SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1997
Commission file number 0-3797
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3155 N.W. 77th Avenue, Miami, FL 33122-1205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 599-1800
Securities registered pursuant to Section 12(b) of
the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act:
None
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The number of shares of Common Stock outstanding as of March 20, 1998
was 27,736,541. The aggregate market value of the voting stock held by
non-affiliates of the registrant computed by reference to the closing price of
the registrant's Common Stock on the New York Stock Exchange on March 20, 1998
was $428,346,532. Directors, executive officers and 10% or greater stockholders
are considered affiliates for purposes of this calculation but should not
necessarily be deemed affiliates for any other purpose.
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement for the 1998 Annual
Meeting of Stockholders to be held on May 14, 1998, which will be filed with the
Commission on or before April 15, 1998, are incorporated by reference into Part
III.
Certain statements included in this Annual Report are forward-looking,
such as statements regarding the future prospects of the telecommunications
construction industry and the Company's growth strategy. These forward-looking
statements are based on the Company's current expectations and are subject to a
number of risks and uncertainties that could cause actual results in the future
to differ significantly from results expressed or implied in any forward-looking
statements included in this Annual Report. These risks and uncertainties
include, but are not limited to, uncertainties relating to the Company's
relationships with key customers and implementation of the Company's growth
strategy. These and other risks are detailed in this Annual Report and in other
documents filed by the Company with the Securities and Exchange Commission.
1. BUSINESS
General
MasTec is one of the world's largest contractors specializing in the
design, installation and maintenance of infrastructure for the
telecommunications and other utilities industry. The Company's business consists
of the installation of aerial and underground copper, coaxial and fiber optic
cable networks as well as wireless antenna networks ("outside plant services").
The Company believes it is the largest independent contractor for these systems
in the United States and Spain, and one of the largest in Argentina, Brazil,
Chile and Peru. The Company also installs central office switching equipment,
and designs, installs and maintains integrated voice, data and video local and
wide area networks inside buildings ("inside wiring"). Clients for the Company's
services include major domestic and international telecommunication service
providers such as the regional Bell operating companies ("RBOCs"), other
incumbent and competitive local exchange carriers, cable television operators,
long-distance operators and wireless phone companies. The Company also provides
infrastructure construction services to the electric power industry and other
public utilities.
MasTec has experienced significant and consistent growth as a result of
its favorable trends in the telecommunications industry, its ability to identify
and integrate strategic acquisitions and, its competitive position as one of the
largest providers of infrastructure services. The Company's revenue has
increased from $142.6 million in 1994 to $703.4 million in 1997. The Company
expects to continue to grow through additional strategic acquisitions as well as
through internal expansion. Since January 1996, the Company has completed 16
domestic and three foreign acquisitions and actively continues to pursue
complimentary acquisitions in the highly fragmented infrastructure services
industry. Internal growth is expected to be driven by the expansion of the
global telecommunications and power distribution industries resulting from (i)
continued global deregulation, which is allowing numerous new service providers
to enter the marketplace and is increasing the competitive pressure on existing
participants to upgrade and expand their networks; (ii) increasing consumer
demand for advanced communications services which require the upgrading of
existing infrastructure to handle increased bandwidth needs; and (iii)
increasing reliance on outsourcing of infrastructure needs to full service
contractors by service providers in an effort to reduce costs and focus on their
core competencies.
Competitive Strengths
The Company seeks to differentiate itself from its competitors through
the following characteristics:
Strong Customer Relationships. Founded in 1929, the Company has
developed strong relationships with numerous telecommunications service
providers by providing high quality services in a cost and time efficient
manner. The Company has been providing services to Telefonica de Espana, S.A.
("Telefonica") and BellSouth Telecommunications, Inc. ("BellSouth"), its two
largest customers, since 1950 and 1969, respectively, and maintains similar
long-term relationships with many of its other customers. For the year ended
December 31, 1997, the company derived approximately 26% and 12% of its revenue
from services performed for Telefonica and BellSouth, respectively. MasTec
currently has 23 multi-year service contracts with Telefonica, the RBOCs and
other telecommunications service providers for certain of their outside plant
requirements up to a specific dollar amount per job and within certain
geographic areas.
Diverse Customer Base. MasTec provides a full range of infrastructure
services to a diverse customer base. Domestically, the Company provides outside
plant services to local exchange customers such as BellSouth, US West
Communications, Inc., SBC Communications, Inc., United Telephone Company of
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Florida, Inc. (a subsidiary of Sprint Corporation ("Sprint")) and GTE
Corporation. The Company also provides outside plant services to competitive
local exchange carriers such as MFS Communications Company, Inc., Sprint
Metropolitan Networks, Inc. and MCI Metro, Inc. (the local telephone
subsidiaries of Sprint and MCI Communications Corporation ("MCI"),
respectively), cable television operators such as Time Warner Inc., Cox
Communications, Inc. and Marcus Cable Company, long distance carriers such as
MCI and Sprint, and wireless communications providers such as PrimeCo Personal
Communications LP and Sprint Spectrum, L.P. Internationally, the Company
provides outside plant services, turn-key switching systems installation and
inside wiring services primarily to Telefonica, the principal telephone company
in Spain, and Telefonica's affiliates in Argentina, Chile and Peru. The Company
also services the local telephone subsidiaries of Telecomunicacoes Brasileiras
S.A. ("Telebras"), the Brazilian government-owned telecommunications system, in
Sao Paulo, Rio de Janeiro, Parana and other states in the more populous and
developed Southern region of Brazil, as well as Companhia Riograndense de
Telecomunicacoes S/A ("CRT"), the local telephone company in Rio Grande do Sul
which is partly owned by Telefonica. For the year ended December 31, 1997, the
Company derived approximately 11% of its revenue from services performed for
Telebras.
The Company renders inside wiring services nationwide to large
corporate customers with multiple locations such as First Union National Bank,
International Business Machines Corporation ("IBM") and Dean Witter Reynolds
Inc., and to universities and health care providers.
Turn-key Capabilities. The Company believes it is one of the few
contractors capable of providing all of the design, installation and maintenance
services necessary for a cable or wireless network starting from a transmission
point, such as a central office or head-end, and running continuously through
aerial and underground cables to the ultimate end users' voice and data ports,
cable outlets or cellular stations. The Company can also install the switching
devices at a central office or set up local and wide area voice, data and video
networks to expand a business' telecommunications infrastructure both inside a
specific structure or between multiple structures.
The Company believes that its customers increasingly are seeking
comprehensive solutions to their infrastructure needs by turning to fewer
qualified contractors who have the size, financial capability and technical
expertise to provide a full range of infrastructure services. The Company
believes that this trend will accelerate as industry consolidations increase and
as these consolidated entities begin to provide bundled services to end users.
The Company believes it has positioned itself through acquisitions and internal
growth as a full service provider of outside plant and inside wiring
infrastructure services to take advantage of this trend.
Broad Geographic Presence. The Company has significantly broadened its
geographic presence in recent years through strategic acquisitions.
Domestically, MasTec has expanded beyond its historical base in the Southeastern
United States and currently has operations in more than 30 states in the
Southeast, mid-Atlantic, Southwest, West and upper Midwest regions of the
country. The Company also substantially increased its international operations
through the acquisition in April 1996 of Sistemas e Instalaciones de
Telecomunicacion, S.A. ("Sintel"), the largest telecommunications infrastructure
contractor in Spain, and through the acquisition in July 1997 of a majority
interest in MasTec Inepar S/A Sistemas de Telecomunicacoes ("MasTec Inepar"), a
leading telecommunications construction company in Brazil. Due to its broad
geographic presence, the Company believes that it is well suited to service
customers with operations across the United States as well as companies that are
active in multiple areas of the world such as multinational corporations and
telecommunications service providers that are expanding into international
markets. In addition, by developing business in many geographic regions, the
Company believes it is less susceptible to changes in the market dynamics in any
one region.
Growth Strategy
The Company is pursuing a disciplined strategy of growth and
diversification in its core business through strategic acquisitions and internal
expansion as follows:
Strategic Acquisitions. The Company plans to continue to pursue
strategic acquisitions in the fragmented telecommunications and utilities
infrastructure industry that either expand its geographic coverage and customer
base or broaden the range of services it can offer to clients. The Company
focuses its acquisition efforts primarily on companies with successful track
records and strong management. The Company has acquired 19 companies since
January 1996 and has significant experience in identifying, purchasing and
integrating telecommunications infrastructure businesses both domestically and
internationally. Management believes that MasTec is able to improve the acquired
companies' operating performance by providing strategic guidance, administrative
support, greater access to capital and savings in the cost of capital,
purchasing and insurance costs.
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Internal Expansion. The Company believes it is poised to capitalize on
the anticipated growth in its industry due to its status as one of the world's
largest telecommunications infrastructure contractors and its strong customer
relationships. The International Telecommunications Union estimates that between
1996 and 2000 telecommunications infrastructure investment will exceed $50
billion in the United States and $600 billion worldwide. In addition, the
Company believes that the RBOCs and other utilities in the United States, which
still conduct a significant portion of their construction work in-house, will
out-source more infrastructure construction in the future in response to
competitive pressures to cut costs, streamline their operations and focus on
their core competencies. The Company believes that its reputation for quality
and reliability, operating efficiency, financial strength, technical expertise,
presence in key geographic areas and ability to offer a full range of
construction services make it well positioned to compete for this business,
particularly the larger, more technically complex infrastructure projects.
The Company also anticipates that its Brazilian operations will become
a more significant part of its operations. The Brazilian government has
estimated that approximately $75 billion will need to be invested over a seven
year period in order to modernize and expand Brazil's telecommunications
infrastructure. To accomplish this objective, the government has stated its
intention of deregulating and privatizing Brazil's telecommunications system.
The Company believes that, through MasTec Inepar, it is well positioned to
participate in this anticipated expansion.
In addition to focusing on its core telecommunications customers, the
Company plans to achieve incremental growth by continuing to develop
complementary lines of businesses. These businesses include the provision of
premise wiring services to corporations and infrastructure construction services
to the electric power industry and other public utilities.
Services, Markets and Customers
The Company's principal business is the provision of telecommunications
and other utilities infrastructure construction services, consisting of both
outside plant services and inside wiring services. For the years ended, December
31, 1995, 1996 and 1997, the percentage of the Company's total revenue generated
by outside plant services was 91%, 84%, and 84%, respectively, and by inside
wiring services was 9%, 16% and 16%, respectively. The Company operates in North
America, Spain, Argentina, Chile, Peru, and Brazil. See Note 9 of Notes to
Consolidated Financial Statements for a description of revenue, operating profit
and identifiable assets attributable to the Company's North American and
International operations.
Telecommunications Construction - North American Operations
Outside Plant Construction. The Company's principal domestic business
consists of outside plant services for telecommunications providers, including
incumbent and competitive local exchange carriers, cable television operators,
long-distance carriers and wireless communications providers. Outside plant
services consist of all of the services necessary to design, install and
maintain the physical facilities used to provide telecommunications services
from the provider's central office, switching center or cable headend to the
ultimate consumer's home or business. These services include the placing and
splicing of cable, the excavation of trenches in which to place the cable, the
placing of related structures such as poles, anchors, conduits, manholes,
cabinets and closures, the placing of drop lines from the main transmission
lines to the customer's home or business, and the maintenance and removal of
these facilities. The Company has developed expertise in directional boring, a
highly specialized and increasingly common method of placing buried cable
networks in congested urban markets without digging a trench.
The Company provides a full range of outside plant services to its
telecommunications company customers, although certain of the Company's
customers, principally the RBOCs, handle certain of these services in-house. The
Company's customers generally supply materials such as cable, conduit and
telephone equipment, and the Company provides the expertise, personnel, tools
and equipment necessary to perform the required installation and maintenance
services.
The Company currently provides outside plant services primarily to
customers in Alabama, Alaska, Arizona, California, Colorado, Florida, Georgia,
Iowa, Kansas, Michigan, Minnesota, Montana, Nebraska, North Carolina, North
Dakota, South Dakota, South Carolina, Tennessee, Texas, Virginia and Wyoming, as
well as Ontario, Canada. Principal customers for telecommunications outside
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plant services include BellSouth, US West Communications, Inc., SBC
Communications, Inc., the long distance and local exchange subsidiaries of both
MCI and Sprint, GTE Corp., MFS Communications Company, Inc., Time Warner Inc.,
Cox Communications, Inc. and Marcus Cable Company.
Services rendered to the Company's incumbent local exchange customers,
including BellSouth, are performed primarily under master contracts, which
typically are exclusive service contracts to provide all of the carrier's
outside plant requirements up to a specified dollar amount per job within
certain geographic areas. These contracts generate revenue ranging between $3.0
million and $30.0 million over their respective terms, generally two to three
years. Such contracts are typically subject to termination at any time upon 90
to 180 days prior notice to the Company. Each master contract contemplates
hundreds of individual construction and maintenance projects generally valued at
less than $100,000 each. These contracts typically are awarded on a competitive
bid basis, although customers are sometimes willing to negotiate contract
extensions beyond their original terms without opening them up to bid. The
Company currently has 20 master contracts with telecommunications customers
covering defined regions within the United States, including 12 with BellSouth.
In addition to services rendered pursuant to master contracts, the
Company provides outside plant services on individual projects awarded on a
competitive bid basis or through individual negotiation. While such projects
generally are substantially larger than the individual projects covered by
master contracts, they typically require the provision of services identical to
those rendered under master contracts.
The Company also provides turn-key site acquisition, design,
installation and maintenance services to the wireless communications industry,
including site acquisition and preparation, design and construction of
communications towers, placement of antennas and associated wiring, and
construction of equipment huts.
The Company provides outside plant construction services to electric
power companies and other public utilities, including the City of Austin
Electric Department, City Public Service of San Antonio, Duke Energy
Corporation, Florida Power and Light Company, Florida Power Corporation,
Jacksonville Electric Authority, Memphis Light, Gas and Water Division, Texas
Utilities Company, Carolina Power & Light Co., and Georgia Power Co., and a
number of regional electrical cooperatives. These services, which are
substantially similar to the outside plant services provided to
telecommunications companies, include directional boring for conduit and pipes,
trenching, placing of electric cables, and restoring asphalt and concrete
surfaces. Services to many of these customers are provided under exclusive
master contracts with two to three year initial terms expiring at various dates.
Inside Premises Construction. The Company provides design, installation
and maintenance of integrated voice, data and video networks inside buildings
for large companies with multiple locations such as First Union National Bank,
IBM and Dean Witter Reynolds Inc., for college campuses such as the University
of California at Riverside and the University of Miami and for health care
providers such as Carolina Medical Center and Kaiser Permanente. The Company
provides these services primarily on the east and west coasts of the United
States although the Company is capable of providing these services nationwide.
Inside wiring services consist of designing, installing and maintaining
local area networks and wide area networks linking the customers' voice
communications networks at multiple locations with their data and video
services. This type of work is similar to outside plant construction; both
involve the placing and splicing of copper, coaxial and fiber optic cables.
Inside wiring is less capital intensive than outside plant construction but
requires a more technically proficient work force.
The Company contracts with primary contractors to provide services to
First Union National Bank and IBM under subcontracts that are similar to master
contracts in the outside plant business because they grant the Company the
exclusive right to provide inside wiring services to these customers within
certain geographic regions. The Company also provides inside wiring services on
individual projects that are awarded on a competitive bid basis or through
individual negotiation. The Company intends to take advantage of the
fragmentation of the inside wiring industry by marketing a full range of inside
wiring services to large corporations with multiple locations across the
country. The Company believes that these types of customers increasingly are
seeking a single vendor to provide all of their inside wiring.
The Company is one of two distributors in the United States, Canada and
Mexico of a fiber optic cable installation technology known as FutureFlex. This
technology allows the installation of individual strands of optical fiber by
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means of compressed gas blown through flexible tubing without the necessity of
cutting or splicing the cable except at the terminal points. As a result, the
network can be expanded, changed or moved more easily and cost-effectively.
Telecommunications Construction - International Operations
Overview. The Company is engaged in the telecommunications and other
utility construction business internationally, a wholly owned subsidiary of the
Company, primarily in Argentina, Brazil, Chile, Peru and Spain through Sintel
and its affiliates and MasTec Inepar. Sintel is a Spanish company that has
provided telecommunications construction services to Telefonica and Telefonica's
affiliates since 1950. Telefonica is the principal provider of local and long
distance telephony in Spain. Through its affiliate, Telefonica Internacional,
S.A., Telefonica owns interests in certain local telephone companies in
Argentina, Brazil, Chile and Peru. Through Sintel, the Company is the leading
provider of telecommunications infrastructure services to Telefonica and its
affiliates in Spain, and one of the leading providers of these services to
Telefonica's affiliates in Argentina, Chile and Peru.
The Company renders telecommunications construction services in Brazil
through MasTec Inepar, a Brazilian company owned 51% by the Company and 49% by
Inepar SA Industrias e Construcoes ("Inepar"), a leading telecommunications and
power infrastructure and equipment company in Brazil. MasTec Inepar was formed
in July 1997 to take advantage of construction opportunities created by the
privatization, de-monopolization and deregulation of the Brazilian
telecommunications market.
Spanish Operations. In Spain, Sintel's principal business is providing
outside plant services, inside wiring services and equipment installation to
Telefonica and its affiliates. These services are substantially similar to those
provided by the Company in the United States. Sintel also installs Telefonica
telephone equipment in residences and businesses. Sintel's Spanish operations
are concentrated in Spain's largest commercial centers, Madrid, Barcelona,
Seville and Valencia, and surrounding areas, although Sintel maintains a
presence throughout Spain.
Sintel provides the largest percentage of Telefonica's outside plant
services requirements. Sintel provides the bulk of these services under three
separate multi-year comprehensive services contracts, which are similar to
master contracts in the United States, for distinct types of outside plant
services: (i) placement and splicing of communications lines; (ii) trenching and
placing of conduits; and (iii) placing of drop lines to residences and
businesses. These agreements set the unit prices at which Sintel will render
services to Telefonica and establish the percentage of Telefonica's requirements
in these categories that will be satisfied by Sintel in particular geographic
areas of Spain. These three contracts expire at the end of 1998; the Company
expects to negotiate new comprehensive services contracts with Telefonica
beginning in October 1998. Telefonica enters into similar agreements with
Sintel's principal competitors in Spain. The Company believes that Telefonica
considers various factors in awarding these contracts and setting their terms,
including price, quality, technical proficiency and the contractor's
relationship with Telefonica. Telefonica also awards individual projects through
a competitive bidding process or through individual negotiation.
In addition to outside plant services, Sintel provides inside wiring
services to Telefonica that are substantially similar to those provided by the
Company in the United States. Sintel also installs transmission equipment,
central office switching equipment, power generating equipment and cellular
equipment for telecommunications systems for Telefonica. This equipment includes
multiplexers, carrier systems and microwave systems, and central office
equipment such as frames, protectors, connector blocks, batteries and power
systems, and cellular antennas and cell sites. The contracts for this work are
awarded on a competitive bid basis or through individual negotiation.
Telefonica is the principal provider of local and long distance
telephony in Spain. As a result of European Union initiatives, Spain must
liberalize its telecommunications industry by December 1, 1998 to permit
competitors to Telefonica. In July 1997, a second license to provide public
switched telephony was awarded to Retevision, S.A. ("Retevision"), which is
owned partly by the Spanish government, Societa Finanziaria Telefonica per
Azioni SpA ("STET"), an Italian telephone company, and Empresa Nacional de
Electricidad, S.A., a Spanish electric utility company. Retevision has begun
providing local telephony in Spain in 1998, and a third local and long distance
telephony license is expected to be awarded by may 30, 1998. By December 1,
1998, it is expected that the industry will be completely open to competition.
The Company believes that the increased competition in the Spanish telephony
market will increase demand for outside plant services in Spain as new service
providers build competing networks. The Company has commenced providing
telecommunications construction services to Retevision.
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Sintel also installs and maintains cable television networks for
Telefonica and its affiliates and for Retevision. The Spanish cable television
market has been underdeveloped due to the lack of a legal structure for the
provision of cable telecommunications services in Spain. In 1997, a legal
structure for the provision of these services was completed and 21 new licenses
to provide cable television services have been awarded and applications for 13
additional licenses are pending. In addition, as of January 1, 1998, cable
operators are entitled to provide local telephony within their service areas as
well as long distance telephony. The Company anticipates that the demand for
construction services to the cable television industry will increase
significantly as new networks are constructed and existing networks are
upgraded. Sintel also has begun providing infrastructure services to the
electric power industry through a recently formed joint venture with a
Portuguese electrical contractor.
Argentina, Chile, Peru Operations. The Company operates in Argentina,
Chile and Peru through unconsolidated subsidiaries in which the Company holds a
50% interest. The other 50% interests in these subsidiaries are held by
established local infrastructure construction companies and operational control
is shared by the Company and its local partner. In Argentina and Chile, the
Company's partner is a subsidiary of Sociedad Macri, one of the largest
commercial groups in Argentina. In Peru, the Company's partner is a subsidiary
of Grana y Montero, S.A., a leading construction company in Peru. The principal
shareholder of Grana y Montero, S.A., is a shareholder and a director of
Telefonica del Peru. The Company's Latin American affiliates primarily provide
outside plant services, cable television installation and similar services to
Telefonica's local telephone company affiliate in each of the countries in which
the affiliate is located: Telefonica de Argentina in Argentina; Compania de
Telefonos de Chile in Chile; and Telefonica del Peru in Peru. As part of the
agreement with Sociedad Macri for the acquisition of its interest in Sintel's
Argentine affiliate, Sociedad Macri has contributed to the affiliate certain of
its telecommunications construction contracts with Telecom de Argentina, S.A.,
the principal provider of local telephony in northern Argentina.
Brazilian Operations. MasTec Inepar, a Brazilian company, was formed in
July 1997 by the Company and Inepar. As part of the formation, Inepar
transferred the personnel, qualifications and other assets of its
telecommunications construction division to MasTec Inepar together with
contracts for specific projects with prices totaling approximately $280 million.
These contracts cover the provision of outside plant services for the local
exchange subsidiaries of Telebras, the Brazilian government-owned
telecommunications company, particularly in Sao Paulo, Rio de Janeiro, Parana
and other states in the more populous and developed southern region of Brazil.
MasTec Inepar also provides services to CRT, the local telephone company in Rio
Grande do Sul which is partly owned by Telefonica. The services provided are
principally outside plant services for wireless communications networks.
Telecommunications Investments
The Company has invested in certain telecommunications businesses
located in or servicing Latin America. These include minority interests in
Supercanal Holding, S.A. ("Supercanal") and related entities, which operate a
cable television system in Argentina, and in Consorcio Ecuatoriano de
Telecomunicaciones, S.A. ("Conecel"), an Ecuadorian cellular company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company also recently acquired a license in Paraguay to
construct and operate a nationwide personal communication system ("PCS"), and
has reached agreement with Inepar, its partner in MasTec Inepar, and with
Sociedad Macri, its partner in Argentina and Chile, to share in development of
the system. The agreement with Inepar and Sociedad Macri regarding Paraguay
provides that MasTec Inepar will construct the system.
Sales and Marketing
Executives of the Company's outside plant subsidiaries market outside
plant services to existing and potential telecommunications and other utility
customers in order to negotiate new contracts or be placed on lists of vendors
invited to submit bids for master contracts and individual construction
projects. Inside premises services are marketed both by the executives of the
subsidiaries that provide these services and through commissioned salespeople
employed by the Company. The Company is developing a company-wide marketing plan
to emphasize the "MasTec" brand name to national and international customers.
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Suppliers
The Company's customers supply the majority of the raw materials and
supplies necessary to carry out the Company's contracted work. The Company is
not dependent on any one supplier for any raw materials or supplies that the
Company obtains for its own account other than the FutureFlex airblown fiber
product that the Company distributes for Sumitomo Electric Lightwave Co.
Competition
The industry in which the Company competes is highly competitive and
fragmented. The Company competes with a number of contractors in the markets in
which it operates, ranging from small independent firms servicing local markets
to larger firms servicing regional markets, as well as with large national and
international equipment vendors on turn-key projects who subcontract
construction work to contractors other than the Company. These equipment vendors
typically are better capitalized and have greater resources than the Company.
Most companies engaged in the same or similar business tend to operate in a
specific, limited geographic area, although larger competitors may bid on a
particular project without regard to location. Although the Company believes it
is the largest provider of infrastructure services to the telecommunications and
other utilities industry in the United States and Spain and one of the largest
in Argentina, Brazil, Chile and Peru, neither the Company nor any of its
competitors can be considered dominant in the industry on a national or
international basis. The Company also faces competition from the in-house
construction and maintenance departments of RBOCs and other customers and
potential customers, which employ personnel who perform some of the same types
of services as those provided by the Company.
Employees
As of December 31, 1997, the Company (excluding its unconsolidated
companies) had approximately 7,850 employees, 4,600 of whom are employed in
domestic operations and 3,250 of whom are employed in international operations.
Approximately 100 of the Company's domestic employees and approximately 3,200 of
Sintel's employees are unionized. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations Overview" for a discussion of
Sintel's labor relations.
2. PROPERTIES
The Company's corporate headquarters are located in a 60,000 square
foot building owned by the Company in Miami, Florida. The Company also has
regional offices in owned facilities located in Tampa, Florida, Austin, Texas
and Charlotte, North Carolina. Sintel's principal executive offices are located
in leased premises in Madrid, Spain and MasTec Inepar's principal executive
offices are located in leased premises in Sao Paulo, Brazil.
The Company's principal operations are conducted from field offices,
equipment yards and temporary storage locations, none of which the Company
believes is material to its operations because most of the Company's services
are performed on the customers' premises or on public rights of way. In
addition, the Company believes that equally suitable alternative locations are
available in all areas where it currently does business.
3. LEGAL PROCEEDINGS
The following is a summary of legal proceedings involving the Company.
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
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. 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, and
Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal shareholders of the
Company. The 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 the Mas
family had knowledge of the fiduciary duties owed by NBC and the Company's Board
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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.
There has been no activity in either of these lawsuits in more than one
year. The Company believes that the allegations in each of these lawsuits are
without merit and intends to defend these lawsuits vigorously.
In November 1997, Church & Tower, Inc., a wholly-owned subsidiary of
the Company ("Church & Tower"), filed a lawsuit against Miami-Dade County (the
"County") in Florida state court alleging breach of contract and seeking damages
exceeding $3.0 million in connection with the County's refusal to pay amounts
due to Church & Tower under a multi-year agreement to perform road restoration
work for the Miami-Dade Water and Sewer Department ("MWSD"), a department of the
County, and the County's wrongful termination of the agreement. The County has
refused to pay amounts due to Church & Tower under the agreement until alleged
overpayments under the agreement have been resolved, and has counterclaimed
against Church & Tower seeking damages. The Company believes the counterclaim,
if successful, will not exceed $2.1 million. The County also has refused to
award a new road restoration agreement for MWSD to Church & Tower, which was the
low bidder for the new agreement. The Company believes that any amounts due to
the County under the existing agreement are not material and may be recoverable
in whole or in part from Church & Tower subcontractors who actually performed
the work and whose bills were submitted directly to the County.
The Company is a party to other pending legal proceedings arising in
the normal course of business, none of which the Company believes is material to
the Company's financial position or results of operations.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no vote of security holders during the fourth quarter of the
last fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive
officers of the Company, indicating all positions and offices with the Company
held by each such person, and each such person's principal occupation or
employment during the past five years. The executive officers hold office for
one year or until their successors are elected by the Board of Directors.
Name Age Position
Jorge Mas 35 Chairman of the Board of Directors,
President and Chief Executive Officer
Henry N. Adorno 50 Executive Vice President and Special Counsel
Ismael Perera 49 Senior Vice President-Operations
Edwin D. Johnson 41 Senior Vice President-Chief Financial Officer
Carlos A. Valdes 34 Senior Vice President-Corporate Development
Jose M. Sariego 43 Senior Vice President-General Counsel
Jorge Mas has been President, Chief Executive Officer and a director of
the Company since March 1994 and was elected Chairman of the Board of Directors
of the Company in January 1998. Prior to that time and during the preceding five
years, Mr. Mas served as the President and Chief Executive Officer of Church &
Tower. In addition, Mr. Mas is the Chairman of the Board of Directors of Neff
Corporation, a company that sells and leases construction equipment, Atlantic
Real Estate Holding Corp., a real estate holding company, U.S. Development
Corp., a real estate development company and Santos Capital, Inc., a merchant
banking firm (all private companies controlled by Mr. Mas) and, during all, or a
portion of the past five years, has served as the President and Chief Executive
Officer of these corporations.
9
Henry N. Adorno was elected Executive Vice President and Special
Counsel of the Company in January 1998. Prior to joining the Company, Mr. Adorno
was President and Chief Executive Officer of Adorno & Zeder, P.A., a Miami law
firm that he co-founded in 1986.
Ismael Perera has been Senior Vice President-Operations of the Company
since March 1994. From August 1993 until March 1994, he served as the Vice
President-Operations of Church & Tower. From 1970 until July 1993, Mr. Perera
served in various capacities in network operations for BellSouth, including most
recently as a Senior Director of Network Operations from 1985 to 1993.
Edwin D. Johnson has been Senior Vice President-Chief Financial Officer
of the Company since March 1996. During the 10 years prior to joining the
Company, Mr. Johnson served in various capacities with Attwoods plc, a British
waste services company, including Chief Financial Officer and member of the
Board of Directors during the final three years of his employment with Attwoods.
Carlos A. Valdes has been Senior Vice President-Corporate Development
of the Company since March 1996. Prior to that time, Mr. Valdes was Senior Vice
President-Finance of the Company from March 1994 to March 1996 and Chief
Financial Officer of Church & Tower from 1991 to 1994.
Jose M. Sariego has been Senior Vice President-General Counsel of the
Company since September 1995. Prior to joining the Company, Mr. Sariego was
Senior Corporate Counsel and Secretary of Telemundo Group, Inc., a Spanish
language television network, from August 1994 to August 1995. From January 1990
to August 1994, Mr. Sariego was a partner in the Miami office of Kelley Drye &
Warren, an international law firm.
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock currently is listed on the New York Stock
Exchange under the symbol MTZ. Prior to February 14, 1997, the Common Stock was
listed on the Nasdaq National Market under the symbol MASX. The high and low
closing prices of the Common Stock for each quarter of the last two fiscal
years, as reported by the New York Stock Exchange and Nasdaq, are set forth
below:
1997 1996
High Low High Low
First Quarter $ 68 7/8 $ 23 $ 12 5/8 $ 9 1/2
Second Quarter $ 47 15/16 $ 26 1/2 $ 35 3/4 $ 11 3/8
Third Quarter $ 54 3/8 $ 39 $ 38 3/8 $ 21 1/2
Fourth Quarter $ 45 1/16 $ 20 3/4 $ 57 3/4 $ 32 5/8
The above quotations reflect interdealer prices, without retail mark
up, mark down or commission, and may not necessarily represent actual
transactions. The Company's Board of Directors declared a three-for-two stock
split in the form of a stock dividend for stockholders of record on February 3,
1997 payable on February 28, 1997. The prices set forth in the preceding table
have not been adjusted for the stock split. The Company did not declare any cash
dividends for the years ended December 31, 1997 and 1996.
At March 20, 1998, there were 4,752 stockholders of record of the
Common Stock.
On January 30, 1998, the Company issued $200 million of its 7 3/4%
Senior Subordinated Notes due 2008 (the "Senior Notes") to qualified
institutional buyers and institutional accredited investors in reliance on Rule
144A and pursuant to exemptions from registration under Section 4(2) of the
Securities Act of 1933, as amended. The initial purchasers for the Senior Notes
sold to the qualified institutional buyers and institutional accredited
investors were Jefferies & Company, Inc., BancBoston Securities Inc., CIBC
Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. The net proceeds
from the offering of the Senior Notes were approximately $194.2 million after
underwriting discounts and commissions of approximately $5.0 million and other
transaction costs.
10
6. SELECTED FINANCIAL INFORMATION
The following table presents selected consolidated financial
information of the Company as of the dates and for each of the periods
indicated. The selected financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31, (1)
---------------------------
1993 1994 (2) 1995 1996 (3) 1997
--------------------------------------------------------------
(Amounts in thousands except per share amounts)
--------------------------------------------------------------
Statement of Income Data:
Revenue $ 74,728 $ 142,583 $ 218,859 $ 534,068 $ 703,369
Cost of revenue 51,763 105,451 158,598 394,497 522,470
Depreciation and amortization 1,520 5,545 8,178 13,686 24,127
General and administrative expenses 15,681 20,595 28,918 72,392 90,995
------ ------- ------- ------- -------
Operating income 5,764 10,992 23,165 53,493 65,777
Interest expense 302 3,846 5,306 11,940 11,920
Interest and dividend income 359 1,550 3,501 3,480 1,921
Special charges-real estate and
investment write-downs (4) 0 0 23,086 0 0
Other income, net (5) 355 1,348 2,250 2,553 8,221
Equity in earnings (losses) of
unconsolidated companies and
minority interest (6) 1,177 247 (139) 3,133 (449)
Provision for income taxes (7) 2,765 3,541 148 17,492 23,610
Income from continuing operations (7) 4,588 6,750 237 33,227 39,940
Discontinued operations 0 825 2,531 (111) 129
------ ------- ------- ------- -------
Net income $ 4,588 $ 7,575 $ 2,768 $ 33,116 $ 40,069
====== ======= ======= ======= =======
Pro forma basic earnings per share:
Continuing operations (7) $ 0.27 $ 0.26 $ 0.01 $ 1.27 $ 1.46
weighted average common
shares outstanding (8) 16,746 25,487 25,263 26,074 27,294
Pro forma diluted earnings per share:
Continuing operations (7) $ 0.27 $ 0.26 $ 0.01 $ 1.25 $ 1.43
weighted average common
shares outstanding (8) 16,746 25,487 25,440 26,499 27,853
As of December 31,
------------------
1993 1994 1995 1996 1997
---------------------------------------------------------
(Amounts in thousands)
Balance Sheet Data:
Property and equipment, net $ 8,038 $ 44,157 $ 50,572 $ 67,177 $ 86,109
Total assets 32,988 155,969 191,272 511,154 587,598
Total debt 5,545 46,977 77,668 164,934 149,057
Total stockholders' equity 16,396 57,270 60,614 116,983 180,731
<FN>
(1) Amounts have been restated to reflect the 1997 acquisitions of Wilde
Construction, Inc. and two related companies and AIDCO, Inc. and one
related company, which were accounted for as poolings of interest.
See Note 2 of Notes to Consolidated Financial Statements.
(2) Includes the results of Burnup & Sims Inc. from March 11, 1994.
(3) Includes the results of Sintel from May 1, 1996.
(4) As a result of the disposal of non-core real estate assets and other
investments, the Company recorded $23.1 million in special charges in
the year ended December 31, 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(5) In 1997, the Company sold a portion of its indirect interest in Conecel
for a gain of $7.1 million. See Note 2 of Notes to Consolidated
Financial Statements.
11
(6) Included in 1997 results is the minority interest related to the
Company's Brazilian operation. See Note 2 to Notes to the Consolidated
Financial Statements.
(7) Provision for income taxes and income from continuing operations have
been adjusted to reflect a pro forma tax provision for companies that
were previously S Corporations.
(8) Amounts have been adjusted to reflect the three-for-two stock split
effected February 28, 1997 and shares issued in connection with two
acquisitions accounted for under the pooling of interest method.
</FN>
7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MasTec is one of the world's largest contractors specializing in the
build-out of telecommunications and other utilities infrastructure. The
Company's business consists of the design, installation and maintenance of the
outside physical plant for telephone and cable television communications systems
and of integrated voice, data and video local and wide area networks inside
buildings, and the installation of central office telecommunications equipment.
The Company also provides infrastructure construction services to the electric
power industry and other public utilities.
MasTec was formed in March 1994 through the combination of Church &
Tower and Burnup & Sims Inc. ("Burnup & Sims"), two established names in the
U.S. telecommunications and other utilities construction services industry. In
April 1996, the Company purchased Sintel, a company engaged in
telecommunications infrastructure construction services in Spain, Argentina,
Chile and Peru, from Telefonica. The Sintel acquisition gave the Company a
significant international presence and more than doubled the size of the Company
in terms of revenue and number of employees. In Argentina, Chile and Peru, the
Company operates through incorporated entities in which it holds a 50% interest
and which are accounted under the equity method. Operational control of these
entities is shared by the Company and its local partner. See Notes 2 and 9 of
Notes to Consolidated Financial Statements for pro forma financial information
and geographic information, respectively.
In July and August 1997, the Company acquired Wilde Construction,
Inc. and two related companies and AIDCO, Inc. and one related company
(collectively, the "Pooled Companies") through an exchange of common stock.
The acquisitions were accounted for as poolings of interest. Accordingly,
the Company's consolidated financial statements include the results of the
Pooled Companies for all periods presented. See Note 2 of Notes to
Consolidated Financial Statements.
In July 1997, the Company acquired a 51% interest in MasTec Inepar, a
Brazilian telecommunications infrastructure construction company. At the time of
the acquisition, MasTec Inepar had a backlog of construction contracts of
approximately $280.0 million. The results of MasTec Inepar are consolidated in
the results of the Company, net of a 49% minority interest, beginning August
1997.
During the year ended December 31, 1997, the Company completed nine
other acquisitions that have been accounted for under the purchase method of
accounting and the results of operations of which have been included in the
Company's consolidated financial statements from the respective acquisition
dates. The Company's pro forma results of operations for 1997 giving effect to
these acquisitions would not differ materially from actual results.
On September 3, 1997, Sintel filed a petition with the Spanish labor
authorities to approve a restructuring of its workforce. In response to the
Company's petition, the unionized employees declared work stoppages during the
latter part of September 1997 and continued with half day strikes through the
first week in October 1997.
In March 1998, Sintel entered into an agreement with its unions to
resolve the labor dispute. Under the agreement, the Company is entitled to
permanently reduce its workforce, beginning with the placement of 209 employees
on unemployment partly paid by the Spanish government for up to six months.
Additional voluntary terminations and the results of certain agreed upon
restructuring activities will allow the Company to quantify final severance
arrangements over that period. In addition, the agreement calls for reductions
in certain non-wage compensation and increases in productivity benchmarks. The
agreement also contemplates an increase in base wage rates for remaining union
workers. While management anticipates a reduction in ongoing operating costs to
result from these negotiations, the Company recognizes that it services an
12
increasingly competitive telephony industry in the Spanish market and a
substantial portion of any savings may be offset by more competitive prices to
Telefonica and other communication service customers. As of December 31, 1997,
the Company had not reserved for possible restructuring costs associated with a
settlement of the Sintel labor situation in its consolidated financial
statements. The Company is currently negotiating with its unions to determine
the final number of employees and related severance amounts. The ultimate amount
to be paid, which is expected to be significant, cannot be presently quantified.
Results of Operations
Revenue is generated primarily from telecommunications and other
utilities infrastructure services. Infrastructure services are provided to
telephone companies, public utilities, cable television operators, other
telecommunications providers, governmental agencies and private businesses.
Costs of revenue includes subcontractor costs and expenses, materials not
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.
The following table sets forth certain historical consolidated
financial data as a percentage of revenue for the years ended December 31, 1995,
1996 and 1997.
Years Ended December 31,
----------------------------------
1995 1996 1997
---- ---- ----
Revenue 100.0% 100.0% 100.0%
Costs of revenue 72.5 73.9 74.3
Depreciation and amortization 3.7 2.6 3.4
General and administrative expenses 13.2 13.6 12.9
---- ---- ----
Operating income 10.6 9.9 9.4
Interest expense 2.4 2.2 1.7
Interest and dividend income, other income,
net, equity in earnings of unconsolidated
companies and minority interest 2.6 1.7 1.4
Special charges-real estate and investment
write-downs 10.6 0.0 0.0
---- ---- ----
Income from continuing operations before provision
for income taxes 0.2 9.4 9.1
Provision for income taxes (1) 0.1 3.2 3.4
---- ---- ----
Income from continuing operations (1) 0.1% 6.2% 5.7%
==== ==== ====
<FN>
(1) Provision for income taxes and income from continuing
operations has been adjusted to reflect a tax provision for
companies that were S corporations.
</FN>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue from domestic operations increased $75.1 million, or 21.7%, to
$421.0 million in 1997 as compared to $345.9 million in 1996. Domestic growth
was generated by acquisitions. Revenue generated by international operations
increased $94.2 million, or 50.1%, to $282.4 million in 1997 as compared to
$188.2 million in 1996 due primarily to the inclusion of Sintel's results for
the entire period in 1997 compared to eight months in the 1996 period and the
results of MasTec Inepar for five months ended December 31, 1997, which totaled
$74.9 million. Sintel's revenue was negatively impacted in 1997 by an 18%
devaluation in the Spanish peseta and by work stoppages in the second half of
1997 as discussed in "Overview".
Gross profit (revenue less cost of revenue), excluding depreciation and
amortization, increased $41.3 million, or 29.6%, to $180.9 million, or 25.7% of
revenue in 1997 as compared to $139.6 million, or 26.1% of revenue in 1996. The
decrease in gross profit as a percentage of revenue was due primarily to lower
margins generated by international operations. Domestic gross margins (gross
profit as a percentage of revenue) increased to 27.4% in 1997 from 25.1% in 1996
primarily due to the performance of certain higher margin domestic jobs during
1997 and domestic cost reductions. There can be no assurance that the Company
will be able to obtain higher margin jobs and implement further cost reductions
in the future. International gross margins decreased to 23.2% in 1997 as
compared to 28.0% in 1996 due to overall lower margins from the Company's newly
formed Brazilian operations (15.0%) and lower productivity in the second half of
1997 from the Company's Spanish operations.
13
Depreciation and amortization increased $10.4 million, or 75.9%, to
$24.1 million in 1997 from $13.7 million in 1996. The increase in depreciation
and amortization was a result of increased capital expenditures in the latter
part of 1996, as well as depreciation and amortization associated with
acquisitions. As a percentage of revenue, depreciation and amortization was 3.4%
and 2.6% of revenue for 1997 and 1996, respectively.
General and administrative expenses increased $18.6 million, or 25.7%,
to $91.0 million, or 12.9% of revenue for 1997 from $72.4 million, or 13.6% of
revenue for 1996. Domestic general and administrative expenses were $49.9
million, or 11.9% of domestic revenue in 1997, compared to $41.4 million, or
12.0% of domestic revenue for 1996. The increase in dollar amount of domestic
general and administrative expenses is due primarily to acquisitions. The
decline as a percentage of domestic revenue is due primarily to the higher
revenue volume. International general and administrative expenses increased
$10.1 million, or 32.6%, to $41.1 million, or 14.6% of international revenue in
1997 from $31.0 million, or 16.5% of international revenue for 1996. The
increase in international general and administrative expenses was due to the
inclusion of Sintel's results for the entire 1997 period, compared to only eight
months during the 1996 period. The decline in international general and
administrative expenses as a percentage of international revenue is due to a
lower general and administrative expense for the Brazilian operations, which was
2.2% of Brazilian revenue.
Operating income increased $12.3 million, or 23.0%, to $65.8 million,
or 9.4% of revenue in 1997 from $53.5 million, or 9.9% of revenue in 1996.
Interest expense remained constant at $ 11.9 million for both periods,
primarily due to the lower interest rates on Spanish and domestic borrowings and
the conversion of the Company's 12% Subordinated Convertible Debentures into
Common Stock on June 30, 1996. Offsetting the decline was the inclusion of
interest expense associated with Sintel's working capital needs for the entire
1997 period compared to eight months for the 1996 period. The Company
anticipates increased interest expense as a result of its recently completed
bond offering. See -"Financial Condition, Liquidity and Capital Resources."
Included in other income for 1997, is a $7.1 million gain on sale of
the Company's indirect interest in Conecel (See Note 2 of Note to Consolidated
Financial Statements).
Provision for income taxes on a pro forma basis was $23.6 million, or
36.9% of income from continuing operations before equity in earnings of
unconsolidated companies, taxes and minority interests in 1997, compared to
$17.5 million, or 36.8% of income from continuing operations before equity in
earnings of unconsolidated companies, taxes and minority interests in 1996.
Income from continuing operations on a pro forma basis increased $6.7
million, or 20.2%, from $33.2 million in 1996 to $39.9 million in 1997. Income
from continuing operations on a pro forma basis as a percentage of revenue
decreased to 5.7% in 1997 from 6.2% in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue increased $315.2 million, or 144.0%, to $534.1 million for the
year ended December 31, 1996 from $218.9 million for the year ended December 31,
1995. Domestic revenue increased $127.0 million, or 58.0%, to $345.9 million for
1996 from $218.9 million for 1995, primarily due to growth in revenue generated
from existing contracts and to domestic acquisitions completed in 1996 which
generated $23.5 million in revenue. International revenue, comprised of revenue
from Sintel, which the Company acquired in April 1996, contributed $ 188.2
million of revenue for the year ended December 31, 1996.
Gross profit (revenue less costs of revenue), excluding depreciation
and amortization, increased $79.3 million, or 131.5%, to $139.6 million, or
26.1% of revenue, for the year ended December 31, 1996 from $60.3 million, or
27.5% of revenue, for the year ended December 31, 1995. Domestic gross margins
(gross profit as a percentage of revenue) decreased to 25.1% for the year ended
December 31, 1996 from 27.5% for the year ended December 31, 1995. The decline
in domestic gross margins was primarily due to additional start-up and expansion
costs relating to the rapid growth in revenue. International gross margins were
28.0% for the year ended December 31, 1996.
14
Depreciation and amortization increased $5.5 million, or 67.1%, to
$13.7 million for the year ended December 31, 1996 from $8.2 million for the
year ended December 31, 1995. Domestic depreciation and amortization as a
percentage of domestic revenue decreased to 3.4% for 1996 from 3.7% for 1995 due
to economies of scale obtained over a larger domestic revenue base.
International depreciation and amortization was 1.1% of international revenue
for the year ended December 31, 1996, as the Company's international operations
are less capital intensive than the Company's domestic operations.
General and administrative expenses increased $43.5 million, or 150.5%,
to $72.4 million, or 13.6% of revenue for the year ended December 31, 1996 from
$28.9 million, or 13.2% of revenue for the year ended December 31, 1995.
Domestic general and administrative expenses increased $12.5 million, or 43.3%,
to $41.4 million, or 12.0% of domestic revenue, for 1996 from $28.9 million, or
13.2% of domestic revenue in 1995. The decrease in domestic general and
administrative expenses as a percentage of domestic revenue is primarily the
result of spreading overhead expenses over a broader revenue base. Included in
domestic general and administrative expenses for 1996 and 1995 are salaries and
bonuses for employees of the Pooled Companies of approximately $6.1 million and
$3.8 million, respectively. International general and administrative expenses
were $31.0 million, or 16.5% of international revenue, for the year ended
December 31, 1996.
Operating income increased $30.3 million, or 130.6%, to $53.5 million,
or 9.9% of revenue, for the year ended December 31, 1996 from $23.2 million, or
10.6% of revenue, for the year ended December 31, 1995. The decline in operating
income as a percentage of revenue was due to the decline in domestic gross
margins in 1996 and bonuses earned by employees of the Pooled Companies.
Interest expense increased $6.6 million, or 124.5%, to $11.9 million
for the year ended December 31, 1996 from $5.3 million for the year ended
December 31, 1995 primarily due to borrowings used for equipment purchases and
to fund investments in unconsolidated companies, offset in part by the
conversion of the Company's 12% Subordinated Convertible Debentures into Common
Stock on June 30, 1996.
As a result of the decision to accelerate the disposal of certain
non-core real estate assets and other investments, the Company recorded $23.1
million in special charges during the year ended December 31, 1995. The Company
recorded a special charge of $15.4 million in the third quarter of 1995 to
adjust the carrying values of its real estate investments to estimated net
realizable value based on offers received by the Company to dispose of certain
real estate in a bulk transaction. The original value assigned to the real
estate investments contemplated the disposition of the properties on an
individual basis and no consideration had previously been given to a bulk sale.
In the fourth quarter of 1995, the Company recorded an additional charge of $7.7
million to reflect the value realized upon a sale of certain real estate and the
Company's preferred stock investment in early 1996. These assets were sold at
prices and in a manner designed to facilitate their immediate disposal so that
the Company could concentrate its resources on its core telecommunications
construction business.
Income from continuing operations after a pro forma tax provision
increased to $33.2 million, or 6.2% of revenue, for the year ended December 31,
1996 from $0.2 million for the year ended December 31, 1995 which included the
special charge of $23.1 million.
In the third quarter of 1995, the Company adopted a plan to dispose of
certain non-core businesses acquired as a result of the acquisition of Burnup &
Sims in March 1994. See Note 13 of Notes to Consolidated Financial Statements.
These businesses included the operations of a printing company, a theater chain
and an uninterrupted power supply device assembler. During 1995, the Company
sold the assets of the theater chain and the assembler. The two transactions
netted a gain of $7.4 million after tax. The remaining theater operations have
been closed and are currently being marketed for sale for the underlying real
estate value. Based on the estimated net realizable value of these businesses, a
loss on disposition of approximately $6.4 million, net of tax, relating to the
remaining discontinued operations was recorded in 1995. The Company sold the
printing company in January 1997 for its carrying value.
Financial Condition, Liquidity and Capital Resources
The Company's primary liquidity needs are for working capital, to
finance acquisitions and capital expenditures and to service the Company's
indebtedness. The Company's primary sources of liquidity have been cash flow
15
from operations, borrowings under revolving lines of credit and the proceeds
from the sale of investments and non-core assets.
Net cash provided by operating activities for the year ended December
31, 1997 was $23.1 million, compared to $41.9 million for the year ended 1996.
This decrease was due to fluctuations in working capital, particularly a
reduction of accounts payable balances companywide and an increase in accounts
receivable and unbilled revenue from Brazilian operations, offset by an increase
in net income to $42.7 million as compared to net income of $35.9 million in the
comparative 1996 period.
Net cash provided by the sale of investments and non-core assets
amounted to $29.6 million for 1997 compared to $9.4 million for 1996. The
Company invested cash, net of cash acquired, in acquisitions and investments in
unconsolidated companies totaling $50.2 million during 1997 compared to $6.2
million in 1996. During 1997, the Company made capital expenditures of $23.6
million, primarily for machinery and equipment used in the production of
revenue, compared to $8.4 million in 1996.
As of December 31, 1997, working capital totaled $123.7 million,
compared to working capital of $136.2 million at December 31, 1996 excluding a
note receivable of $29.0 million which was converted into an investment, a
portion of which was sold in December 1997. See Note 2 of Notes to Consolidated
Financial Statements. Included in working capital are net assets of discontinued
operations of $4.2 million and real estate held for sale totaling $10.9 million.
In December 1997, the Company sold its indirect investment in Conecel
for $20.0 million in cash and the right to receive shares of Conecel non-voting
common stock. The Company will have certain registration rights with respect to
the Conecel common stock that it receives. A gain of $4.4 million, net of tax,
was recognized based on the percent of cash received to the total transaction
value. In September 1997, the Company agreed to sell a portion of its interest
in Supercanal for $20.0 million in cash. In January 1998, the Company elected to
retain its entire interest in Supercanal and terminated the agreement.
The Company continues to pursue a strategy of growth through
acquisitions and internal expansion. In July 1997, the Company closed its
acquisition of 51% of MasTec Inepar for stock and $29.4 million in cash payable
over eleven months. In addition, in connection with its acquisition of Sintel,
the Company is required to make payments of 1.8 billion pesetas (approximately
$11.8 million at the exchange rate in effect at December 31, 1997) on each of
December 31, 1997 and 1998. The Company has paid a portion of the December 31,
1997 payment, with the remaining amounts to be paid pending resolution of
offsetting amounts between the Company and Telefonica. See Note 2 of Notes to
Consolidated Financial Statements. The Company believes that cash generated
from operations, borrowings under its $125.0 million revolving credit facility
with a syndicate of banks led by BankBoston, N.A. (the "Credit Facility"),
and proceeds from the sale of investments and non-core assets will be sufficient
to finance these payments, as well as the Company's working capital needs,
capital expenditures and debt service obligations for the foreseeable
future. Future acquisitions are expected to be financed from these sources, as
well as other external financing sources to the extent necessary, including the
issuance of equity securities and additional borrowings.
In June 1997, the Company refinanced its domestic credit facility with
the Credit Facility. Borrowings under this facility may be used for domestic
acquisitions, working capital, capital expenditures and general corporate
purposes. At December 31, 1997, borrowings under this facility totaled
approximately $83.0 million and standby letters of credit issued pursuant to
this facility totaled approximately $3.5 million. In January 1998, the Company
sold $200.0 million principal amount of 7.75% Senior Subordinated Notes (the
"Notes") due 2008 with interest due semi-annually. The Company repaid all
outstanding borrowings under the Credit Facility other than outstanding letters
of credit with a portion of the proceeds of the Notes, as a result of which the
Company has approximately $121.5 million of borrowing capacity under the Credit
Facility. The Credit Facility and the Notes contain certain covenants which,
among other things, restrict the payment of dividends, limit the Company's
ability to incur additional debt, create liens, dispose of assets, merge or
consolidate with another entity or make other investments or acquisitions, and
provide that the Company must maintain minimum amounts of stockholders' equity
and financial ratio coverages, requiring, among other things, minimum ratios at
the end of each fiscal quarter of debt to earnings, earnings to interest expense
and accounts receivable to trade payables. See Note 5 of Notes to Consolidated
Financial Statements.
The Company conducts business in several foreign currencies that are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
16
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. 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.
Year 2000
Management believes that a significant portion of its computer systems
are year 2000 compliant and is in the process of assessing the balance of its
systems. The Company intends to communicate with its customers, suppliers,
financial institutions and others with which it does business to ensure that any
year 2000 issue will be resolved timely. This issue affects computer systems
that have time-sensitive programs that may not properly recognize the year 2000.
If necessary modifications and conversions by those with which the Company does
business are not completed timely or if all of the Company's systems are not
year 2000 compliant, the year 2000 issue may have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
Seasonality
The Company's domestic operations have historically been seasonally
weaker in the first and fourth quarters of the year and have produced stronger
results in the second and third quarters. Sintel has experienced seasonal
weakness in the first quarter, but has produced relatively strong results in the
fourth quarter. This seasonality is primarily the result of customer budgetary
constraints and preferences and, to a lesser extent, the effect of winter
weather on outside plant activities. Certain U.S. customers, particularly the
RBOCs, tend to complete budgeted capital expenditures before the end of the year
and defer additional expenditures until the following budget year. Telefonica,
the Company's principal international customer, has historically rushed to
complete budgeted expenditures in the last quarter. Revenue from MasTec Inepar
is not expected to fluctuate seasonally.
Impact of Inflation
The primary inflationary factor affecting the Company's operations is
increased labor costs. The Company has not experienced significant increases in
labor costs to date. Competition for qualified personnel could increase labor
costs for the Company in the future. As a result, of the Company's recent
increase in international activities, it may, at times in the future, operate in
countries that may experience high inflation.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Consolidated Financial Statements.
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and nominees for director of the
Company set forth under the caption "Election of Directors" of the Company's
Proxy Statement for the 1998 Annual Meeting of Stockholders (the "Proxy
17
Statement") is incorporated by reference into this Annual Report on Form 10-K.
Information concerning the executive officers of the Company is included under
the caption "Executive Officers of the Registrant" in reliance upon General
Instruction G to Form 10-K and Instruction 3 of Item 40 l(b) of Regulation S-K.
11. EXECUTIVE COMPENSATION
The information concerning executive compensation set forth under the
caption "Executive Compensation" of the Company's Proxy Statement is
incorporated by reference into this Annual Report on Form 10-K.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information concerning security ownership set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management" of the
Company's Proxy Statement is incorporated by reference into this Annual Report
on Form 10-K.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" of the Company's Proxy Statement is incorporated by
reference into this Annual Report on Form 10-K.
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page Number
Report of Independent Accountants F-1
Report of Independent Accountants F-2
(a)(i) Consolidated Financial Statements
Statements of Income for the three years ended
December 31, 1997 F-3
Balance Sheets at December 31, 1996 and 1997 F-5
Statements of Stockholders' Equity for the
three years ended December 31, 1997 F-6
Statements of Cash Flows for the three
years ended December 31, 1997 F-7
Notes to Consolidated Financial Statements F-12
(b) Report on Form 8-K
On October 16, 1997, the Company filed a Form 8-K current report dated
September 30, 1997 with the Securities and Exchange Commission reporting
information under Item 5 thereof regarding the sale of 5.5% of Supercanal
Holding, S.A. See Note 2 of Notes to Consolidated Financial Statements.
On October 16, 1997, the Company filed a Form 8-K current report dated
October 6, 1997 with the Securities and Exchange Commission reporting
information under Item 5 thereof regarding the sale of its indirect equity
interest in Consorcio Ecuatoriano de Telecomunicaciones S.A. (Conecel).
Index to Exhibits E-1
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of MasTec, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of MasTec, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Sistemas e Instalaciones de Telecomunicacion, S.A.
("Sintel"), a wholly owned subsidiary, as of December 31, 1997 and for the year
then ended which statements reflect total assets and revenue constituting 33.2%
and 29.5%, respectively, of the related consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Sintel is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of MasTec, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 10, 1998
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sintel, S.A.
We have audited the consolidated balance sheet of SINTEL, S.A. and subsidiaries
("Sintel") as of December 31,1997, the related consolidated statements of income
and cash flows for the year then ended, and the notes to the financial
statements, all expressed in Spanish pesetas. These financial statements are the
responsibility of Sintel's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Note 18 of the notes to the consolidated financial statements details Sintel's
significant transactions with its main customer, Telefonica de Espana, S.A.,
performed under a contract in force for 1996-1998.
Certain accounting practices of Sintel used in preparing the consolidated
financial statements of Sintel conform with generally accepted accounting
principles in Spain, but do not conform with accounting principles generally
accepted in the United States. A description of these differences and the
adjustments required to conform the consolidated financial statements to
accounting principles generally accepted in the United States are set forth in
Note 22.
In our opinion, the consolidated financial statements referred to above present
fairly, in all materials respects, the consolidated financial position of
SINTEL, S.A. and subsidiaries as of December 31,1997, and the results of their
operations and changes in financial position for the year then ended, in
conformity with generally accepted accounting principles in the United States as
set forth in Note 22.
ARTHUR ANDERSEN L.L.P.
Madrid, Spain
February 25, 1998
F-2
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
For the Years Ended December 31, (3)
------------------------------------
1995 1996 1997
---- ---- ----
Revenue $ 218,859 $ 534,068 $ 703,369
Costs of revenue 158,598 394,497 522,470
Depreciation and amortization 8,178 13,686 24,127
General and administrative expenses 28,918 72,392 90,995
------- ------- -------
Operating income 23,165 53,493 65,777
Interest expense 5,306 11,940 11,920
Interest and dividend income 3,501 3,480 1,921
Special charges-real estate and investment write-downs 23,086 0 0
Other income, net 2,250 2,553 8,221
------- ------- -------
Income from continuing operations before equity in
(losses) earnings of unconsolidated companies,
(benefit) provision for income taxes and minority interest 524 47,586 63,999
Equity in (losses) earnings of unconsolidated companies (300) 3,040 2,897
(Benefit) provision for income taxes (1,115) 14,665 21,015
Minority interest 161 93 (3,346)
------- ------- -------
Income from continuing operations 1,500 36,054 42,535
Discontinued operations:
Income (loss) from discontinued operations,
(net of applicable income taxes) 38 (177) 129
Net gain on disposal of discontinued operations net of
a provision of $6,405 for 1995 to write down related
assets to realizable values and including operating
losses during phase-out period, net of applicable income taxes 2,493 66 0
------- ------- -------
Net income $ 4,031 $ 35,943 $ 42,664
======= ======= =======
Pro forma data (1):
Income from continuing operations before equity in
(losses) earnings of unconsolidated companies, pro
forma provision for income taxes and minority interest $ 524 $ 47,586 $ 63,999
Equity in (losses) earnings of unconsolidated companies (300) 3,040 2,897
Pro forma provision for income taxes (1) 148 17,492 23,610
Minority interest 161 93 (3,346)
Discontinued operations 2,531 (111) 129
------- ------- -------
Pro forma net income $ 2,768 $ 33,116 $ 40,069
======= ======= =======
Basic earnings per share:
Weighted average common shares outstanding (2) 25,263 26,074 27,294
Pro forma earnings per share (1) (2):
Continuing operations $ 0.01 $ 1.27 $ 1.46
Discontinued operations 0.10 0.00 0.01
------- ------- -------
$ 0.11 $ 1.27 $ 1.47
======= ======= =======
Diluted earnings per share:
Weighted average common shares outstanding (2) 25,440 26,499 27,853
Pro forma earnings per share (1) (2):
Continuing operations $ 0.01 $ 1.25 $ 1.43
Discontinued operations 0.10 0.00 0.01
------- ------- -------
$ 0.11 $ 1.25 $ 1.44
======= ======= =======
<FN>
(1) Provision for income taxes and net income have been adjusted to reflect
a tax provision for companies which were previously S corporations.
F-3
(2) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997 and shares issued in connection with two
acquisitions accounted for under the pooling of interest method.
(3) The historical amounts have been restated to reflect the results of
operation of two 1997 acquisitions accounted for under the pooling of
interest method.
</FN>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
------------
1996 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 10,989 $ 6,063
Accounts receivable-net and unbilled revenue 318,967 346,596
Notes receivable 29,549 682
Inventories 5,737 8,746
Other current assets 35,529 32,109
------- -------
Total current assets 400,771 394,196
------- -------
Property and equipment-at cost 95,467 129,968
Accumulated depreciation (28,290) (43,859)
------- -------
Property and equipment-net 67,177 86,109
------- -------
Investments in unconsolidated companies 30,209 48,160
Other assets 12,997 59,133
------- -------
TOTAL ASSETS $ 511,154 $ 587,598
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 39,916 $ 54,562
Accounts payable 166,993 166,843
Other current liabilities 28,651 49,043
------- -------
Total current liabilities 235,560 270,448
------- -------
Other liabilities 33,593 41,924
------- -------
Long-term debt 125,018 94,495
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock 2,780 2,805
Capital surplus 149,083 99,235
Retained earnings 49,070 86,921
Accumulated translation adjustments (802) (3,466)
Treasury stock (83,148) (4,764)
------- -------
Total stockholders' equity 116,983 180,731
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 511,154 $ 587,598
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
MASTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1997
(In thousands)
Common Stock Accumulated
Issued Capital Retained Translation Treasury
Shares Amount Surplus Earnings Adjustments Stock Total
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 27,806 $ 2,780 $134,094 $ 12,531 $ 0 $(92,135) $ 57,270
Net income 4,031 4,031
Distributions by Pooled Companies (926) (926)
Stock issued to 401(k)
Retirement savings plan from
treasury shares 92 146 238
Accumulated translation adjustment 1 1
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 27,806 2,780 134,186 15,636 1 (91,989) 60,614
Net income 35,943 35,943
Distributions by Pooled Companies (2,509) (2,509)
Cumulative effect of translation (803) (803)
Stock issued from treasury stock
for options exercised 48 523 571
Tax benefit for stock option plan 513 513
Stock issued from treasury stock
for an acquisition 8,844 2,201 11,045
Stock issued for debentures
from treasury stock 5,492 6,117 11,609
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 27,806 2,780 149,083 49,070 (802) (83,148) 116,983
Net income 42,664 42,664
Distributions by Pooled Companies (4,813) (4,813)
Cumulative effect of translation (2,664) (2,664)
Stock issued from treasury stock
for options exercised 206 979 1,185
Tax benefit for stock option plan
exercises 1,538 1,538
Stock issued for acquisition 250 25 6,600 6,625
Stock issued from treasury stock
for an acquisition 4,479 1,603 6,082
Stock issued for stock dividend
from treasury stock (75,802) 75,802 0
Treasury stock sold 3,007 3,007
Tax benefit for pooling treated as
asset sales for income tax purposes 10,124 10,124
- ---------------------------------------------------------------------------------------------------------------
Balance December 31,1997 28,056 $ 2,805 $ 99,235 $86,921 $ (3,466) $ 4,764 $180,731
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 4,031 $ 35,943 $ 42,664
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest (161) (93) 3,346
Depreciation and amortization 8,178 13,686 24,127
Equity in losses (earnings) of
unconsolidated companies 300 (3,040) (2,897)
Special charges-real estate and
investments write downs 23,086 0 0
Gain on sale of assets (2,823) (365) (6,848)
Changes in assets and liabilities net of
effect of acquisitions and divestitures:
Accounts receivable-net and unbilled revenue (24,760) (13,057) (39,950)
Inventories and other current assets (2,207) (2,574) (331)
Other assets (2,617) (4,657) (7,994)
Accounts payable 10,807 26,460 12,188
Income and deferred taxes (8,338) 2,574 (4,276)
Other current liabilities 451 (9,151) 8,208
Net assets of discontinued operations 963 1,148 (394)
Other liabilities 1,032 (4,943) (4,740)
------- ------- -------
Net cash provided by operating activities 7,942 41,931 23,103
------- ------- -------
Cash flows from investing activities:
Capital expenditures (17,202) (8,386) (23,585)
Cash acquired in acquisitions 148 1,130 2,106
Cash paid for acquisitions (1,750) (6,164) (48,910)
Distributions from unconsolidated companies 245 1,365 2,130
Investments in unconsolidated companies (7,408) (1,212) (3,364)
Investments in notes receivable (25,000) 0 0
Repayment of notes receivable 443 1,273 565
Repayment of stockholders loans receivable 1,800 0 780
Net proceeds from sale of assets and other non-core assets 24,269 9,404 29,628
------- ------- -------
Net cash used in investing activities (24,455) (2,590) (40,650)
------- ------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
For the Years Ended December 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
Cash flows from financing activities:
Proceeds from revolving credit facilities $ 46,125 $ 17,476 $ 57,321
Other borrowings 10,200 28,888 19,936
Repayment of notes payable to stockholders (2,500) 0 0
Debt repayments (40,091) (75,280) (65,147)
Distributions by Pooled Companies (926) (2,509) (4,813)
Proceeds from common stock issued
from treasury 238 792 6,264
Financing costs (516) 0 (587)
------- ------- -------
Net cash provided by (used in) financing activities 12,530 (30,633) 12,974
------- ------- -------
Net (decrease) increase in cash and cash equivalents (3,983) 8,708 (4,573)
Net effect of translation on cash 0 (803) (353)
Cash and cash equivalents - beginning of period 7,067 3,084 10,989
------- ------- -------
Cash and cash equivalents - end of period $ 3,084 $ 10,989 $ 6,063
======= ======= =======
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 5,302 $ 10,530 $ 9,058
Income taxes $ 7,527 $ 12,867 $ 10,432
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities:
For the Years Ended December 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
Acquisitions accounted for under purchase method of accounting:
Fair value of assets acquired:
Accounts receivable $ 167 $ 248,087 $ 20,482
Inventories 0 2,980 955
Other current assets 67 12,661 1,618
Property and equipment 2,688 13,148 19,257
Investments in unconsolidated companies 0 9,373 0
Real estate and other assets 50 6,385 3,820
------- ------- -------
Total non-cash assets 2,972 292,634 46,132
------- ------- -------
Liabilities 71 162,928 20,299
Long-term debt 93 78,966 2,153
------- ------- -------
Total liabilities assumed 164 241,894 22,452
------- ------- -------
Net non-cash assets acquired 2,808 50,740 23,680
Cash acquired 148 1,130 2,106
------- ------- -------
Fair value of net assets acquired 2,956 51,870 25,786
Excess over fair value of assets acquired 0 4,956 44,905
------- ------- -------
Purchase price $ 2,956 $ 56,826 $ 70,691
======= ======= =======
Notes payable issued in acquisitions $ 800 $ 36,561 $ 130
Cash paid and common stock issued for acquisitions 1,750 17,340 60,354
Contingent consideration 406 2,250 9,907
Acquisition costs 0 675 300
------- ------- -------
Purchase price $ 2,956 $ 56,826 $ 70,691
======= ======= =======
Property acquired through financing arrangements $ 9,452 $ 8,550 $ 413
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
MASTEC, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
Supplemental disclosure of non-cash investing and financing activities (cont.)
December 31,
1995
----
Disposals:
Assets sold:
Accounts receivable $ 2,158
Inventories 1,770
Other current assets 22
Property and equipment 1,832
Other assets 4
-------
Total non-cash assets 5,786
Liabilities 1,878
Long-term debt 343
-------
Total liabilities 2,221
-------
Net non-cash assets sold $ 3,565
=======
Sale price $ 12,350
Transaction costs (521)
Note receivable (450)
=======
Net cash proceeds $ 11,379
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the three years ended December 31, 1997
Supplemental disclosure of non-cash investing and financing activities:
In 1995, the Company's purchase of a 33% interest in Supercanal was
financed in part by the seller for $7 million. (See Note 2.)
During 1995, MasTec issued $146,000 of common stock from treasury
stock for purchases made by The MasTec, Inc. 401 (k) Retirement Savings Plan.
Capital surplus was increased by $92,000.
In 1996, the Company issued approximately 198,000 shares of common
stock for an acquisition. Common stock was issued from treasury at a cost of
$2.2 million.
In 1996, the Company converted $11.6 million of its 12% convertible
subordinated debentures into common stock. Common stock was issued from treasury
at a cost of $6.1 million. (See Note 5.)
In 1996, the Company's purchase of an additional 3% interest in
Supercanal was financed in part by the sellers for $2 million. (See Note 2.)
During 1996, MasTec issued $523,000 of common stock from treasury for
stock option exercises. Capital surplus was increased by $48,000.
In 1997, the Company issued approximately 173,000 shares of common
stock for domestic acquisitions. Common stock was issued from treasury stock at
a cost of approximately $1.6 million. (See Note 2 for non-cash transactions
related to MasTec Inepar.)
In July 1997, the Company converted a note receivable and accrued
interest thereon totaling $29 million into stock of Conecel. (See Note 2.)
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
MasTec, Inc. (the "Company" or "MasTec") is one of the world's 1eading
contractors specializing in the build-out of telecommunications and other
utilities infrastructure. The Company's business consists of the design,
installation and maintenance of the outside physical plant ("outside plant") for
telephone and cable television communications systems, including the
installation of aerial, underground and buried copper, coaxial and fiber optic
cable networks and the construction of wireless antenna networks for
telecommunications service companies such as local exchange carriers,
competitive access providers, cable television operators, long-distance
carriers, and wireless phone companies. The Company also installs central office
equipment and designs, installs and maintains integrated voice, data and video
local and wide area networks inside buildings ("inside wiring"). The Company
believes it is the largest independent contractor providing telecommunications
infrastructure construction services in the United States and Spain and one of
the largest in Argentina, Chile, Brazil and Peru. The Company also provides
infrastructure construction services to the electric power industry and other
public utilities.
The Company is able to provide a full range of infrastructure services
to its telecommunications company customers. Domestically, the Company provides
outside plant services to local exchange carriers such as BellSouth
Telecommunications, Inc. ("BellSouth"), U.S. West Communications, Inc., SBC
Communications, Inc., United Telephone of Florida, Inc. (a subsidiary of Sprint
Corporation) and GTE Corp. At December 31, 1997, MasTec had 20 multi-year
service contracts ("master contracts") with regional bell operating companies
("RBOCs") and other local exchange carriers to provide all of their outside
plant requirements up to a specific dollar amount per job and within certain
geographic areas. Internationally, the Company provides through its wholly owned
subsidiary Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel") outside
plant services, turn-key switching system installation and inside wiring
services to Telefonica de Espana, S.A. ("Telefonica") under three separate
multi-year contracts similar to those in the U.S. which expire in 1998. In July
1997, the Company also began servicing the local telephone subsidiaries of
Telecomunicacoes Brasileiras S.A., the Brazilian government-owned
telecommunications system ("Telebras"), in Sao Paulo, Rio de Janeiro, Parana and
other states in the more populous and developed Southern region of Brazil, as
well as Companhia Riograndense de Telecomunicacoes, S.A. ("CRT"), the local
telephone company in Rio Grande do Sul which is partly owned by Telefonica.
The Company was formed through the combination of Church & Tower, Inc.
("Church and Tower") and Burnup & Sims Inc. ("Burnup & Sims"), two established
names in the U.S. telecommunications and other utilities construction services
industry. On March 11, 1994, the shareholders of Church & Tower acquired 65% of
the outstanding common stock of Burnup & Sims in a reverse acquisition (the
"Burnup Acquisition"). Following the change in control, the senior management of
Burnup & Sims was replaced by Church & Tower management and the name of Burnup &
Sims was changed to "MasTec, Inc." Church & Tower is considered the predecessor
company to MasTec and, accordingly, the results of Burnup & Sims subsequent to
March 11, 1994 are included in the results of the Company.
In July and August 1997, Wilde Construction, Inc. and two related
companies ("Wilde") and AIDCO, Inc. ("Aidco") and one related company were
merged with and into the Company through an exchange of common stock. The
mergers were accounted for as poolings of interest. Accordingly, the Company's
consolidated financial statements include the results of Wilde and Aidco for all
periods presented (see Note 2).
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The Consolidated Financial Statements include MasTec, Inc. and
its subsidiaries. All material intercompany accounts and transactions have
been eliminated. Certain prior year amounts have been reclassified to conform to
the current presentation.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995 (continued)
Foreign Currency
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. The Company translates foreign currency financial statements by
translating balance sheet accounts at the exchange rate on the balance sheet
date and income statement accounts at the average exchange rate for the period.
Translation gains and losses are recorded in stockholders' equity, and
transaction gains and losses are reflected in income.
Revenue Recognition
Revenue and related costs for short-term construction projects (i.e.,
projects with duration of less than one month) are recognized as the projects
are completed. Revenue generated by certain long-term construction contracts are
accounted for by the percentage-of-completion method under which income is
recognized based on the ratio of estimated cost incurred to total estimated
contract cost. Losses, if any, on such contracts are provided for in full when
they become known. Billings in excess of costs and estimated earnings on
uncompleted contracts are classified as current liabilities. Any costs in excess
of billings are classified as current assets (See Note 3). Work in process on
contracts is based on work performed but not billed to customers as per
individual contract terms.
The Company also provides management, coordination, consulting and
administration services for construction projects. Compensation for such
services is recognized ratably over the term of the service agreement.
Earnings Per Share
In 1997, the Company adopted Statement of Financial Standards ("SFAS")
No. 128, "Earnings per Share" issued by the Financial Accounting Standards Board
"FASB" SFAS No. 128 requires the presentation of basic earnings per common share
and diluted earnings per common share. Basic earnings per common share is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding. Diluted earnings per common share
includes the diluting effect of stock options and warrants using the treasury
stock method. The difference between the weighted average common shares
outstanding used to calculate basic and diluted earnings relates to options
assumed exercised which were 177,000, 425,000 and 559,000 at December 31, 1995,
1996 and 1997, respectively.
Cash and Cash Equivalents
The Company considers all short-term investments with maturities of
three months or less when purchased to be cash equivalents. The Company places
its temporary cash investments with high credit quality financial institutions.
At times, such investments may be in excess of the F.D.I.C. insurance limits.
The Company has not experienced any loss to date on these investments.
Inventories
Inventories (consisting principally of material and supplies) are
carried at the lower of first-in, first-out cost or market.
Property and Equipment, Net
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful life of the assets as follows: buildings and improvements -- 5
to 20 years, and machinery and equipment -- 3 to 7 years. Leasehold improvements
are amortized over the shorter of the term of the lease or the estimated useful
lives of the improvements. Expenditures for repairs and maintenance are charged
to expense as incurred. Expenditures for betterments and major improvements are
capitalized. The carrying amounts of assets sold or retired and related
accumulated depreciation are eliminated in the year of disposal and the
resulting gains and losses are included in income.
F-13
Investments
The Company's investment in real estate located primarily in Florida,
acquired in connection with the Burnup Acquisition, is stated at its estimated
net realizable value. Investments in unconsolidated companies are accounted for
following the equity method of accounting when significant influence by the
Company exists (see Note 2).
Accrued Insurance
The Company is self-insured for certain property and casualty and
worker's compensation exposure and, accordingly, accrues the estimated losses
not otherwise covered by insurance.
Income Taxes
The Company records income taxes using the liability method. Under this
method, the Company records deferred taxes based on temporary taxable and
deductible differences between the tax bases of the Company's assets and
liabilities and their financial reporting bases. A valuation allowance is
established when it is more likely than not that some or all of the deferred tax
assets will not be realized.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This statement is effective
for fiscal years beginning after December 15, 1997. The Company anticipates the
effects of SFAS No. 130 will result in the disclosure of foreign currency
translation adjustment as part of comprehensive income.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments
of an Enterprise and Related Information" which establishes standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes the standards for related disclosures about
products and services, geographic areas, and major customers. This statement
requires a public business enterprise report financial and descriptive
information about its reportable operating segments. The financial information
is required to be reported on the basis that it is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for financial statements for
periods beginning after December 15, 1997. Management is currently evaluating
the requirements of SFAS No. 131 to determine the extent of additional
disclosure.
2. ACQUISITIONS AND INVESTING ACTIVITIES
Domestic
In July 1997, the Company completed the acquisition of Wilde, which
provides telecommunications and cable television infrastructure services in
Minnesota, North and South Dakota, Iowa, Nebraska and other bordering states. In
August 1997, the Company completed the acquisition of Aidco, a company engaged
in the installation and maintenance of voice, data and video local-area networks
in the Western and Midwestern states. These acquisitions were consummated
through stock-for-stock exchanges in which the Company issued approximately
1,371,000 shares of common stock. The Company has accounted for these mergers
under the pooling of interest method. Accordingly, historical financial
information has been restated to reflect the mergers as though they occurred as
of the earliest period presented. These acquisitions are collectively referred
to as the "Pooled Companies."
F-14
During 1996 and 1997, the Company completed certain other acquisitions
which have been accounted for under the purchase method of accounting and the
results of operations have been included in the Company's consolidated financial
statements from the respective acquisition dates. If the acquisitions had been
made at the beginning of 1996 or 1997, pro forma results of operations would not
have differed materially from actual results. Acquisitions made in 1997 were
Kennedy Cable Construction, Inc., GJS Construction Co. d/b/a Somerville
Construction and Shanco Corporation, three contractors servicing multiple
systems operators such as Time Warner, Inc., Marcus Cable Company and Cox
Communications, Inc. in a number of states including Alabama, Arizona, Florida,
Georgia, New Jersey, New York, North Carolina, South Carolina and Texas; and
R.D. Moody Associates, Inc., B&D Contractors of Shelby, Inc.,
Tele-Communications Corporation of Virginia, E.L. Dalton & Company, Inc., R.D.
Moody Associates of Virginia, Inc. and Weeks Construction, Inc., six
telecommunications and utility contractors with operations primarily in the
southeastern and southwestern United States. Acquisitions made in 1996 were
Carolina ComTec, Inc., a privately held company engaged in installing and
maintaining voice, data and video networks, and Harrison-Wright Company Inc.,
one of the oldest telecommunications contractors in the southeastern United
States.
Intangible assets of approximately $23.6 million resulting from
domestic business acquisitions are included in other long-term assets and
principally consist of the excess acquisition cost over the fair value of
the net assets acquired (goodwill). Goodwill associated with domestic
acquisitions is being amortized on a straight-line basis over a range of
15-20 years. The Company periodically reviews goodwill to assess
recoverability.
Separate results of the Pooled Companies for the periods prior to the
consummation of the combinations, including a pro forma adjustment for income
taxes related to the Subchapter S status of certain Pooled Companies are as
follows:
Pooled
MasTec Companies Combined
-------- --------- --------
Year ended December 31, 1995
Total revenue $174,583 $ 44,276 $218,859
Pro forma net (loss) income $ (609) $ 3,377 $ 2,768
Year ended December 31, 1996
Total revenue $472,800 $ 61,268 $534,068
Pro forma net income $ 30,065 $ 3,051 $ 33,116
Year ended December 31, 1997
Total revenue $659,439 $ 43,930 $703,369
Pro forma net income $ 35,398 $ 4,671 $ 40,069
International
On April 30, 1996, the Company purchased from Telefonica 100% of the
capital stock of Sintel, a company engaged in telecommunications infrastructure
construction services in Spain, Argentina, Chile, and Peru. In Argentina, Chile
and Peru, the Company currently operates through unconsolidated corporations in
which it holds 50% interests. The purchase price for Sintel was Spanish Pesetas
("Pesetas") 4.9 billion (US$39.5 million at the then exchange rate of 124
Pesetas to one U.S. dollar). An initial payment of Pesetas 650 million ($5.1
million) was made at closing. An additional Pesetas 650 million ($4.9 million)
was paid on December 31, 1996, with the balance of the purchase price, Pesetas
3.6 billion (US$27.5 million), due in two equal installments on December 31,
1997 and 1998. The Company has paid a portion of the December 31, 1997
installment in connection with the acquisition debt, with the remaining amount
to be paid pending resolution of the offsetting amounts between the Company and
Telefonica. Prior to April 30, 1996, as part of the terms of the purchase and
sale agreement with Telefonica, Sintel sold certain buildings to Telefonica and
Telefonica repaid certain tax credits and made a capital contribution to Sintel
(collectively referred to as the "Related Transactions"). The total proceeds
from the Related Transactions were approximately $41.0 million and resulted in
an increase in equity of $28.1 million prior to the purchase. The assets and
liabilities resulting from the acquisition are disclosed in the supplemental
schedule of non-cash investing and financing activities in the Consolidated
Statements of Cash Flows. The Sintel acquisition gave the Company a significant
international presence. See Note 9 regarding geographic information.
The following information presents the unaudited pro forma condensed
results of operations for the year ended December 31, 1996 as if the Company's
acquisition of Sintel and the Related Transactions had occurred on January 1,
F-15
1996. The Sintel acquisition has been treated as a "purchase" as the term is
used under generally accepted accounting principles. Management's estimate of
fair value approximated that of the carrying value of the net assets acquired
after reflecting a reserve for involuntary employee terminations of $12.4
million and deferred taxes of $4.3 million. 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
million) and a tax benefit at 35% is presented for informational purposes only
and are not necessarily indicative of the future results of operations or
financial position of the Company or the results of operations or financial
position of the Company had the Sintel acquisition and the Related Transactions
occurred January 1, 1996.
Pro forma results of operations
for the year ended December 31, 1996
(in thousands)
Revenue $ 617,763
Income from continuing operations 36,423
Net income 36,312
Basic earnings per share:
Continuing operations $ 1.40
Discontinued operations 0.00
--------
Net income $ 1.40
========
Diluted earnings per share:
Continuing operations $ 1.37
Discontinued operations .00
--------
Net income $ 1.37
========
The pro forma results for the year ended December 31, 1996, include
special charges incurred by Sintel related to a restructuring plan of $1.4
million.
On July 31, 1997, the Company completed its acquisition of 51% of
MasTec Inepar S/A-Sistemas de Telecomunicacoes ("MasTec Inepar"), a newly formed
Brazilian telecommunications infrastructure contractor, for $29.4 million in
cash payable over eleven months and 250,000 shares of common stock. Goodwill
related to this acquisition at December 31, 1997 is $16.5 million and is
included in other long-term assets. Goodwill is being amortized over 15 years.
Investing Activities
In July 1996, the Company contributed its 36% ownership interest in
Supercanal, S.A. ("Supercanal"), a cable television operator in Argentina, to a
holding company which also held the other shares of Supercanal. Concurrently,
Multicanal, S.A., one of the leading cable television operators in Argentina
acquired a 20% interest in the holding company for approximately $17 million
in cash and provided significant additional financing to fund pending
acquisitions. As a result of the Multicanal investment, the shareholders entered
into an agreement whereby Multicanal was granted veto powers over certain
fundamental board and stockholder decisions and, along with the majority
shareholder, was given operational control of Supercanal. The Company's
interest in the holding company was reduced to approximately 28.8% by this
transaction and the Company no longer exercised significant influence in the
operations of Supercanal. Accordingly, its investment is accounted for at
cost and is included in investments in unconsolidated companies.
At December 31, 1997, the Company's investment in Supercanal was $16.0
million. Based on the most recent available financial information, for the nine
months ended September 30, 1997, Supercanal incurred losses of $19.5 million
(unaudited) and reflected a shareholders' deficiency of $7.2 million
(unaudited).
In July 1995, the Company made a $25 million non-recourse term loan to
Devono Company Limited, a British Virgin Islands corporation ("Devono"). The
loan was collateralized by 40% of the capital stock of a holding company that
owned 52.6% of the capital stock of Consorcio Ecuatoriano de Telecomunicaciones,
S.A. ("Conecel"), one of two cellular phone operators in the Republic of
Ecuador. In June 1997, the Company converted its loan and accrued interest into
the stock of the holding company. In December 1997, the Company sold its
investment in the holding company for $20.0 million in cash and 7.5 million
F-16
shares of Conecel Class B non-voting stock valued at $25.0 million. Accordingly,
the Company recognized a gain of $4.4 million net of tax based of the percent of
cash received to the total transaction value.
3. ACCOUNTS RECEIVABLE-NET
Accounts receivable are presented net of an allowance for doubtful
accounts of $1.0 million, $3.1 million, and $3.1 million at December 31, 1995,
1996 and 1997, respectively. The Company recorded a provision for doubtful
accounts of $.4 million, $1.2 million, and $0.3 million during 1995, 1996 and
1997 respectively. In addition, the Company recorded write-offs of $0.7 million,
$0.1 million, and $0.7 million during 1995, 1996 and 1997, respectively and in
1996 and 1997 transferred from other accounts $0.9 million and $0.4 million,
respectively.
Accounts receivable include retainage which has been billed but is not
due until completion of performance and acceptance by customers, and claims for
additional work performed outside original contract terms. Retainage aggregated
$4.1 million and $10.2 million at December 31, 1996 and 1997, respectively.
Included in accounts receivable is unbilled revenue of $42.4 million
and $97.5 million at December 31, 1996 and 1997, respectively. Such unbilled
amounts represent work performed but not billable to customers as per individual
contract terms.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following as of December 31,
1996 and 1997 (in thousands):
1996 1997
---- ----
Land $ 7,583 $ 8,430
Buildings and improvements 6,754 9,474
Machinery and equipment 77,254 106,254
Office furniture and equipment 3,876 5,810
-------- --------
95,467 129,968
Less-accumulated depreciation (28,290) (43,859)
-------- --------
$ 67,177 $ 86,109
======== ========
F-17
5. DEBT
Debt is comprised of the following (in thousands):
At December 31,
1996 1997
---- ----
Revolving Credit Facility, at LIBOR plus 1.00% (6.96%
at December 31, 1997) $ 0 $ 83,010
Fleet Credit Facility at LIBOR plus 2.00%-2.25%
and 7.75% -7.94% at December 31, 1996) 46,865 0
Revolving Credit Facility, at MIBOR plus 0.30% (7.0% at
December 31, 1996 and 5.60% at December 31, 1997
due on November 1, 1998) 43,613 10,894
Other bank facilities, denominated in Spanish pesetas,
at interest rates from 8.1% to 9.3% at December 31, 1996
and 5.65% - 6.75% at December 31, 1997 11,048 17,438
Notes payable for equipment, at interest rates from
7.5% to 8.5% due in installments through the year 2000 28,607 14,500
Notes payable for acquisitions, at interest rates from
7% to 8% due in installments through February 2000 32,253 23,215
Real estate mortgage notes, at interest
rates from 8.5% to 8.53% 2,548 0
------- -------
Total debt 164,934 149,057
Less current maturities (39,916) (54,562)
------- -------
Long term debt $ 125,018 $ 94,495
======= =======
In June 1997, the Company obtained a $125.0 million revolving credit
facility (the "Credit Facility"), from a group of financial institutions led by
BankBoston, N.A. maturing on June 9, 2000 to replace the Fleet Credit Facility
and certain other domestic debt. As a result of the prepayment of the Fleet
Credit Facility, deferred financing costs and a termination fee totaling
$690,000 were expensed in the second quarter of 1997. The Credit Facility is
secured by a pledge of the stock of the Company's principal domestic
subsidiaries and a portion of the stock of Sintel.
Additionally, the Company has several credit facilities denominated in
Pesetas, one of which is a revolving credit facility with a wholly-owned finance
subsidiary of Telefonica. Interest on this facility accrues at MIBOR (Madrid
interbank offered rate) plus .30%. At December 31, 1996 and 1997, the Company
had $82.1 million (11.3 billion Pesetas) and $50.6 million (7.7 billion
Pesetas), respectively of debt denominated in Pesetas, including $27.4 million
and $22.3 million, respectively, remaining under the acquisition debt incurred
pursuant to the Sintel acquisition (see Note 2). The Company has paid a portion
of the December 31, 1997 installment in connection with the acquisition debt,
with the remaining amount to be paid pending resolution of the offsetting
amounts between the Company and Telefonica.
On January 30, 1998, the Company sold $200.0 million, 7.75% senior
subordinated notes (the "Notes") due in 2008 with interest due semi-annually.
The net proceeds were used to repay amounts outstanding under the Credit
Facility and for other corporate purposes.
The Credit Facility and Notes contain certain covenants which, among
other things, restrict the payment of dividends, limit the Company's ability to
incur additional debt, create liens, dispose of assets, merge or consolidate
with another entity or make other investments or acquisitions, and provide that
the Company must maintain minimum amounts of stockholders' equity and financial
ratio coverages, requiring, among other things, minimum ratios at the end of
each fiscal quarter of debt to earnings, earnings to interest expense and
accounts receivable to trade payables.
In May 1996, the Company called its 12% convertible subordinated
debentures (the "Debentures") effective June 30, 1996. The Debentures were
converted into common stock increasing the number of shares outstanding by
690,456.
At December 31, 1997 debt matures as follows:
1998 $ 54,562
1999 11,485
2000 83,010
--------
Total $ 149,057
=======
F-18
6. STOCK OPTION PLANS
Shares underlying stock options and exercise prices have been adjusted
to reflect the three-for-two stock split declared in 1997 by the Board of
Directors. The Company's only stock option plan currently in effect is the 1994
Stock Incentive Plan (the "1994 Plan"). However, options which were outstanding
under the Company's 1976 and 1978 stock option plans at the time of the Burnup
Acquisition remain outstanding in accordance with the terms of the respective
plans. Approximately 49,200 shares have been reserved for and may still be
issued in accordance with the terms of such plans. Compensation expense of
$589,000 and $14,700 was recorded in 1996 and 1997, respectively, related to the
1976 plan.
The 1994 Plan authorizes the grant of options or awards of restricted
stock up to 2,500,000 shares of the Company's common stock, of which 500,000
shares may be awarded as restricted stock. As of December 31, 1997, options to
purchase 1,412,625 shares had been granted. Options become exercisable over a
five year period in equal increments of 20% per year beginning the year after
the date of grant and must be exercised within ten years from the date of grant.
Options are issued with an exercise price no less than the fair market value of
the common stock at the grant date.
The Company also adopted the 1994 Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"). The Directors' Plan authorized the grant of
options to purchase up to 600,000 shares of the Company's common stock to the
non-employee members of the Company's Board of Directors. Options to purchase
112,500 shares have been granted to Board members through 1997. The options
granted become exercisable ratably over a three year period from the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant at an exercise price equal to the fair market value of
such shares on the date the option is granted.
In addition, during 1994 options to purchase 150,000 shares of common
stock at $3.83 per share were granted to a director outside the Directors' Plan
in lieu of the Director's Plan and annual fees paid to the director.
Compensation expense of $42,500 in connection with the issuance of this option
is being recognized annually over the five year vesting period. The options are
exercisable ratably over a five year period beginning the year after the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant.
During 1997, options to purchase 209,000 shares of common stock at
prices no less than the fair market value of the common stock at the date of
grant ranging from $21.09 to $40.67 were granted to individuals outside the 1994
Plan subject to varying vesting schedules.
F-19
The following is a summary of all stock option transactions:
Weighted Avg.
Weighted Avg. Exercise Fair Value of
Shares Exercise Price Price Options Granted
------ -------------- ----- ---------------
Outstanding December 31, 1994 407,700 $ 4.62 $ 0.10 - $ 5.29
Granted 303,000 8.48 $ 6.83 - $ 8.92 $ 4.22
Exercised (3,150) 5.29 $ 0.10 - $ 5.29
Canceled (30,750) 3.94 $ 0.10 - $ 8.92
--------
Outstanding December 31, 1995 676,800 $ 6.33 $ 0.10 - $ 8.92
Granted 306,000 17.05 $ 7.42 - $ 28.58 $ 9.23
Exercised (82,200) 6.38 $ 0.10 - $ 8.92
Canceled (2,700) 5.29 $ 5.29 - $ 8.92
--------
Outstanding December 31, 1996 897,900 9.98 $ .10 - $ 28.58
Granted 992,725 24.96 $ 21.09 - $ 48.19 $ 19.97
Exercised (201,950) 5.58 $ 0.10 - $ 21.83
Canceled (78,850) 23.62 $ 5.29 - $ 31.63
--------
Outstanding December 31, 1997 1,609,825 19.10 $ 1.33 - $ 48.18
=========
The following table summarizes information about stock options outstanding at
December 31, 1997:
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg.
Range of Outstanding Remaining Exercise Excercisable Exercise
Exercise Prices at 12/31/97 Contractual Life Price at 12/31/97 Price
--------------- ----------- ---------------- ----- ----------- -----
$ 1.33 - $ 8.16 251,250 6.9 $ 5.73 43,650 $ 5.63
$ 8.67 - $ 9.81 250,200 7.1 $ 9.09 92,550 $ 9.10
$ 21.09 - $ 26.50 839,400 9.7 $ 21.47 26,250 $ 21.52
$ 28.19 - $ 31.62 218,985 9.2 $ 31.55 750 $ 28.58
$ 34.79 - $ 48.19 49,990 9.3 $ 42.05 - $ -
------- ---- ----- ------- ------
$ 1.33 - $ 48.19 1,609,825 8.79 $ 19.10 163,200 $ 10.26
========= ==== ===== ======= ======
In 1996, the Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, the Company is required
to disclose pro forma net income and earnings per share both for 1996 and 1997
as if compensation expense relative to the fair value of the options granted had
been included in earnings. The fair value of each option grant was estimated
using the BlackScholes option-pricing model with the following assumptions used
for grants in 1996 and 1997, respectively: a five and six year expected life for
1996 and 1997, respectively; volatility factors of 51% and 82%, respectively;
risk-free interest rates of 6.13% and 5.5%, respectively; and no dividend
payments. Had compensation cost for the Company's options plans been determined
and recorded in accordance with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts as follows:
F-20
1996 1997
---- ----
Net income:
As reported, including pro forma tax adjustment $ 33,116 $ 40,069
Pro forma $ 32,262 $ 34,202
Basic earnings per share:
As reported, including pro forma tax adjustment $ 1.27 $ 1.47
Pro forma $ 1.24 $ 1.25
Diluted earnings per share:
As reported, including pro forma tax adjustment $ 1.25 $ 1.44
Pro forma $ 1.22 $ 1.23
The 1996 and 1997 pro forma effect on net income is not necessarily
representative of the effect in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995 and does not reflect a tax benefit related to the compensation expense as
such benefit would be reflected directly in stockholders' equity given that the
options are considered incentive stock options.
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
1995 1996 1997
---- ---- ----
Current:
Federal $ 5,541 $ 9,896 $ 9,606
Foreign 5,347 6,505
State and local (284) 1,535 1,670
------ ------- -------
Total current 5,257 16,778 17,781
------ ------- -------
Deferred:
Federal (5,879) (1,895) 2,778
State and local (493) (218) 456
------- ------- ------
Total deferred (6,372) (2,113) 3,234
------- ------- ------
(Benefit) provision for income taxes (1,115) 14,665 21,015
Discontinued operations 135 (70) 80
------- ------- ------
Total $ (980) $ 14,595 $ 21,095
======= ======= ======
F-21
The tax effects of significant items comprising the Company's net
deferred tax liability as of December 31, 1996 and 1997 are as follows (in
thousands):
1996 1997
---- ----
Deferred tax assets:
Accrued self insurance $ 3,050 $ 2,100
Operating loss and tax credit carry forward 525 1,565
Accrual for disposal of discontinued
operations 1,147 0
Intangible assets 9,471
All other 4,774 7,550
------ -------
Total deferred tax assets 9,496 20,686
------ -------
Deferred tax liabilities:
Property and equipment 5,817 7,536
Asset revaluations 5,462 6,066
All other 1,718 3,871
------ -------
Total deferred tax liabilities 12,997 17,473
Valuation allowance 500 1,376
------- -------
Net deferred tax (liabilities) assets $ (4,001) $ 1,837
======= =======
The net change in the valuation allowance for deferred tax assets was
an increase of $876,000. Such change is attributed to $1,304,000 related to a
net operating loss which if not used will expire between 2006-2009, and a
decrease of $428,000 related to the utilization of net operating losses.
Deferred tax assets of $2,096,000 and $1,164,000 for 1996 and 1997,
respectively, have been recorded in current assets in the accompanying
consolidated financial statements.
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
l995 1996 1997
---- ---- ----
U.S. statutory federal rate
applied to pretax income 35% 35% 35%
State and local income taxes 0 2 2
Effect of dividend exclusion (49) 0 0
Effect of non-U.S. tax rates 0 (1) (1)
Foreign loss producing no tax benefit 62 0 0
Adjustment of prior years' taxes (46) 0 0
Change in federal statutory tax rate 82 0 0
Change in state tax filing status (77) 0 0
Income from S corporations accounted
for as poolings (240) (5) (4)
Other 20 0 1
--- --- ---
(Benefit) provision for income taxes (213)% 31% 33%
==== === ===
No provision was made in 1996 and 1997 for U.S. income taxes on the
undistributed earnings of the foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time. At December 31, 1997, undistributed earnings of the foreign
subsidiaries amounted to $26.2 million. If the earnings of such foreign
subsidiaries were not indefinitely reinvested, a deferred tax liability of $2.3
million would have been required.
The Internal Revenue Service (the "IRS") has examined the tax returns
of Burnup & Sims for the fiscal years ended April 30, 1989 through April 30,
1993. The Company has filed a protest with the appellate level of the IRS
regarding assessments made for the years 1989 through 1991. Adjustments, if any,
as a result of this audit will be recorded as an adjustment to purchase
accounting.
F-22
8. CAPITAL STOCK
The Company has authorized 100,000,000 shares of common stock. At
December 31, 1996 and 1997, approximately 27,806,000 and 28,056,000 shares of
common stock were issued, 26,992,000 and 27,580,000 shares were outstanding
(adjusted for the stock split and pooling transactions) (see Note 2),
respectively, and 814,000 and 476,000 were held in treasury, at cost (after
giving effect to the stock split paid in the form of a dividend from treasury
stock), respectively. At December 31, 1996 and 1997, the Company had 5,000,000
shares of authorized but unissued preferred stock.
9. OPERATIONS BY GEOGRAPHIC AREAS
The Company's principal source of revenue is derived from
telecommunications infrastructure construction services in the United States,
Spain and Brazil. The Company did not have significant international operations
in 1995 accordingly, geographic information for 1996 and subsequent is presented
below:
For the Year Ended December 31,
------------------------------
1996 1997
---- ----
Revenue
Domestic $ 345,913 $ 420,976
International 188,155 282,393
------- -------
Total $ 534,068 $ 703,369
======= =======
Operating income
Domestic $ 33,760 $ 44,327
International 19,733 21,450
------- -------
Total $ 53,493 $ 65,777
======= =======
Identifiable assets
Domestic $ 147,065 $ 206,200
International 258,071 258,105
Corporate 106,018 123,293
------- -------
Total $ 511,154 $ 587,598
======= =======
There are no transfers between geographic areas. Operating income
consists of revenue less operating expenses, and does not include interest
expense, interest and other income, equity in earnings of unconsolidated
companies, minority interest and income taxes. Domestic operating income is net
of corporate general and administrative expenses. Identifiable assets of
geographic areas are those assets used in the Company's operations in each area.
Corporate assets include cash and cash equivalents, investments in
unconsolidated companies, net assets of discontinued operations, real estate
held for sale and notes receivable.
10. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from providing
telecommunications infrastructure services to Telefonica, BellSouth and
Telebras. For the year ended December 31, 1995, the Company derived 33% of its
revenue from services performed for BellSouth. For the year ended December 31,
1996, approximately 31% and 13% of the Company's revenue was derived from
services performed for Telefonica and BellSouth, respectively. For the year
ended December 31, 1997, approximately 26%, 12% and 11% of the Company's revenue
was derived from services performed for Telefonica, BellSouth and Telebras,
respectively. Revenue generated by MasTec Inepar from Telebras is included from
August 1, 1997 (See Note 2). Accounts receivable from the Company's two largest
customers at December 31, 1996 and three largest for 1997 were $194.2 million
and $192.0 million, respectively. Although the Company's strategic plan
envisions diversification of its customer base, the Company anticipates that it
will continue to derive a significant portion of its revenue in the future from
Telefonica and its affiliates, BellSouth and Telebras.
F-23
11. COMMITMENTS AND CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit in Delaware state court against the
Company, the then-members of its Board of Directors, and National Beverage
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.
In November 1993, Mr. Kahn filed a class action and derivative
complaint against the Company, the then members of its Board of Directors, and
Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal shareholders of the
Company. 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 the Mas
family 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.
There has been no activity in either of these lawsuits in more than a
year. The Company believes that the allegations in each of the lawsuits are
without merit and intends to defend these lawsuits vigorously.
In August 1997, the Company settled its lawsuit with BellSouth arising
from certain work performed by a subcontractor of the Company from 1991 to 1993
for nominal consideration.
In November 1997, Church & Tower filed a lawsuit against Miami-Dade
County (the "County") in Florida state court alleging breach of contract and
seeking damages exceeding $3.0 million in connection with the County's refusal
to pay amounts due to Church & Tower under a multi-year agreement to perform
road restoration work for the Miami-Dade Water and Sewer Department ("MWSD"), a
department of the County, and the County's wrongful termination of the
agreement. The County has refused to pay amounts due to Church & Tower under the
agreement until alleged overpayments under the agreement have been resolved, and
has counterclaimed against the Company seeking damages that the Company believes
will not exceed $2.1 million. The County also has refused to award a new road
restoration agreement for MWSD to Church & Tower, which was the low bidder for
the new agreement. The Company believes that any amounts due to the County under
the existing agreement are not material and may be recoverable in whole or in
part from Church & Tower subcontractors who actually performed the work and
whose bills were submitted directly to the County.
The Company is a party to other pending legal proceedings arising in
the normal course of business, none of which the Company believes is material to
the Company's financial position or results of operations.
In 1990, Trilogy Communications, Inc. filed suit against Excom Realty,
Inc., a wholly owned subsidiary of the Company, for damages and declaratory
relief. The Company counterclaimed for damages. On May 1, 1995, the Company
settled its counterclaim for $1.3 million, which is recorded as other income in
the accompanying consolidated financial statements.
In connection with certain contracts, the Company has signed certain
agreements of indemnity in the aggregate amount of approximately $87.5 million,
of which approximately $37.3 million relate to the uncompleted portion of
contracts in process. These agreements are to secure the fulfillment of
obligations and performance of the related contracts.
Federal, state and local laws and regulations govern the Company's
operation of underground fuel storage tanks. The Company is in the process of
removing, restoring and upgrading these tanks, as required by applicable laws,
and has identified certain tanks and surrounding soil which will require
remedial cleanups.
F-24
12. FAIR VALUE
For certain of the Company's financial instruments, including cash and
cash equivalents, accounts and notes receivable, accounts payable and other
liabilities, the carrying amounts approximate fair value due to their short
maturities. Long-term floating rate debt is carried at amounts that approximate
fair value. The Company uses letters of credit to back certain insurance
policies. The letters of credit reflect fair value as a condition of their
underlying purpose and are subject to fees competitively determined in the
market place.
The estimated fair values may not be representative of actual values of
the financial instruments that could have been realized as of year end or that
will be realized in the future.
13. DISCONTINUED OPERATIONS AND REAL ESTATE HELD FOR SALE
In the third quarter of 1995, the Company determined to concentrate its
resources and better position itself to achieve its strategic growth objectives
by disposing of all of the general products segment that the Company acquired as
part of the Burnup Acquisition. These operations and assets included
Southeastern Printing Company, Inc. ("Southeastern"), Lectro Products, Inc.
("Lectro") and Floyd Theatres, Inc. ("Floyd Theatres"). As a result of the
decision to accelerate disposal of these assets, the Company recorded a special
charge in the third quarter of 1996 of $15.4 million to adjust the carrying
values of its real estate investment to estimated net realizable value based on
offers received by the Company to dispose of certain real estate investments in
a bulk transaction. The original value assigned to the real estate investments
contemplated the disposition of the properties on an individual basis and no
considerations had previously been given to a bulk sale. In the fourth quarter
of 1995, the Company recorded an additional charge of $7.7 million to reflect
the value realized upon a sale of certain real estate and the Company's
preferred stock investment in early 1996. These assets were sold at prices and
in a manner designed to facilitate their immediate disposal so that the Company
could concentrate its resources on its core telecommunications and other
utilities construction business.
In March 1995, the Company sold the indoor theater assets of Floyd
Theatres for approximately $11.5 million. A gain of $1.5 million, net of tax,
resulted from this transaction in the first quarter of 1995. In August 1995, the
Company sold the stock of Lectro for $11.9 million in cash and a note receivable
of $450,000. A gain of $5.9 million, net of tax, was recorded in the third
quarter of 1995 related to the sale of Lectro. A loss of approximately $6.4
million, net of tax, relating to the disposition of these discontinued
operations was recorded in the fourth quarter of 1995. In January 1997, the
Company sold the assets of Southeastern at its carrying value for approximately
$2.1 million in cash and a note for $500,000.
As part of the acquisition of Harrison-Wright Company, Inc. (see Note
2), the Company purchased the assets of Utility Pre-cast, Inc. The Company
intends to sell the pre-cast business and accordingly has reflected the net
assets of approximately $4.2 million as a discontinued operation.
Included in other current assets in the accompanying balance sheet is
approximately $15.7 million and $10.9 million of real estate held for sale at
December 31, 1996 and 1997, respectively.
Discontinued operations include management's best estimates of the
amounts expected to be realized on the sale of these assets. While the estimates
are based on current negotiations, the amounts the Company will ultimately
realize could differ materially in the near term from the amounts assumed in
arriving at the loss on disposal of the discontinued operations.
Summary operating results of discontinued operations, excluding net
gains on disposal and estimated loss during the phase-out period, are as follows
(in thousands):
1995 1996 1997
---- ---- ----
Revenue $ 21,952 $ 12,665 $ 4,471
====== ====== ======
Earnings (loss) before income taxes $ 58 $ (288) $ 209
Provision (benefit) for income taxes 20 (111) 80
------ ------ ------
Net income (loss) from discontinued operations $ 38 $ (177) $ 129
====== ====== ======
F-25
14. QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except earnings per share)
First Second Third Fourth
Quarter Quarter (2) Quarter (3) Quarter (4) Total
------- ---------- ---------- ---------- -----
1996:
Revenue $ 70,670 $ 122,964 $ 162,208 $ 178,226 $ 534,068
======= ======= ======= ======= =======
Operating income $ 5,954 $ 10,194 $ 17,131 $ 20,214 $ 53,493
======= ======= ======= ======= =======
Income from continuing operations,
as reported $ 3,696 $ 5,689 $ 11,586 $ 15,083 $ 36,054
======= ======= ======= ======= =======
Pro forma income from
continuing operations (6) $ 3,371 $ 5,645 $ 10,752 $ 13,459 $ 33,227
(Loss) income from
discontinued operations including gain
(loss) on disposal, net of taxes (14) 27 163 (287) (111)
------- ------- ------- ------- -------
Pro forma net income $ 3,357 $ 5,672 $ 10,915 $ 13,172 $ 33,116
======= ======= ======= ======= =======
Pro forma basic earnings per share (1) (5):
Continuing operations $ 0.13 $ 0.22 $ 0.41 $ 0.50 $ 1.27
Discontinued operations 0.00 0.00 0.01 (0.01) 0.00
------- ------- ------- ------- -------
$ 0.13 $ 0.22 $ 0.42 $ 0.49 $ 1.27
======= ======= ======= ======= =======
Diluted earnings per share (1) (5):
Continuing operations $ 0.13 $ 0.22 $ 0.40 $ 0.49 $ 1.25
Discontinued operations 0.00 0.00 0.01 (0.01) 0.00
------- ------- ------- ------- -------
$ 0.13 $ 0.22 $ 0.41 $ 0.48 $ 1.25
======= ======= ======= ======= =======
1997:
Revenue $ 138,290 $ 160,726 $ 201,117 $ 203,236 $ 703,369
======= ======= ======= ======= =======
Operating income $ 15,704 $ 19,818 $ 22,319 $ 7,936 $ 65,777
======= ======= ======= ======= =======
Income from continuing operations,
as reported $ 9,571 $ 12,816 $ 13,832 $ 6,316 $ 42,535
======= ======= ======= ======= =======
Pro forma income from
continuing operations (6) $ 9,478 $ 12,001 $ 12,145 $ 6,316 $ 39,940
(Loss) income from
discontinued operations
including gain (loss)
on disposal, net of taxes) (51) 123 46 11 129
-------- ------- ------- ------- -------
Pro forma net income $ 9,427 $ 12,124 $ 12,191 $ 6,327 $ 40,069
======== ======= ======= ======= =======
Pro forma:
Basic earnings per share (1) (5):
Continuing operations $ 0.35 $ 0.44 $ 0.44 $ 0.23 $ 1.46
Discontinued operations 0.00 0.00 0.00 0.00 0.01
-------- ------- ------- ------- -------
$ 0.35 $ 0.44 $ 0.44 $ 0.23 $ 1.47
======== ======= ======= ======= =======
Diluted earnings per share (1) (5):
Continuing operations $ 0.35 $ 0.43 $ 0.43 $ 0.23 $ 1.43
Discontinued operations 0.00 0.00 0.00 0.00 0.01
-------- -------- ------- ------- --------
$ 0.35 $ 0.43 $ 0.43 $ 0.23 $ 1.44
======== ======= ======= ======= ========
F-26
<FN>
(1) Earnings per share amounts have been adjusted to reflect the
three-for-two stock split declared effected on February 28, 1997 and
shares issued in connection with two acquisitions accounted for under
the pooling of interest method.
(2) The Company acquired Sintel (see Note 2) on April 30, 1996.
(3) In the third quarter of 1997, the Company commenced operations in
Brazil (see Note 2). (4) In the fourth quarter of 1997, the Company
sold, at a gain of $4.4 million net of tax, a portion of its investment
in Conecel. See Note 2.
(5) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share data does not
equal the total computed for the year due to changes in the weighted
average number of common shares outstanding.
(6) Amounts and earnings per share have been adjusted to reflect a pro
forma tax provision for two acquisitions accounted for under the
pooling of interest method which were previously S corporations.
</FN>
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 31, 1998.
MasTec, Inc.
(Registrant)
------------------------------------
Edwin D. Johnson
Senior Vice President -
Chief Financial Officer
(Principal Financial and Accounting Officer)
The undersigned directors and officers of MasTec, Inc. hereby constitute and
appoint Edwin D. Johnson and Jose M. Sariego and each of them with full power
to act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name
and behalf in the capacities indicated below this Annual Report on Form 10-K
and any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission and hereby ratify and confirm all that such
attorneys-in-fact, or any of them, or their substitutes shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1998.
_______________________________ ___________________________
Jorge Mas Joel-Tomas Citron
Chairman of the Board, President and Director
Chief Executive Officer
(Principal Executive Officer)
_______________________________
Jose S. Sorzano
Director
_______________________________
Arthur B. Laffer
Director
_______________________________
Eliot C. Abbott
Director
S-1
EXHIBIT INDEX
3.1 Certificate of Incorporation and By-laws of the Company, filed as
Exhibit 3(i) to Company's Registration Statement on Form S-8 (File
No. 33-55237) and incorporated by reference herein.
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company.
4.1 7 3/4% Senior Subordinated notes Due 2008 Indenture dated as of
February 4, 1998, filed as Exhibit 4.2 to the Company's Registration
Statement on Form S-4 (file No. 333-46361) and incorporated by
reference herein.
10.1 Stock Option Agreement dated March 11, 1994 between the Company and
Arthur B. Laffer as filed as Exhibit 10.6 to the Company's Form 10-K
for the year ended December 31, 1995 and incorporated by reference
herein.
10.2 Stock Option Agreement dated December 29, 1997 between the Company and
Henry N. Adorno.
10.3 Stock Option Agreement dated December 29, 1997 between the Company
and Joel-Tomas Citron.
10.4 Revolving Credit Agreement dated as of June 9, 1997 between the
Company, certain of its subsidiaries, and Bank Boston, N.A. as agent.
10.5 Agreement dated July 21, 1997 between the Company and Inepar S/A
Industrias e Construcoes.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen L.L.P.
23.2 Consent of Arthur Andersen L.L.P.
23.3 Consent of Arthur Andersen L.L.P.
23.4 Consent of Arthur Andersen L.L.P.
23.5 Consent of Arthur Andersen L.L.P.
23.6 Consent of Arthur Andersen L.L.P.
23.7 Consent of Arthur Andersen L.L.P.
23.8 Consent of Arthur Andersen L.L.P.
23.9 Consent of Arthur Andersen L.L.P.
23.10 Consent of Coopers & Lybrand L.L.P.
23.11 Consent of Coopers & Lybrand L.L.P.
23.12 Consent of Coopers & Lybrand L.L.P.
23.13 Consent of Coopers & Lybrand L.L.P.
23.14 Consent of Coopers & Lybrand L.L.P.
23.15 Consent of Coopers & Lybrand L.L.P.
23.16 Consent of Coopers & Lybrand L.L.P.
23.17 Consent of Coopers & Lybrand L.L.P.
23.18 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule - 1997
27.2 Financial Data Schedule - 1996
27.3 Financial Data Schedule - 1995