EXHIBIT 99.1
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
Revenue $ 174,583 $ 472,800 $ 659,439
Costs of revenue 130,762 352,329 496,230
Depreciation and amortization 6,913 12,000 23,465
General and administrative expenses 19,081 58,529 82,261
---------- ----------- ---------
Operating income 17,827 49,942 57,483
Interest expense 4,954 11,434 11,541
Interest and dividend income 3,349 3,246 1,783
Special charges-real estate and investment write-downs 23,086 - -
Other income, net 2,028 950 8,123
---------- ----------- ---------
Income (loss) from continuing operations before equity in (losses)
earnings of unconsolidated companies, (benefit) provision
for income taxes and minority interest (4,836) 42,704 55,848
Equity in (losses) earnings of unconsolidated companies (300) 3,040 2,897
(Benefit) provision for income taxes (1,835) 15,661 20,864
Minority interest 161 93 (3,346)
----------- ------------ ---------
Income from continuing operations (3,140) 30,176 34,535
Discontinued operations:
Income (loss) from discontinued operations,
(net of applicable income taxes) 38 (177) 129
Net gain on disposal of discontinued operations net of
aprovision 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 -
---------- ----------- ---------
Net income (loss) $ (609) $ 30,065 $ 34,664
========== =========== =========
Basic earnings per share: (1)
Weighted average common shares outstanding 23,892 24,703 26,460
Earnings per share:
Continuing operations $ (0.14) $ 1.22 $ 1.31
Discontinued operations 0.11 - -
---------- ----------- ---------
$ (0.03) $ 1.22 $ 1.31
========== =========== =========
Diluted earnings per share: (1)
Weighted average common shares outstanding 23,892 25,128 27,019
Earnings per share:
Continuing operations $ (0.14) $ 1.20 $ 1.28
Discontinued operations 0.11 - -
---------- ----------- ---------
$ 0.03 $ 1.20 $ 1.28
========== =========== =========
(1) Amounts have been adjusted to reflect the three-for-two stock split
effected on February 28, 1997
The accompanying notes are an integral part of these consolidated financial
statements.
1
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
DECEMBER 31,
---------------------------------
1996 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 4,754 $ 6,063
Accounts receivable-net and unbilled revenue 306,022 346,596
Notes receivable 29,549 682
Inventories 4,837 8,746
Other current assets 35,382 32,109
---------- ----------
Total current assets 380,544 394,196
---------- ----------
Property and equipment-at cost 80,119 121,441
Accumulated depreciation (20,517) (35,332)
---------- ----------
Property and equipment-net 59,602 86,109
---------- ----------
Investments in unconsolidated companies 30,209 48,160
Other assets 12,663 101,759
---------- ----------
TOTAL ASSETS $ 483,018 $ 630,224
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 38,035 $ 54,562
Accounts payable 162,377 166,596
Other current liabilities 28,352 48,950
---------- ----------
Total current liabilities 228,764 270,108
---------- ----------
Other liabilities 33,593 41,924
---------- ----------
Long-term debt 117,157 94,495
---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,805
Capital surplus 149,083 158,730
Retained earnings 35,728 70,392
Accumulated translation adjustments (802) (3,466)
Treasury stock (83,148) (4,764)
---------- ----------
Total stockholders' equity 103,504 223,697
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 483,018 $ 630,224
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
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 26,435 $ 2,643 $134,094 $ 6,272 $ - $ (92,135) $ 50,874
Net income (609) (609)
Stock issued to 401(k)
Retirement savings plan from
treasury shares 92 146 238
Accumulated translation adjustment 1 1
- ---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 26,435 2,643 134,186 5,663 1 (91,989) 50,504
Net income 30,065 30,065
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 26,435 2,643 149,083 35,728 (802) (83,148) 103,504
Net income 34,664 34,664
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 acquisitions 1,621 162 76,219 76,381
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 -
Treasury stock sold 3,007 3,007
- ---------------------------------------------------------------------------------------------------------------------
Balance December 31,1997 28,056 $2,805 $ 158,730 $ 70,392 $ (3,466) $ (4,764) $223,697
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
3
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 (loss) $ (609) $ 30,065 $ 34,664
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,913 12,000 23,465
Minority interest (161) (93) 3,346
Equity in losses (earnings) of
unconsolidated companies 300 (3,040) (2,897)
Special charges-real estate and
investments write downs 23,086 - -
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 (20,322) (12,013) (28,809)
Inventories and other current assets (1,626) (2,448) 64
Other assets (1,582) (2,102) (10,499)
Accounts payable 10,929 24,492 5,348
Income and deferred taxes (8,338) 2,574 (4,991)
Other current liabilities (1,194) (6,706) 7,326
Other liabilities 1,023 (4,942) (4,988)
---------- --------- ---------
Net cash provided by operating activities 5,596 37,422 15,181
---------- --------- ---------
Cash flows from investing activities:
Capital expenditures (14,668) (7,059) (21,534)
Cash acquired in acquisitions 148 1,130 3,304
Cash paid for acquisitions (1,750) (6,164) (48,910)
Distributions from unconsolidated companies 245 - 2,130
Investments in unconsolidated companies (7,408) (1,212) (3,364)
Investments in notes receivable (25,000) - -
Repayment of notes receivable 443 1,273 565
Repayment of notes to stockholders 1,800 - 780
Net proceeds from sale of assets and other non-core assets 24,227 9,404 29,628
---------- --------- ---------
Net cash used in investing activities (21,963) (2,628) (37,401)
---------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
4
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 $ 21,625 $ 17,476 $ 57,328
Other borrowings 29,950 21,739 19,936
Debt repayments (39,466) (70,320) (59,059)
Proceeds from common stock issued
from treasury 238 792 6,264
Financing costs (516) - (587)
---------- ---------- ----------
Net cash provided by (used in) financing activities 11,831 (30,313) 23,882
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (4,536) 3,678 1,662
Net effect of translation on cash - (803) (353)
Cash and cash equivalents - beginning of period 5,612 1,076 4,754
---------- ---------- ----------
Cash and cash equivalents - end of period $ 1,076 $ 4,754 $ 6,063
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,984 $ 10,029 $ 8,727
Income taxes $ 7,527 $ 11,676 $ 10,377
The accompanying notes are an integral part of these consolidated financial
statements.
5
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 $ 43,966
Inventories - 2,980 1,681
Other current assets 67 12,661 2,127
Property and equipment 2,688 13,148 27,480
Investments in unconsolidated companies - 9,373 -
Real estate and other assets 50 6,385 3,973
---------- --------- --------
Total non-cash assets 2,972 292,634 79,227
---------- --------- --------
Liabilities 71 162,928 32,238
Long-term debt 93 78,966 8,535
---------- --------- --------
Total liabilities assumed 164 241,894 40,773
---------- --------- --------
Net non-cash assets acquired 2,808 50,740 38,454
Cash acquired 148 1,130 3,304
---------- --------- --------
Fair value of net assets acquired 2,956 51,870 41,758
Excess over fair value of assets acquired - 4,956 98,088
---------- --------- --------
Purchase price $ 2,956 $ 56,826 $139,846
========== ========= ========
Notes payable issued in acquisitions $ 800 $ 36,561 $ 130
Cash paid and common stock issued for acquisitions 1,750 17,340 129,509
Contingent consideration 406 2,250 9,907
Acquisition costs - 675 300
---------- --------- --------
Purchase price $ 2,956 $ 56,826 $139,846
========== ========= ========
Property acquired through financing arrangements $ 9,452 $ 8,550 $ 413
========== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
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
==========
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 1,621,000 shares of common
stock for domestic acquisitions, of which 250,000 shares were 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.
7
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 provides 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 outside plant services, turn-key switching
system installation and inside wiring services through its wholly owned
subsidiary Sistemas e Instalaciones de Telecomunicacion, S.A. ("Sintel") 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., ("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.
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.
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.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 a 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. 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 Accounting Standard
No. 128 ("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 dilutive 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.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
INVESTMENTS
The Company's investment in real estate which is located primarily in
Florida was acquired in connection with the Burnup Acquisition and 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.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
2. ACQUISITIONS AND INVESTING ACTIVITIES
DOMESTIC
During 1996 and 1997, the Company completed eleven domestic
acquisitions which have been accounted for under the purchase method of
accounting. Accordingly, 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., Weeks
Construction Company, and Wilde Construction, Inc. and affiliates, seven
telecommunications and utility contractors with operations primarily in the
southeastern, mid-western and southwestern United States. In August 1997, the
Company completed the acquisition of AIDCO Systems, Inc. and a related company
which is engaged in the installation and maintenance of voice, data and video
local-area networks in the western and mid-western 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 $76.8 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 15-40 years. The
Company periodically reviews goodwill to assess recoverability.
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 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.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
PRO FORMA CONDENSED RESULTS OF OPERATIONS
The following information presents the unaudited pro forma condensed
results of operations for the year ended December 31, 1996 as if the Company's
acquisitions of certain domestic companies, Sintel and the Related Transactions
had occurred on January 1, 1996. The pro forma results 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% as well as pro forma adjustments for income taxes related to
the Subchapter S status of certain domestic acquisitions. The pro forma results
are 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 acquisitions
and the Related Transactions occurred January 1, 1996. The pro forma results of
operations for the years ended December 31, 1996 and 1997 (in thousands) are as
follows:
1996(1) 1997
------------ ----------
Revenue $ 617,763 $ 703,369
Income from continuing operations (3) 35,333 38,850
Net income (2), (3) 35,222 38,979
Basic earnings per share: (4)
Continuing operations (2), (3) $ 1.43 $ 1.42
Discontinued operations - 0.01
------------ ----------
Net income (2), (3) $ 1.43 $ 1.43
============ ==========
Diluted earnings per share: (4)
Continuing operations (2), (3) $ 1.40 $ 1.39
Discontinued operations - 0.01
------------ ----------
Net income (2), (3) $ 1.40 $ 1.40
============ ==========
(1) 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.
(2) The pro forma results reflect a provision for income taxes for
companies which were previously S corporations of $3.0 million and $2.8
million in 1996 and 1997, respectively.
(3) The pro forma results reflect amortization of goodwill of $1.1 million
net of the related tax benefit.
(4) Earnings per share calculation assumes 1.4 million shares issued for
acquisitions were outstanding for the entire year.
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.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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
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 $41.4 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 $ 7,479 $ 8,430
Buildings and improvements 6,187 9,474
Machinery and equipment 63,110 97,727
Office furniture and equipment 3,343 5,810
----------- -----------
80,119 121,441
Less-accumulated depreciation (20,517) (35,332)
----------- -----------
$ 59,602 $ 86,109
=========== ===========
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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) $ - $ 83,010
Fleet Credit Facility at LIBOR plus 2.00%-2.25%
and 7.75% -7.94% at December 31, 1996) 46,865 -
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 18,865 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 -
----------- ----------
Total debt 155,192 149,057
Less current maturities (38,035) (54,562)
----------- ----------
Long term debt $ 117,157 $ 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.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
The Credit Facility and other 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. Debt
agreements also provide that the Company must maintain minimum amounts of
stockholders' equity, tangible net worth, cash flow and certain other financial
ratio coverages, requiring, among other things, minimum ratios at the end of
each fiscal quarter of debt to earnings, earnings to interest expense, 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
=========
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.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 EXERCISABLE 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
=========== ===== ======= ========== =======
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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:
1996 1997
-------- --------
Net income:
As reported $ 30,065 $ 34,664
Pro forma $ 29,211 $ 28,797
Basic earnings per share:
As reported $ 1.22 $ 1.31
Pro forma $ 1.18 $ 1.09
Diluted earnings per share:
As reported, including pro forma tax adjustment $ 1.20 $ 1.28
Pro forma $ 1.16 $ 1.07
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 $ 4,821 $ 10,891 $ 9,583
Foreign 5,347 6,505
State and local (284) 1,536 1,670
---------- --------- ---------
Total current 4,537 17,774 17,758
---------- --------- ---------
Deferred:
Federal (5,879) (1,895) 2,650
State and local (493) (218) 456
---------- --------- ---------
Total deferred (6,372) (2,113) 3,106
---------- --------- ---------
(Benefit) provision for income taxes (1,835) 15,661 20,864
Discontinued operations 135 (70) 80
---------- --------- ---------
Total $ (1,700) $ 15,591 $ 20,944
========== ========= =========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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
All other 4,774 7,550
--------- ----------
Total deferred tax assets 9,496 11,215
--------- ----------
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) $ (7,634)
========= ==========
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:
1995 1996 1997
---- ---- ----
U.S. statutory federal rate
applied to pretax income (35)% 35% 35%
State and local income taxes (2) 2 2
Effect of dividend exclusion (5) - -
Effect of non-U.S. tax rates - (3) (1)
Foreign loss producing no tax benefit 6 - -
Adjustment of prior years' taxes (5) - -
Change in federal statutory tax rate 9 - -
Change in state tax filing status (8) - -
Other 3 - 1
----- ---- ----
(Benefit) provision for income taxes (37)% 34% 37%
===== ==== ====
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.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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.
8. CAPITAL STOCK
The Company has authorized 100,000,000 shares of common stock. At
December 31, 1996 and 1997, approximately 26,435,000 and 28,056,000 shares of
common stock were issued, 25,621,000 and 27,580,000 shares were outstanding
(adjusted for the stock split), 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 $ 284,645 $ 377,046
International 188,155 282,393
--------- ---------
Total $ 472,800 $ 659,439
========= =========
Operating income
Domestic $ 30,209 $ 36,033
International 19,733 21,450
--------- ---------
Total $ 49,942 $ 57,483
========= =========
Identifiable assets
Domestic $ 118,929 $ 206,200
International 258,071 258,105
Corporate 106,018 165,919
--------- ---------
Total $ 483,018 $ 630,224
========= =========
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.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 27%, 13% 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.
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.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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.
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.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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
======== ======== ========
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 $ 62,547 $ 108,634 $ 142,394 $ 159,225 $ 472,800
========== ========= ========= ========= =========
Operating income $ 6,477 $ 11,384 $ 15,401 $ 16,680 $ 49,942
========== ========= ========= ========= =========
Income from continuing operations $ 3,696 $ 6,373 $ 9 ,362 $ 10,746 $ 30,176
========== ========= ========= ========= =========
(Loss) income from discontinued
operations including gain (loss)
on disposal, net of taxes (14) 27 163 (287) (111)
---------- --------- --------- --------- ---------
Net income $ 3,681 $ 6,400 $ 9,525 $ 10,459 $ 30,065
========== ========= ========= ========= =========
Pro forma basic earnings per share (1) (5):
Continuing operations $ 0.15 $ 0.26 $ 0.37 $ 0.42 $ 1.22
Discontinued operations - - 0.01 (0.01) -
---------- --------- --------- --------- ---------
$ 0.15 $ 0.26 $ 0.38 $ 0.41 $ 1.22
========== ========= ========= ========= =========
Diluted earnings per share (1) (5):
Continuing operations $ 0.15 $ 0.26 $ 0.37 $ 0.41 $ 1.20
Discontinued operations - - 0.01 (0.01) -
---------- --------- --------- --------- ---------
$ 0.15 $ 0.26 $ 0.38 $ 0.40 $ 1.20
========== ========= ========= ========= =========
1997:
Revenue $ 130,143 $ 141,499 $ 184,562 $ 203,235 $ 659,439
========== ========= ========= ========= =========
Operating income $ 15,495 $ 17,614 $ 16,772 $ 7,602 $ 57,483
========== ========= ========= ========= =========
Income from continuing operations $ 9,338 $ 10,702 $ 8,453 $ 6,042 $ 34,535
========== ========= ========= ========= =========
(Loss) income from discontinued
operations including gain (loss)
on disposal, net of taxes) (51) 124 45 11 129
---------- --------- --------- --------- ---------
Net income $ 9,287 $ 10,826 $ 8,498 $ 6,053 $ 34,664
========== ========= ========= ========= =========
Pro forma:
Basic earnings per share (1) (5):
Continuing operations $ 0.36 $ 0.42 $ 0.32 $ 0.22 $ 1.31
Discontinued operations - - - - -
---------- --------- --------- --------- ---------
$ 0.36 $ 0.42 $ 0.32 $ 0.22 $ 1.31
========== ========= ========= ========= =========
Diluted earnings per share (1) (5):
Continuing operations $ 0.36 $ 0.41 $ 0.31 $ 0.22 $ 1.28
Discontinued operations - - - - -
---------- --------- --------- --------- ---------
$ 0.36 $ 0.41 $ 0.31 $ 0.22 $ 1.28
========== ========= ========= ========= =========
(1) Earnings per share amounts have been adjusted to reflect the
three-for-two stock split declared effected on February 28, 1997.
(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.
23