SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-3797
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- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
Former name, former address and former fiscal year, if changed since last
report: Not Applicable
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class of Common Stock August 8, 1997
$ 0.10 par value 25,850,881
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
MasTec, Inc.
Index
PART I FINANCIAL INFORMATION
Item 1 - Unaudited Condensed Consolidated Statements of Income
for the Three and Six Month Periods Ended June 30, 1997 and 1996...........................3
Condensed Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996 (Audited)................................................4
Unaudited Consolidated Statement of Stockholders' Equity for
the Six Month Period ended June 30, 1997...................................................5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Month Period Ended June 30, 1997 and 1996......................................6
Notes to Condensed Consolidated
Financial Statements (Unaudited)...........................................................8
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition.............................................13
PART II OTHER INFORMATION.........................................................................16
MasTec, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(Unaudited) (Unaudited)
1997 1996 1997 1996
---- ---- ---- ----
Revenue $ 141,499 $ 108,634 $ 271,642 $ 171,181
Costs of revenue 101,824 81,595 195,039 128,925
Depreciation and amortization 4,503 3,033 8,307 5,295
General and administrative expenses 17,558 12,622 35,187 19,100
-------- -------- -------- --------
Operating income 17,614 11,384 33,109 17,861
Interest expense 2,582 3,430 5,455 5,107
Interest and dividend income 304 1,156 720 1,980
Interest on notes from stockholders 26 76 72 91
Other income, net 346 407 867 415
-------- -------- -------- --------
Income from continuing operations before
equity in earnings of unconsolidated companies,
provision for income taxes and minority interest 15,708 9,593 29,313 15,240
Equity in earnings of unconsolidated companies 579 837 1,316 1,203
Provision for income taxes 5,558 3,828 10,527 6,151
Minority interest 27 229 61 224
-------- -------- -------- --------
Income from continuing operations 10,702 6,373 20,041 10,068
Discontinued operations:
Income (loss) from discontinued operations
(net of applicable income taxes) 124 (39) 72 (53)
Gain on disposal of discontinued
operations (net of applicable income taxes) 0 66 0 66
-------- -------- -------- --------
Net income $ 10,826 $ 6,400 $ 20,113 $ 10,081
======== ======== ======== ========
Weighted average shares outstanding (1) 26,420 24,702 26,244 24,468
======== ======== ======== ========
Earnings per share:
Continuing operations $ 0.41 $ 0.26 $ 0.76 $ 0.41
Discontinued operations 0.00 0.00 0.01 0.00
-------- -------- -------- --------
$ 0.41 $ 0.26 $ 0.77 $ 0.41
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
<FN>
(1) Amounts have been adjusted to reflect the three-for-two stock split
declared in February 1997.
</FN>
MasTec, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 1,038 $ 4,754
Accounts receivable-net and unbilled revenue 240,741 306,022
Notes receivable 673 29,549
Inventories 7,203 4,837
Other current assets 30,188 37,477
------- -------
Total current assets 279,843 382,639
------- -------
Property and equipment-at cost 94,884 80,119
Accumulated depreciation (26,851) (20,517)
------- -------
Property-net 68,033 59,602
Investments in unconsolidated companies 63,796 30,209
Notes receivable from stockholders 990 1,770
Other assets 28,580 10,893
------- -------
TOTAL ASSETS $ 441,242 $ 485,113
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 29,066 $ 38,035
Accounts payable 114,001 162,377
Other current liabilities 34,389 28,352
------- -------
Total current liabilities 177,456 228,764
------- -------
Other liabilities 33,962 35,688
------- -------
Long-term debt 98,594 117,157
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 80,454 149,083
Retained earnings 55,846 35,728
Accumulated translation adjustments (2,408) (802)
Treasury stock (5,305) (83,148)
------- -------
Total stockholders' equity 131,230 103,504
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 441,242 $ 485,113
======= =======
The accompanying notes are an integral part of these financial statements.
MasTec, Inc.
UNAUDITED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY
(In thousands)
for the six months ended June 30, 1997
Common Stock Accumulated
Issued Capital Retained Translation Treasury
Shares Amount Surplus Earnings Adjustment Stock Total
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 26,435 $ 2,643 $ 149,083 $ 35,728 $ (802) $ (83,148) $103,504
Net income 20,113 20,113
Cumulative effect of
translation (1,601) (1,601)
Stock issued to employees
from treasury stock 86 639 725
Stock issued for acquisitions
from treasury stock 4,080 1,402 5,482
Stock issued from
tTreasury stock 3,007 3,007
Stock issued for stock dividend
from treasury stock (75,802) 75,802 0
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Balance, June 30, 1997 26,435 $ 2,643 $ 80,454 $ 55,841 $(2,403) $ (5,305) $131,230
==========================================================================================================================
The accompanying notes are an integral part of these financial statements.
MasTec, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
JUNE 30,
1997 1996
---- ----
(Unaudited)
Cash flows from operating activities:
Net income $ 20,113 $ 10,081
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest 95 224
Depreciation and amortization 8,307 5,295
Equity in earnings of unconsolidated companies (1,316) (1,203)
Net gain on sale of discontinued operations 0 (105)
Loss on sale of assets 140 93
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable-net and unbilled revenue 52,628 38,296
Inventories and other current assets (4,570) 421
Other assets 423 (2,165)
Accounts payable and other expenses (42,518) (10,377)
Income taxes 3,154 444
Other current liabilities (582) (94)
Net assets of discontinued operations 20 1,785
Deferred taxes (4,348) (319)
Other liabilities (1,748) 293
------- ------
Net cash provided by operating activities 29,798 42,669
------- ------
Cash flows from investing activities:
Cash acquired in acquisitions 1,036 999
Cash paid for acquisitions (12,503) (6,169)
Repayment of notes receivable 517 766
Repayment of loans from shareholders 780 0
Capital expenditures (8,162) (2,808)
Investments in unconsolidated companies (3,829) (1,410)
Net proceeds from sale of discontinued operations 2,005 0
Proceeds from sale of assets 7,571 3,535
Proceeds from sale of preferred stock 0 5,100
------- -------
Net cash (used in) provided by investing activities (12,585) 13
------- ------
Cash flows from financing activities:
Proceeds from revolving credit facilities 24,382 4,798
Other borrowings 0 3,200
Debt repayments (48,160) (50,612)
Net proceeds from common stock issued from treasury 3,767 116
Financing costs (587) 0
------- -------
Net cash used in financing activities (20,598) (42,498)
------- -------
Net (decrease) increase in cash and cash equivalents (3,385) 184
Effect of translation on cash (331) (41)
Cash and cash equivalents - beginning of period 4,754 1,076
------- -------
Cash and cash equivalents - end of period $ 1,038 $ 1,219
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 3,070 $ 5,013
Income taxes $ 8,917 $ 3,957
The accompanying notes are an integral part of these financial statements.
MasTec, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
SIX MONTHS ENDED
JUNE 30,
1997 1996
---- ----
(Unaudited)
Acquisitions
Fair value of assets acquired:
Accounts receivable $ 11,764 $ 245,940
Inventories 193 2,980
Other current assets 736 10,114
Property 9,848 8,750
Investments in unconsolidated companies 0 9,373
Other assets 1,680 2,105
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Total non-cash assets 24,221 279,262
------ -------
Liabilities 8,948 160,990
Debt 3,901 78,600
------ -------
Total liabilities assumed 12,849 239,590
------ -------
Net non-cash assets acquired 11,372 39,672
Cash acquired 1,036 999
------ -------
Fair value of net assets acquired 12,408 40,671
Excess over fair value of assets acquired 15,212 4,956
------ -------
Purchase price $ 27,620 $ 45,627
====== =======
Note payable issued in acquisitions $ 130 $ 36,965
Cash paid and common stock issued for acquisitions 18,489 6,169
Contingent consideration 8,861 2,250
Acquisition costs 140 243
------ -------
Purchase price $ 27,620 $ 45,627
====== =======
Property acquired through financing arrangements $ 413 $ 5,952
====== =======
In 1997, the Company issued approximately 172,982 shares of Common Stock for
acquisitions. Common Stock was issued from treasury stock at a cost of
approximately $1.4 million.
In 1997, the Company converted a note receivable and accrued interest thereon
totalling $29 million into stock of a company. (See Note 3).
In 1996, the Company's purchase of an additional 3% interest in a cable
television operator was financed in part by the sellers for $2 million.
In 1996, the Company converted $11.6 million of its 12% Convertible Subordinated
Debentures into Common Stock. Common Stock was issued from treasury stock at a
cost of $6.1 million.
The accompanying notes are an integral part of these financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. CONSOLIDATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of MasTec, Inc. ("MasTec" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. They
do not include all information and notes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1996.
The year end condensed balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. The financial information furnished reflects all
adjustments, consisting only of normal recurring accruals which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The results of
operations are not necessarily indicative of future results of operations or
financial position of MasTec.
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. The Company translates foreign currency financial statements by
translating balance sheet accounts at the exchange rate on the balance sheet
date and income statement accounts at the average exchange rate for the period.
Translation gains and losses are recorded in stockholders' equity, and realized
gains and losses are reflected in income.
2. ACQUISITIONS
Domestic
During the six months ended June 30, 1997, the Company completed
certain acquisitions which have been accounted for under the purchase method of
accounting and the results of operations of which have been included in the
Company's condensed consolidated financial statements from the respective
acquisition dates. If the acquisitions had been made at the beginning of 1997 or
1996, pro forma results of operations would not have differed materially from
actual results. Acquisitions made in 1997 were Kennedy Cable Construction, Inc.
and Shanco Corporation, two contractors servicing multiple systems operators
such as MediaOne, Time Warner, and Cox Communications in a number of states
including Alabama, Florida, Georgia, New Jersey, New York, North Carolina, South
Carolina and Texas; R.D. Moody and Associates, Inc., B&D Contractors of Shelby,
Inc., Tele-Communications Corporation of Virginia, E.L. Dalton & Company, Inc.,
and R.D. Moody & Associates of Virginia, Inc., five telecommunications and
utility contractors with operations primarily in the southeastern and
southwestern United States.
Intangible assets of approximately $20 million resulting from domestic
business acquisitions are included in other long term assets and principally
consist of the excess acquisition cost over the fair value of the net assets
acquired (goodwill). Goodwill associated with domestic acquisitions is being
amortized on a straight-ine basis over a range of 15-20 years. The Company
periodically reviews goodwill to assess recoverability. See Note 3 for
goodwill related to the Company's investment in unconsolidated companies.
In July 1997, the Company completed the acquisition of Wilde
Construction, Inc. and two related companies that provide telecommunications and
cable television infrastructure services in Minnesota, North and South Dakota,
Iowa, Nebraska and other bordering states. The acquisition was consumated
through a stock-for-stock exchange that will be accounted for as a merger under
the pooling of interest method and accordingly historical financial information
will be restated to reflect the merger as though it occurred January 1, 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
International
On July 31, 1997, the Company completed its acquisition of 51% of
MasTec-Inepar S/A-Sistemas de Telecomunicacoes, a newly formed Brazilian
telecommunications infrastructure contractor with a backlog of approximately
$280 million in construction contracts in Brazil.
On April 30, 1996, the Company purchased from Telefonica de Espana,
S.A. ("Telefonica") 100% of the capital stock of Sistemas e Instalaciones de
Telecomunicacion, S.A. ("Sintel"), a company engaged in telecommunications
infrastructure construction services in Spain, Argentina, Chile, and Peru. The
Sintel acquisition gave the Company a significant international presence. See
Note 5 regarding geographic information.
The following information presents the unaudited pro forma condensed
results of operations for the six months ended June 30, 1996 as if the Company's
acquisition of Sintel and certain related transactions had occurred on January
1, 1996. The Sintel acquisition has been treated as a "purchase" as the term is
used under generally accepted accounting principles. Management's preliminary
estimate of fair value approximated that of the carrying value of the net assets
acquired after reflecting a reserve for employee terminations net of deferred
taxes. The pro forma results, which include adjustments to increase interest
expense resulting from the debt incurred pursuant to the Sintel acquisition
($700,000), offset by the reduction in interest and depreciation expenses
resulting from the related transactions ($1.0 million) and a tax expense of 35%
is presented for informational purposes only and is not necessarily indicative
of the future results of operations or financial position of the Company or the
results of operations or financial position of the Company had the Sintel
acquisition and the related transactions occurred January 1, 1996.
Pro forma results of operations
for the six months ended June 30, 1996
Revenue $ 254,876
Income from continuing operations $ 13,264
Net income $ 13,277
Earnings per share:
Continuing operations $ 0.54
Discontinued operations 0.00
Net income $ 0.54
The pro forma results for the six months ended June 30, 1996 include
special charges incurred by Sintel related to a restructuring plan of $1.4
million, net of tax.
3. INVESTMENTS IN UNCONSOLIDATED COMPANIES
In July 1995, the Company made a $25 million one year non-recourse term
loan to Devono Company Limited, a British Virgin Islands corporation ("Devono").
The loan was collateralized by 40% of the capital stock of a holding company
that owns 52.6% of the capital stock of Consorcio Ecuatoriano de
Telecomunicaciones, S.A. ("Conecell"), one of two cellular phone operators in
the Republic of Ecuador. In June 1997, the Company converted its loan and
accrued interest into the stock of the holding company and accordingly is
reflecting its investment as an investment in unconsolidated companies in the
accompanying June 30, 1997 consolidated balance sheet.
Goodwill related to the Company's investments in unconsolidated
companies amounted to $ 38.3 million at June 30, 1997 and is being amortized
over a period of 17-20 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
4. DEBT
Debt is comprised of the following (in thousands):
June 30, December 31,
1997 1996
---- ----
Revolving Credit Facility at LIBOR plus 1.00%
(6.68 at June 30, 1997) $ 66,936 0
Fleet Credit Facility at LIBOR plus 2.00% - 2.25%
(7.75% - 7.94% at December 31, 1996) 0 $ 46,865
Revolving credit facility, at MIBOR plus 0.30% (5.53%
and 7.00% at June 30, 1997 and December 31, 1996,
respectively, due November 1, 1998) 11,063 43,613
Other debt denominated in Spanish Pesetas, at interest
rates from 6.5% to 8.15% 10,361 11,048
Notes payable for equipment, at interest rates from
7.5% to 8.5% due in installments through the year 2000 12,114 18,865
Notes payable for acquisitions, at interest rates from
7% to 8% due in installments through February 2000 27,186 32,253
Real estate mortgage notes, at interest
rates from 8.5% to 8.53% due in installments
through the year 2001 0 2,548
------- -------
Total debt 127,660 155,192
Less current maturities (29,066) (38,035)
------- -------
Long term debt $ 98,594 $ 117,157
======= =======
In June 1997, the Company obtained from a group of financial
institutions led by BankBoston, N.A. a $125 million revolving credit facility
("Revolving Credit Facility"), maturing on June 9, 2000 to replace the Fleet
Credit Facility and certain other domestic debt. As a result of the prepayment
of the Fleet Credit Facility, deferred financing costs and a termination fee
totaling $690,000 were expensed in the second quarter of 1997.
The Company also has several credit facilities denominated in Pesetas,
one of which is a revolving credit facility with a wholly-owned finance
subsidiary of Telefonica. Interest on this facility accrues at MIBOR (Madrid
interbank offered rate) plus .30%. At June 30, 1997, the Company had $45.8
million (6.8 billion Pesetas) of debt denominated in Pesetas, including $24.4
million remaining of the acquisition debt incurred as a result of the Sintel
acquisition (see Note 2).
Debt agreements contain, among other things, restrictions on the
payment of dividends and require the observance of certain financial covenants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
5. OPERATIONS BY GEOGRAPHIC AREAS
The Company's principal source of revenue is the provision of
telecommunications infrastructure construction services in the United States and
Spain. Significant international operations commenced on May 1, 1996 with the
acquisition of Sintel (see Note 2).
1997 1996
---- ----
Revenue
Domestic $ 160,434 $ 133,641
International 111,208 37,540
------- -------
Total $ 271,642 $ 171,181
======= =======
Operating income
Domestic $ 22,021 $ 14,249
International 11,088 3,612
------- -------
Total $ 33,109 $ 17,861
======= =======
as of June 30,
1997 1996
Identifiable assets
Domestic $ 128,177 $ 103,319
International 168,911 212,467
Corporate 144,154 102,830
------- -------
Total $ 441,242 $ 418,616
======= =======
There are no transfers between geographic areas. Operating income
consists of revenue less operating expenses, and does not include interest
expense, interest and other income, equity in earnings of unconsolidated
companies, minority interest and income taxes. Domestic operating income is net
of corporate general and administrative expenses. Identifiable assets of
geographic areas are those assets used in the Company's operations in each area.
Corporate assets include cash and cash equivalents, investments in
unconsolidated companies, net assets of discontinued operations, real estate
held for sale and notes receivable.
6. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from the
provision of telecommunications infrastructure services to Telefonica and to
BellSouth Telecommunications, Inc. ("BellSouth"). For the six months ended June
30, 1997, approximately 35.9% and 14.3% of the Company's revenue was derived
from services performed for Telefonica and BellSouth, respectively. For the six
months ended June 30, 1996, the Company derived approximately 22% and 20% of its
revenue from services performed for Telefonica and BellSouth, respectively.
Although the Company's strategic plan envisions diversification of its customer
base, the Company anticipates that it will continue to be dependent on
Telefonica and its affiliates and BellSouth for a significant portion of its
revenue in the future.
7. COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors, and National Beverage
Corporation ("NBC"), the Company's then-largest stockholder. The complaint
alleges, among other things, that the Company's Board of Directors and NBC
breached their respective fiduciary duties in approving certain transactions,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
including the distribution in 1989 to the Company's stockholders of all of the
common stock of NBC owned by the Company and the exchange by NBC of shares of
common stock of the Company for certain indebtedness of NBC to the Company. The
lawsuit seeks to rescind these transactions and to recover damages in an
unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative
complaint against the Company, the then-members of its Board of Directors,
Church & Tower, Inc. and Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the
principal shareholders of Church & Tower, Inc. The 1993 lawsuit alleges, among
other things, that the Company's Board of Directors and NBC breached their
respective fiduciary duties by approving the terms of the acquisition of the
Company by the Mas family, and that Church & Tower, Inc. and its principal
shareholders had knowledge of the fiduciary duties owed by NBC and the Company's
Board of Directors and knowingly and substantially participated in the breach of
these duties. The lawsuit also claims derivatively that each member of the
Company's Board of Directors engaged in mismanagement, waste and breach of
fiduciary duties in managing the Company's affairs prior to the acquisition by
the Mas family.
Each of the foregoing lawsuits is pending 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.
In August 1997, the Company settled its lawsuit with BellSouth arising
from certain work performed by a subcontractor of the Company from 1991 to 1993
for an amount less than originally claimed by BellSouth.
All of the claims asserted in the lawsuits described above, with the
exception of the second lawsuit filed by Albert Kahn, arise from activities
undertaken prior to March 1994, the date of the consummation of the acquisition
of the Company by the Mas Family.
The Company is a party to other pending legal proceedings arising in
the normal course of business, none of which the Company believes is material to
the Company's financial position or results of operations.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Overview
MasTec is one of the world's leading contractors specializing in the
build-out of telecommunications and related infrastructure. The Company's
principal business consists of the design, installation and maintenance of the
outside physical plant for telephone and cable television communications systems
and of integrated voice, data and video local and wide area networks inside
buildings, and the installation of central office switching equipment. The
Company also provides infrastructure services to public utilities and the
traffic control and highway safety industry.
In April 1996, the Company purchased Sintel, a company engaged in
telecommunications infrastructure construction services in Spain, Argentina,
Chile and Peru, from Telefonica. The Sintel acquisition gave the Company a
significant international presence and more than doubled the size of the Company
in terms of revenue and number of employees. In Argentina, Chile and Peru, the
Company operates through unconsolidated 50% joint ventures. See Notes 2 an
5 to the Condensed Consolidated Financial Statements for pro forma financial
information and geographic information, respectively. The period ended
June 30, 1996includes the results of operation of Sintel from May 1, 1996 on.
Results of Operations
Revenue is generated primarily from telecommunications and related
infrastructure services. Infrastructure services are provided to telephone
companies, public utilities, CATV operators, other telecommunications providers,
governmental agencies and private businesses.
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 and
benefits, rent, travel, telephone and utilities, professional fees and clerical
and administrative overhead.
Three Months Ended June 30, 1997 vs. Three Months Ended June 30, 1996.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the three months ended June 30,
1997 and 1996.
1997 1996
---- ----
Revenue 100.0% 100.0%
Costs of revenue 71.9% 75.1%
Depreciation and amortization 3.2% 2.8%
General and administrative expenses 12.4% 11.6%
Operating margin 12.5% 10.5%
Interest expense 1.8% 3.2%
Interest and dividend income and other income, net,
equity in unconsolidated companies and minority
interest 1.0% 2.0%
Income from continuing operations 7.6% 5.9%
Revenue increased 30.3% from $108.6 million in 1996 to $141.5 million
in 1997 while operating income increased 54.7% from $11.4 million to $17.6
million. A significant portion of this growth is a direct result of acquisitions
including a full second quarter in 1997 for Sintel ($55.5 million in revenue)
compared to the inclusion of two months of operations in the quarter ended June
30, 1996 ($37.5 million in revenue). Domestic operations, which accounted for
$71.1 million of 1996 revenue, grew 21% in revenue to $86.0 million in 1997 and
contributed $11.9 million to operating income.
Depreciation and amortization costs were $3.8 million for domestic
operations in the second quarter of 1997 as compared to $2.5 million in 1996.
Depreciation and amortization costs relating to international operations, which
are less capital intensive, were $689,000 for the second quarter of 1997 or 1.2%
of international revenue. The increase in domestic depreciation expense is due
to increased capital expenditures made in the latter part of 1996 as well as
depreciation and amortization expense related to acquisitions.
Although domestic general and administrative expenses as a percentage
of revenue decreased slightly from 9.8% in 1996 to 9.7% in 1997, the dollar
amount increased $1.4 million primarily due to acquisitions. General and
administrative expenses related to international operations were 16.6% of
revenue.
Interest expense decreased $848,000 from $3.4 million in 1996 to $2.6
million in 1997 primarily due to the conversion of the Company's 12%
Subordinated Convertible Debentures to Common Stock on June 30, 1996 and lower
interest costs incurred by Sintel (in dollars and pesetas) to fund its working
capital needs .
Interest and dividend income, other income, net, equity in earnings of
unconsolidated companies and minority interest decreased from $2.2 million in
1996 to $1.2 million in 1997 primarily as a result of the Company's conversion
of a note receivable to an equity investment and certain termination fees
associated with the Company refinancing its domestic credit facility. See Notes
3 and 4 to the Condensed Consolidated Financial Statements. As a result of the
prepayment of the Fleet Credit Facility, deferred financing costs and a
termination fee totaling $690,000 were expensed in the second quarter of 1997.
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the six months ended June 30, 1997
and 1996.
1997 1996
---- ----
Revenue 100.0% 100.0%
Costs of revenue 71.8% 75.3%
Depreciation and amortization 3.1% 3.1%
General and administrative expenses 12.9% 11.2%
Operating income 12.2% 10.4%
Interest expense 2.0% 3.0%
Interest and dividend income and other
income, net, equity in earnings of unconsolidated
companies and minority interest 1.1% 2.0%
Income from continuing operations 7.4% 5.9%
Revenue increased by approximately $100.5 million or 58.6% from $171.2
million in 1996 to $271.6 million in 1997. Operating income increased 85.4% from
$17.9 million in 1996 to $33.1 million in 1997. Domestic operations, which
accounted for $133.6 million of 1996 revenue, grew 20.0% in revenue to $160.4
million in 1997 and contributed $22.0 million to operating income compared to
$14.2 million in 1996. Domestic growth was generated primarily by acquisitions.
Revenue generated by international operations increased $73.7 million from $
37.5 million in 1996 to $111.2 million in 1997 due primarily to the inclusion of
six months of operations in 1997 compared to only two months in 1996.
Depreciation and amortization costs were $8.3 million for 1997 compared
to $5.3 million in 1996. Domestic depreciation expense for the six months ended
June 30, 1997 was $6.9 million or 4.3% of domestic revenue compared to $4.7
million or 3.5% of domestic revenue in 1996. The increase is due to increased
capital expenditures made in the latter part of 1996 as well as depreciation
and amortization expense related to acquisitions.
General and administrative expenses as a percentage of revenue increase
from 11.2% in 1996 to 12.9% in 1997 due primarily to the inclusion of
international general and administrative expenses for the six months ended June
30, 1997. For the comparable period in 1996, international general and
administrative expenses were only included for
the two months ended June 30, 1996. The dollar amount of domestic general and
administrative expenses has increased from $13.5 million in 1996 to $16.0
million in 1997 primarily due to acquisitions. General and administrative
expenses related to international operations were 17.2% of international revenue
for the six months ended June 30, 1997. Sintel's general and administrative
expenses in terms of local currency have continued to decline since the quarter
ended September 30, 1996.
Interest expense increased $348,000 from $5.1 million in 1996 to $5.4
million in 1997 primarily due to the inclusion of interest costs associated with
Sintel's working capital need for the entire period in 1997 compared to two
months in 1996. Partially offsetting the increase was the conversion of the
Company's 12% Subordinated Convertible Debentures to Common Stock on June 30,
1996.
Interest and dividend income, other income, net, equity in earnings of
unconsolidated companies and minority interest decreased from $3.5 million in
1996 to $ 2.9 million in 1997 primarily as a result of the Company's
conversion of a note receivable to an equity investment. As a result of the
prepayment of the Fleet Credit Facility, deferred financing costs and a
termination fee totaling $690,000 were expensed in the second quarter of
1997. Partially offsetting the decline were interest income and other fees
earned and collected on short-term customer project financing provided by the
Company.
Financial Condition, Liquidity and Capital Resources
The Company's primary source of liquidity has been cash flow from
operating activities, external sources of financing, and the proceeds from the
sale of non-core assets. During the six months ended June 30, 1997, $29.8
million was generated from operations compared to $42.7 million in the
comparable period of 1996. Also, during the six months ended June 30, 1997, the
Company invested cash of $12.5 million in acquisitions and received $7.6 million
from the sale of non-core assets. Cash paid for capital expenditures was $8.2
million. The Company used its excess cash to repay debt, principally under its
revolving credit facilities with a wholly owned finance subsidiary of
Telefonica. See Note 4 to the Condensed Consolidated Financial Statements. In
June 1997, the Company refinanced its domestic credit facility with BankBoston.
See Note 4 to the Condensed Consolidated Financial Statements.
As of June 30, 1997, working capital was approximately $102.4 million
compared to working capital of approximately $124.3 million at December 31, 1996
(excluding the note receivable that was converted into stock of an
unconsolidated company during June 1997--see Note 3 to the Condensed
Consolidated Financial Statements). Included in working capital are the net
assets of discontinued operations and real estate held for sale. Proceeds from
the sale or repayment of these assets will be used for general corporate
purposes including furthering the Company's growth strategy.
During the six months ended June 30, 1997, the Company completed seven
acquisitions and increased its investment in unconsolidated companies. The
combined cash consideration for these transactions amounted to approximately
$16.3 million. Additionally, the Company raised approximately $3.2 million in
equity.
The Company continues to pursue a strategy of growth through internal
growth and expansion through acquisitions and joint ventures. Subsequent to June
30, 1997, the Company completed two additional acquisitions (see Note 2 to the
Condensed Consolidated Financial Statements). The Company anticipates that it
will continue making acquisitions and that the Company's growth as well as
operating cash requirements, capital expenditures and debt service, will be
funded from cash flow generated by operations, external sources of financing and
the sale of non-core assets.
The Company conducts business in several foreign currencies that are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
Company does not enter into foreign exchange contracts. It is the Company's
intent to utilize foreign earnings in the foreign operations for an indefinite
period of time or repatriate those earnings when its is considered cost
effective. However, as a means of hedging its balance sheet currency risk, the
Company attempts to balance its foreign currency denominated assets and
liabilities. There can be no assurance that a balance can be maintained. In
addition, the Company's results of operations from foreign activities are
translated into U.S. dollars at the average prevailing rates of exchange during
the period reported, which average rates may differ from the actual rates of
exchange in effect at the time of the actual conversion into U.S. dollars. The
Company currently has no plans to repatriate significant earnings from its
international operations.
The Company's current and future operations and investments in certain
foreign countries are generally subject to the risks of political, economic or
social instability, including the possibility of expropriation, confiscatory
taxation, hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment income, capital
and other assets. The Company cannot predict whether any of such factors will
occur in the future or the extent to which such factors would have a material
adverse effect on the Company's international operations.
PART II - OTHER INFORMATION
JUNE 30, 1996
Item 1. Legal Proceedings.
See Note 7 to the Condensed Consolidated Financial Statements.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
The 1997 Annual Meeting of Stockholders of MasTec, Inc. (the "Meeting")
was held on May 21, 1997 for the purpose of: (1) electing two Class II directors
for a three-year term ending at the annual meeting of stockholders in 2000 (2)
increasing the authorized shares of Common Stock of the Company from 50,000,000
to 100,000,000. (3) increasing the number of shares of Common Stock reserved for
issuance under the Company's 1994 Stock Incentive Plan from 1,200,000 to
2,500,000, and (4) approving the MasTec, Inc. 1997 Annual Incentive Compensation
Plan.
The following summarizes the results of the vote for each issue
listed above:
Number of Shares Voted
Issue For Withheld Against Abstaining
1a Jorge L. Mas 23,998,167 227,827
1b Eliot C. Abbott 23,998,167 227,827
2 23,764,677 454,671 6,646
3 20,400,896 380,600 20,293
4 20,504,152 264,791 32,846
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 Article 5 - Financial Data Schedules.
(b) Report on Form 8-K
On May 30, 1997, the Company filed a
Form 8-K current report dated May 21, 1997
with the Securities and Exchange Commission
reporting information under Item 5 thereof
regarding the Company's investment in
MasTec-Inepar.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MasTec, Inc.
Registrant
Date: August 13, 1997 /s/ Edwin D. Johnson
--------------------
Edwin D. Johnson
Senior Vice President-
Chief Financial Officer
(Principal Financial and
Accounting Officer)