "Acquisition") through an exchange
of stock, by Burnup & Sims Inc. ("Burnup"), a Delaware public company.
Immediately following the 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 financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1994. 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 Acquisition was accounted
for as a purchase by the CT Group and, therefore, the 1994 financial
statements presented are those of the CT Group during such period and the
operations of Burnup during the period March 11, 1994, through March 31,
1994.
The following information presents the unaudited pro forma condensed results
of operations for the three months ended March 31, 1994 of MasTec as if the
Acquisition had occurred on January 1, 1994. Adjustments have been made
related to purchase accounting and other matters related to the Acquisition.
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 Acquisition occurred on January 1, 1994.
Page 9 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995 (Unaudited)
PRO FORMA RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1994
(In Thousands Except Per Share Amounts)
1994
(Unaudited)
Revenues $ 37,425
Net Loss (1,750)
Loss Per Share $ (0.11)
Revenues for the three months ended March 31, 1995 would have been $6.1
million higher than pro forma 1994 revenues primarily due to an increase in
new and existing contracts in the Company s core utility services segment.
Actual 1995 results reflect an improvement of $5.9 million from a 1994 pro
forma loss of $1.8 million to net income of $4.2 million for 1995. The
improved results are directly related to an increase in revenues, improved
efficiencies in core contract areas as a result of cost reductions and
enhanced productivity the increased volume and a $1.4 million gain net of
tax, from the sale of theatre assets realized on March 17, 1995.
The most significant adjustments to the 1994 balance sheet resulting from the
Acquisition 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 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 a 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%
(10% at March 31, 1995). See Note 3 regarding amounts payable to
shareholders.
Page 10 of 21
MASTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (Continued)
3. Debt
Debt is summarized as follows (in thousands):
March 31, December 31,
1995 1994
Term Loan payable to Bank, at LIBOR
plus 2.50% (8.6% at March 31, 1995) $ 10,948 $ 0
Term Loan payable to Bank, at 7.7% fixed 1,010 1,144
Term Loan payable to Bank at prime rate
plus 1.5% (10% at December 31, 1994) 0 8,294
Term Loan payable to Bank at prime rate
plus 1.5% (10% at December 31, 1994) 0 1,000
Notes Payable to Shareholders, at prime
rate plus 2% (11% at March 31, 1995)
payable in semi-annual instalments of
$500,000 through 1997 2,500 2,500
Capital Leases, at interest
rates from 6% to 12% due in
installments through the year 2000 2,652 3,826
Other notes payable for equipment, at
interest rates from 9% to 10% due in
installments through the year 2000 4,939 3,899
Other, at 7% due in four semi-annual
installments through July 10, 1996 1,412 1,851
Other, at 7% due in eight quarterly installments
through July 1, 1996 650 796
12% Convertible Subordinated Debentures
due in year 2000 21,875 21,875
----------- -----------
Total Debt 45,986 45,185
Less Current Maturities (8,443) (9,229)
----------- -----------
Long Term Debt $ 37,543 $ 35,956
=========== ===========
The 12% convertible subordinated debentures (the "Debentures") require an
annual payment to a sinking fund, which commenced on 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
March 31, 1995, approximately 1,303,000 shares were reserved for conversion.
The terms of the Debentures include certain restrictions on the
Page 11 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (Unaudited)
payment of dividends. On April 17, 1995, the Company redeemed $7 million of
the outstanding balance reducing the outstanding balance to $14.9 million.
On January 26, 1995 the Company entered into a new $39.5 million credit
facility (the Credit Facility ) with Shawmut Capital (the Bank ).
The Credit Facility is comprised of three sub-facilities: a $12 million term
loan (the "Term Loan") secured by certain equipment, a $15 million revolving
loan (the "Revolver") collateralized by receivables and inventory and a $12.5
million equipment revolver term loan (the "Equipment Loan") secured 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 $10.5 million in term
loans outstanding at December 31, 1994. The remaining portion of the Term
Loan was used to primarily finance new equipment purchases and expenses
associated with obtaining the Credit Facility.
Interest on the Term Loan and Equipment Loan accrue, at the Company's option,
at the rate of prime or 2.5% over LIBOR . Interest on the Revolver accrues ,
at the Company's option, at the rate of prime or 2.25% over LIBOR. The Credit
Facility requires 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 amount less $6,000,000. The Term Loan is payable in
quarterly installments based upon a ten year amortization.
No borrowings were outstanding during the period ended March 31, 1995 under
the Revolving or Equipment Loan facilities. In April 1995, however, $1.7
million was borrowed under the Equipment Loan facility to finance new
equipment purchases.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants.
Pursuant to its loan agreements, the Company is currently prohibited from
declaring or paying dividends.
4. 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
is anti-dilutive or not material.
At March 31, 1995 the Company had 50,000,000 shares of $.10 par value common
stock (the "Common Stock") authorized and 16,041,213 shares outstanding, and
5,000,000 shares of authorized but unissued preferred stock.
Page 12 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (Unaudited)
5. 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 eighteen 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 31,100 shares
have been reserved for and may still be issued in accordance with the terms
of the 1976 and 1978 Plans.
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. As of March 31, 1995, options to purchase 287,000 had been granted,
25,100 of which were exercisable at March 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 at an
exercise price no less than the fair market value of the shares at the grant
date.
The Company also adopted the 1994 Stock Option Plan for Non-Employee
Directors (the "Directors' 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 15,000 shares have been granted to a Board member, 5,000 of which
were exercisable at March 31, 1995. The options permit the non-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.
Approximately 1,200,000 shares have been reserved for the 1994 Plan and
Directors Plan.
Page 13 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (Unaudited)
In addition, 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
common stock issuable under the Directors Plan and annual fees paid to the
director, 20,000 of which were exercisable at March 31, 1995. Annual
compensation expense of $42,500 in connection with the issuance of this
option is being recognized over the vesting period, five years.
The following is a summary of all stock option transactions during the three
months ended March 31, 1995:
Exercise
Shares Price
Outstanding December 31, 1994 271,800 $ 0.10-$8.00
Granted 162,000 $ 13.38
Exercised (400) $2.00-$7.94
Canceled 0 0
-----------
Outstanding March 31, 1995 433,400 $0.10-$ 13.38
===========
6. Income Taxes
On March 11, 1994, CT and CTF became taxable corporations and the effect of
recognizing the change in tax status of approximately $435,000 was included
in the provision for income taxes for the three months ended March 31, 1994.
The Company accounts for income taxes under 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
carry forwards. The tax effects of significant items comprising the
Company's net deferred tax liability as of March 31, 1995 are as follows (in
thousands of dollars):
Page 14 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (Unaudited)
Deferred Tax Assets:
Accrued self insurance $ 2,619
Operating loss and tax credit carry forward 422
All other 2,639
----------
Total deferred tax assets 5,680
----------
Deferred Tax Liabilities:
Property and equipment 4,070
Asset revaluations 14,705
Reserves not currently deductible 1,652
All other 2,241
----------
Total deferred tax liabilities 22,668
----------
Net deferred tax liabilities $ 16,988
==========
A deferred tax asset of $679,000 has been recorded in current assets in the
accompanying Condensed Consolidated Balance Sheet at March 31, 1995.
7. Contingencies
In 1990 and 1993 purported class action and derivative complaints were filed
against the Company, members of its Board of Directors, the Company's then
largest stockholders, and CT and CTF. The complaints generally alleged 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 his 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 and the 1993 Complaint and the 1993 Amended Complaint are without
merit, and intends to vigorously defend this action.
Page 15 of 21
MasTec, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 (Unaudited)
Trilogy Communications, Inc. V. Excom Realty, Inc., was filed on April 19,
1990 in the Superior Court of New Jersey, Monmouth County, Law Division,
Docket No. L-52787-90. The plaintiff served its complaint for damages and
declatory relief on Excom Realty, Inc. , a wholly owned subsidiary of the
Company. On May 3, 1991, the plaintiff moved for summary judgment. On January
2, 1992, the Court denied plaintiff s motion for summary judgment and granted
the Company s cross motion for summary judgment and granted the Company leave
to amend and supplement its answer to assert a counterclaim. On July 18,
1994, the court rendered a written opinion dismissing the claims of Trilogy
and on January 17, 1995, entered a judgment of $2,347,000 in favor of the
Company. On May 1, 1995, the Company settled its claim for $1.3 million and
anticipates receipt of the settlement in late May 1995. Upon receipt, the
Company will record the judgment as other income in the financial statements.
The Company is also a defendant in other legal actions arising in the normal
course of business. Management believes, based on consultations with its
legal counsel, 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.
8. Sale of Theatre Assets
On March 17, 1995, the Company sold the assets of its indoor theatre chain
for approximately $11.5 million of which $1.8 million was used to pay
liabilities not assumed by the buyer and transaction costs incurred. Revenues
from the indoor theatres included in the general products and other segment
for the quarter ended March 31, 1995 and the period March 11, 1994 through
March 31, 1994 were approximately $2.6 million and $961,000, respectively. A
gain on sale of approximately $2.3 million pretax or $1.4 million, net of tax
was realized on the sale.
Page 16 of 21
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 1995
The following discussion of the Company s financial condition and results of
operations should be read in conjunction with the Condensed Consolidated
Financial Statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 vs. Three Months Ended March 31, 1994.
The following table sets forth certain historical consolidated earnings data
as a percentage of revenues for the periods indicated.
1995 1994
----- -----
Revenues 100.0% 100.0%
Cost of revenues 73.5% 76.9%
Gross Margin 26.5% 23.1%
Depreciation & Amortization 3.7% 3.2%
General and Administrative Expenses 11.5% 12.3%
Interest expense 2.8% 2.2%
Other income(expense), net 6.6% 1.4%
Net income 9.6% 9.3%
The results for the quarter ended March 31, 1994 include three months of
operations of the CT Group and operating results of Burnup for the period
March 11, 1994 through March 31, 1994. See Note 1 to the Condensed
Consolidated Financial Statements. The results for the quarter ended March
31, 1995 include a gain on sale of theatre assets of approximately $2.3
million, pretax, which is included in other income above. See Note 8 to the
Condensed Consolidated Financial Statements.
Revenues for the three months ended March 31, 1995 were $43.5 million,
representing an increase of $26.4 million or 154% when compared to revenues
for the three months ended March 31, 1994. The increase resulted primarily
from the inclusion of revenues from companies acquired during 1994 ($19
million), the expansion into new contract areas ($2 million) and increased
revenues ($5.4 million) from existing utilities services contracts.
Cost of revenues as a percentage of revenues decreased from 76.9% in 1994 to
73.5% in 1995. The resulting increase in gross margin to 26.5% in 1995 from
23.1% in 1994 is primarily due to the increase in volume which translated
into operational efficiencies in contract areas, coupled with enhanced
productivity and cost reductions.
General and administrative expenses for the quarter ended March 31, 1995 were
$5 million or 11.5% of revenues, compared to $2.1 million or 12.3% of
revenues for the same period in the prior year. Although, as a percent of
revenues, general and administrative expenses have decreased, as a result of
Page 17 of 21
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 1995
(Continued)
the Company s continuous evaluation and pursuit of growth opportunities
business development in the United States and abroad, certain general and
administrative costs are anticipated to be incurred without current economic
benefit. See Liquidity and Capital Resources for a discussion of
investments being considered.
Depreciation and amortization expense was $1.6 million for the three months
ended March 31, 1995, or 3.7% of revenues, compared to $553,000 or 3.2% of
revenues for 1994. The increase is primarily a result of increased equipment
capital expenditures for new contract areas as well as scheduled fleet
replacements.
Interest expense was $1.2 million for 1995 compared to $387,000 for 1994.
The increase is due to debt assumed pursuant to acquisitions consummated in
1994. On January 26, 1995 the Company entered into a $39.5 million credit
facility with Shawmut Capital, effectively reducing the rate of interest
payable under existing term loans. See Note 3 to the Condensed Consolidated
Financial Statements.
The increase in interest and dividend income of $260,000 from $135,000 for
1994 to $397,000 for 1995 results primarily from the Company s preferred
stock investment which was acquired as part of the Acquisition.
Gain from the sale of theatre assets of $2.3 million was realized on March
17, 1995 upon the consummation of the sale of Floyd Theatres 83 indoor
screens to Carmike Cinemas.
The provision for income taxes approximates 37% of pre-tax income for the
three months ended March 31, 1995. The CT Group was not subject to taxation
prior to 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. The benefit was
reduced by a provision for the results of operations for the period March 11,
1994 to March 31, 1994 at an effective tax rate of 35%. The increase in
effective tax rate is primarily due to the utilization in 1994 of state net
operating losses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
March 31, 1995 vs December 31, 1994
The Company s primary source of liquidity during the first quarter was cash
flow from operations of $3.3 million and net proceeds from the sale of
theatre assets of $9.7 million. As of March 31, 1995, working capital was
Page 18 of 21
MasTec, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION MARCH 31, 1995
(Continued)
approximately $30.1 million, with a current ratio of 1.8 compared to working
capital of approximately $22.2 million, and a current ratio of 1.7 at
December 31, 1994. The Company's cash position was $18.3 million at March
31, 1995 compared to $5.6 million at December 31, 1994
In 1995, cash of $3.3 million was generated from operations compared to
$300,000 used by operations in 1994. The increase in 1995's operating cash
flows represents improved results in the Company s core utilities services
segment.
The Company, as a result of obtaining new contracts and continuing a fleet
replacement program, increased capital expenditures by approximately $1.2
million during the first three months of 1995.
It is anticipated that an additional $7 million will be invested in machinery
and equipment for the balance of the year.
A portion of the net proceeds ($7 million) from the sale of the theatre
assets was used to repay the Debentures on April 17, 1995. The reduction in
the outstanding balance of the Debentures is anticipated to reduce interest
cost in future periods. See Note 3 to the Condensed Consolidated Financial
Statements.
The Company is currently evaluating the feasibility of investing and
participating in the operations of certain telecommunications related
companies in Latin America. External financing and cash generated by
operations are anticipated sources of funding for these investments.
Debt agreements to which the Company is a party contain, among other things,
restrictions on the payment of dividends and require the maintenance of
certain financial covenants. Pursuant to such covenants, the Company is
currently prohibited from declaring or paying dividends. See Note 3 to the
Condensed Consolidated Financial Statements.
The Company currently anticipates that operating cash requirements, capital
expenditures, and debt service will substantially be funded from cash flow
generated by operations and investment income and established external
financing.
Page 19 of 21
MasTec, Inc.
PART II - OTHER INFORMATION
MARCH 31, 1995
Item 1. Legal Proceedings
See Note 7 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Article 5 - Financial Data Schedules
(b) Reports on Form 8-K.
On February 9, 1995, the Company filed Form 8-K with the
Securities and Exchange Commission reporting information under
Item 5 thereof regarding the Credit Facility Agreement. See
Note 3 to the Condensed Consolidated Financial Statements.
On May 12, 1995, the Company filed Form 8-K with the
Securities and Exchange Commission dismissing Price Waterhouse
LLP as the Company s independent certified public accountants.
Page 20 of 21
MasTec, Inc.
SIGNATURES
FORM 10-Q
Pursuant to the requirement 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: May , 1995 /s/ Carlos A. Valdes
----------------------------
Carlos A. Valdes
Sr. Vice-President - Finance
(Principal Financial Officer)
and
Authorized Officer of the
Registrant
Page 21 of 21