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SEC Filings, Earing Reports, Press Releases
MasTec Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 3, 2011 04:07PM
MasTec Inc. (MTZ) filed Quarterly Report for the period ended 2011-06-30.
Highlight of Business Operations:
Acquisitions. In April 2011, we acquired Fabcor TargetCo Ltd., a Canadian natural gas and petroleum pipeline infrastructure construction company, for approximately $22.8 million in cash plus approximately $7.0 million of assumed debt, which was repaid immediately. In addition, the purchase price includes a five-year earn-out, payable annually to the seller in cash. We also acquired Cam Communications, Inc., a company specializing in equipment construction and network services for telecommunications carriers in April 2011 for approximately $4.4 million in cash, the assumption of $0.3 million in capital leases, plus a five-year earn-out. Additionally, in April 2011 we exercised our EC Source Merger Option and, effective May 2, 2011, acquired the remaining 67% membership interest in EC Source for an aggregate purchase price composed of 5,129,644 shares of MasTec common stock, the assumption of $8.6 million in debt and a five-year earn-out, payable at our election in common stock, cash or a combination thereof. In June 2011, MasTec acquired all of the issued and outstanding capital stock of Halsted Communications, Ltd., an install-to-the-home contractor operating primarily in portions of New York, Pennsylvania, and New England, for $4.0 million in cash, plus $13.5 million of assumed net liabilities, with no earn-out. Additionally, in June 2011, MasTec acquired all of the issued and outstanding shares of Optima Network Services, Inc., a wireless infrastructure services company headquartered in California, for $5.1 million in cash, plus the assumption of $2.2 million in debt, $0.8 million of which was repaid immediately. The purchase price for Optima includes a five year earn-out, payable at MasTecs election in common stock, cash, or a combination thereof. See Note 3 Acquisitions and Other Investments in the notes to the condensed unaudited consolidated financial statements for details of our second quarter acquisitions.
Credit Facility. In May 2011, we exercised our Accordion Option under our senior secured credit facility (the Credit Facility), pursuant to which the aggregate principal amount of revolving loans available under our Credit Facility was increased by $50 million, from $210 million to $260 million, subject to adjustment, as provided by the terms and conditions of the Credit Facility. In addition, we may amend our Credit Facility in the future to extend the maturity date and to provide additional borrowing capacity to accommodate recent and anticipated future growth in our business. Because the lenders are not obligated to amend the terms of our Credit Facility, however, our ability to secure an amendment is not assured.
Debt Exchange. We exchanged $105.3 million of our original 4.0% senior convertible notes and $97 million of our original 4.25% senior convertible notes (together, the Original Notes) for identical principal amounts of new 4.0% and 4.25% senior convertible notes (together, the New Notes) for an exchange fee of approximately 50 basis points, or approximately $1 million, during the first quarter of 2011. The terms of the New Notes are substantially identical to those of the Original Notes, except that the New Notes have an optional physical, cash or combination settlement feature and contain certain conditional conversion features. Following the exchange, $12.7 million of the Original Notes remains outstanding.
Because the New Notes have an optional cash settlement feature and we intend to settle the principal amount in cash, the conversion shares underlying the principal amount of the New Notes are not included in our diluted share count. If, however, the Companys average stock price per share exceeds the $15.76 conversion price for the new 4.0% notes or the $15.48 conversion price for the new 4.25% notes, then the resulting amount, in shares, of any premium is included in our diluted share count. Our average stock price exceeded the conversion prices of the New Notes for the three and six months ended June 30, 2011. This resulted in the inclusion of 3.0 million and 2.2 million premium shares in our diluted share count for the three and six months ended June 30, 2011, respectively, as compared to 13.0 million and 12.2 million shares included in our diluted share count for the three and six months ended June 30, 2010, respectively, for the corresponding principal amounts of Original Notes. The reduction in our diluted share count for the three and six month periods ended June 30, 2011 was partially offset by a reduction of $1.3 million and $2.4 million, respectively, in the after-tax interest addback associated with the Original Notes under the if-converted method of accounting, as well as the inclusion of $0.6 million and $1.1 million, respectively, of after-tax accretion expense associated with the New Notes for the three and six month periods ended June 30, 2011. See Note 2 Earnings Per Share and Note 9 Debt in the notes to the condensed unaudited consolidated financial statements for additional details. The number of premium shares included in our diluted share count will vary with fluctuations in our share price. Higher actual share prices result in a greater number of premium shares. Because the number of shares required to be included in our diluted share count will vary with changes in our actual share price, we cannot predict the dilutive impact of any such premium shares in future periods.
Second quarter 2011 net income of $44.5 million includes a gain of $17.7 million, net of tax, or $0.20 per diluted share, from the remeasurement of our equity investment in EC Source, which is discussed in Note 3 Acquisitions and Other Investments in the notes to our condensed unaudited consolidated financial statement. Excluding this gain, second quarter net income and diluted earnings per share were $26.8 million and $0.31 per share, respectively, representing an increase of $12.2 million and $0.13 per share, or 83% and 72%, respectively, versus the same period in the prior year. See Adjusted Net Income and Adjusted Diluted Net Income per Share, below. Factors contributing to our second quarter results include: revenue growth, as previously discussed; improved leveraging of depreciation, amortization and general and administrative expenses as a percentage of revenue; and a decrease in average diluted shares outstanding; partially offset by a decrease in our gross margin percentage resulting from new pricing and commission arrangements effective in 2011, increased fuel costs and changes in business and project mix.
Insurance Costs. Margins can also be impacted by insurance costs as additional claims arise and as circumstances and conditions of existing claims change. We maintain insurance policies subject to per claim deductibles of $1 million for our workers compensation policy and $2 million for our general liability and automobile liability policies. We also have employee healthcare benefit plans for our employees not subject to collective bargaining agreements, which are subject to annual per employee maximum losses of $0.4 million per year.
Stocks Discussed: MTZ,