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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One) (AMENDMENT #1)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission file number 0-3797
BURNUP & SIMS INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 59-1259279
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
One North University Drive, Ft. Lauderdale, FL 33324
(Address of principal executive offices) (Zip Code)
(305) 587-4512
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
12% Convertible Subordinated Debentures
due November 15, 2000 Philadelphia Stock Exchange
_______________________________________ ___________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
(Title of 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 shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
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. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed by reference to the closing price on July 19, 1993
was $16,413,758.
The number of shares of common stock outstanding as of July 19,1993 was
8,768,339.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of this registrant's Proxy Statement which will be filed on or
before August 30, 1993 are incorporated by reference into Part III.
Page 1 of 32
BURNUP & SIMS BUSINESSES
Burnup & Sims Inc. was founded in 1929 and together with its
subsidiaries ("Burnup & Sims" or the "Company") currently provides a wide
range of cable design, installation and maintenance services to telephone,
CATV and utility service customers throughout the United States. These
services are rendered through various subsidiary companies located
principally in California, Florida, Georgia, Mississippi, North Carolina,
and Texas. In addition, the Company is one of three major manufacturers of
power supplies for the CATV industry, operates a motion picture theatre
chain in the Southeastern U.S. and also provides commercial printing and
graphic arts services.
See "Industry Segment Information" in the Notes to Consolidated Financial
Statements for information related to revenues, operating profit, and
identifiable assets of each of the Company's principal business segments.
The Company's financial results for the last three years reflect volume
declines and net losses which include the impact of prolonged economic
pressures within the Telephone Services industry. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations").
The Company's backlog of orders, which is substantially represented by
written contracts and purchase orders and does not include work to be
performed under telephone master contracts, approximated $15,609,000 at
April 30, 1993, consisting of $10,594,000 related to Telephone Services and
$5,015,000 related to Cable Television and Utility Services, respectively.
Backlog of $18,427,000 at April 30,1992 was comprised of $11,583,000 and
$6,844,000 related to Telephone Services and Cable Television and Utility
Services, respectively. Substantially all of the backlog as of April 30, 1993
is expected to be completed by April 30, 1994. Backlog is not material for
the General Products and Other segment.
The Company obtains its raw materials and supplies from various sources and
is not dependent upon any one supplier.
Operations of the Company are somewhat seasonal, and this has historically
resulted in reduced revenues during the third quarter (November, December
and January) relative to other quarters. During winter months, inclement
weather in certain areas reduces the volume and efficiency of outside
service activities. Additionally, certain Telephone Services customers may
reduce expenditures for plant construction and maintenance during the
latter part of their budgetary year, which typically ends in December.
The sale of the Company's goods and services to foreign markets generated
less than one percent of revenues for fiscal year 1993. Work performed in
offshore U.S. territories approximated 6% of revenues for 1993 and 1992,
respectively. The Company is currently pursuing additional offshore
opportunities and has entered into joint venture agreements with local
partners in certain South American and East European countries to provide
telecommunications services. The Company intends to finance its portion of
such projects with internally-generated funds and, as necessary, through
the redeployment of machinery and equipment and supervisory personnel from
certain domestic areas of operation.
At April 30, 1993, the Company employed 2,255 people, of which 1,505 were
employed in the Telephone Services segment, 237 in the Cable Television
and Utility Services segment, and 513 in the General Products and Other
segment.
Page 2 of 32
Telephone Services
The installation and maintenance of underground cable and conduit, aerial
lines, manholes, and telephone equipment for regional telephone companies,
long distance carriers and private business are among the services provided
by Burnup & Sims. The Company also provides fiber-optic design and
installation services which require specialized skills for a number of long
distance and regional telephone companies. Customers typically supply
materials such as poles, cable, conduit and telephone equipment, and the
Company provides expertise, personnel, tools and equipment necessary to
perform installation services. Engineering and other types of personnel to
supplement the day-to-day requirements of telephone companies and to meet
their emergency and peak load maintenance and installation needs are also
provided by the Company.
Burnup & Sims provides services in approximately 35 states with a substantial
portion of the work performed in California, Florida, Mississippi, North
Carolina, Texas, and Tennessee. During the year ended April 30, 1993,
approximately 18% and 14% of revenues were derived from the Southern Bell
and South Central Bell units of Bell South Telecommunications, Inc.,
respectively. Other principal customers of Burnup & Sims include subsidiaries
of GTE Corporation, Southwestern Bell Telephone Company, Pacific Bell
Telephone Company, United Telephone Company, and U.S. West Communications, Inc.,
(the aggregate of revenues generated from such customers approximated 23%
for the fiscal year ended April 30, 1993), as well as other regional telephone
companies. While the mix of revenues generated from the Company's principal
customers may change from year to year, such customers generally provide
significant revenues to the Company and constitute the majority of revenues
generated by the Company's Telephone Services segment. The Company sold a
minority interest in a Telephone Services subsidiary, and is party to various
agreements providing an option to the minority holder to purchase the
remaining shares of common stock of the subsidiary, which is currently the
subject of dispute. (See "Industry Segment Information" and "Litigation" in
the Notes to Consolidated Financial Statements".)
The Company provides master contract services for telephone companies.
Under master contracts, Burnup & Sims has the exclusive right to perform
specified work for customers for the contract duration (excluding work
customers may perform themselves and projects which exceed stipulated
amounts). During the years ended April 30, 1993, 1992, and 1991, revenues
of approximately $62,000,000, $66,000,000, and $75,000,000, respectively,
were derived from work performed under master contracts. The Company may
be compensated on an hourly basis or at a fixed unit price for services
rendered. Master contracts are generally for one to three-year terms and
may be terminated upon 60 days notice by either party. Master contracts
may be renewed through negotiations between the Company and its customers
or customers may elect to award these contracts on the basis of competitive
bidding.
The market for telephone services is highly competitive and management
believes the factors for success include quality, reliability, price and
promptness of performance. Although most companies in this field tend to
operate in a limited geographical area, a number of competitors may bid on
a particular project without regard to location. On a national basis,
neither the Company nor any of its competitors can be considered dominant
in the industry, which is characterized by a large number of companies,
most of which are smaller than the Company.
Page 3 of 32
Telephone Services - (Continued)
Changes in the level of telephone company capital expenditures, influenced
by prevailing interest rates and the allowance or disallowance of telephone
rate increases by public regulatory agencies, may affect the volume of work
available to the Company. Additionally, certain telephone companies may
utilize their own personnel to perform all or some part of the types of
services provided by the Company.
Cable Television and Utility Services
The Company, which began installation of CATV systems in 1961, installs
underground and aerial portions of new and existing CATV systems, and
provides customer installation and hookup services at CATV subscriber homes.
The work is generally performed under fixed unit price contracts and the
Company's customers have consisted principally of operators of CATV systems.
Management believes experience, dependability and mobility are the principal
competitive factors that contribute to success.
The CATV industry is regulated by local, state and federal laws, and such
governmental regulation has a direct effect upon whether new CATV systems
are built or existing systems are improved, thus directly affecting the
availability of work for which the Company may compete. The industry is
characterized by a large number of companies which provide CATV services.
The Company is one of the principal manufacturers of power supplies for sale
to CATV operators and distributors. Although the market for these products is
highly competitive, management believes its position in this market is
attributable to such factors as technical capability, price, reliability and
service.
The Company also installs underground and aerial electrical distribution
systems. Customers for these services consist principally of electric utility
companies and other businesses located in the Southeastern and South Central
United States. The major competitive factor for Utilities Services work is
price, and a substantial portion of the work performed is awarded on the basis
of competitive bids. There are numerous competitors qualified to perform the
same services which the Company provides.
The installation of CATV and utility systems requires a substantial capital
outlay by the system owners, and their ability to secure capital at acceptable
financing rates directly affects the availability of work.
General Products and Other
The Company operates a motion picture theatre chain consisting of 94 screens
at 32 locations in Florida and two locations in Georgia. Twenty-two of the
theatres are indoor and 12 are drive-ins. The Company derives a substantial
portion of its theatre revenues and profits from food and beverage concessions
which it operates in all of the theatres.
The Company's theatres exhibit first, second and third run films of major
motion picture distributors. The availability of popular films has a
significant effect on both admission and concession revenues. The Company's
theatre operations are highly dependent on major film distributors for an
adequate supply of such films. The Company competes with numerous other film
exhibitors and entertainment attractions in its operating areas.
The Company also offers commercial printing products and graphic arts services.
The principal customers are businesses located in Florida and the Northeast
United States. The printing business is extremely competitive and no one
company is considered dominant.
Page 4 of 32
PROPERTIES
The Company owns two indoor and nine drive-in theatres located on
approximately 117 acres in ten Florida cities. The Company also leases 18
indoor and three drive-in theatres located in 19 Florida cities and leases
two indoor locations in south Georgia. Substantially all of the leased
theatres are subject to long-term leases, many of which contain long-term
renewal options that are exercisable at the discretion of the Company.
The Company also owns a 60,000 square-foot printing plant located in Stuart,
Florida, and a 50,000 square foot manufacturing plant located in Athens,
Georgia, each of which currently operates at less than full capacity. Other
operations, principally Telephone Services, are conducted through approximately
53 subsidiary and branch locations, of which approximately 31 are owned. A
majority of the leased facilities consists of offices and temporary equipment
yards or storage locations which are subject to short-term or cancelable
leases. The Company does not consider any specific owned or leased facility to
be materially important to its operations since much of the work performed is
completed upon the customer's premises or upon public rights-of-way. In
addition, the Company believes that equally suitable alternate locations are
available in all areas where it currently does business.
At April 30, 1993, the Company operated approximately 1,400 licensed vehicles,
substantially all of which are owned. In addition, it owns various types of
construction equipment including approximately 600 off-road vehicles.
The Company believes that its properties are generally in good condition and
suitable for their intended uses. The Company has no material amounts of idle
equipment or excess production capacity.
In addition to its operating properties, the Company owns approximately 1,850
acres of real estate located throughout Central and Southwest Florida which
are being held for investment purposes as well as a 124,000 square foot plant
located on approximately 43 acres in Freehold, New Jersey.
Certain of the Company's properties are encumbered pursuant to loan
agreements. (See "Debt" in the Notes to Consolidated Financial Statements.)
The Company's facilities are subject to federal, state, and local provisions
involving the protection of the environment. Compliance with these provisions
has not had, and the Company does not expect such compliance to have, a
material adverse effect upon the Company's financial position or operations.
LEGAL PROCEEDINGS
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was filed
in December 1990 by a shareholder of the Company in the Court of Chancery of
the State of Delaware in and for New Castle County against the Company, the
members of its Board of Directors, and against National Beverage Corp. ("NBC")
as a purported class action and derivative lawsuit.
The class action claims allege, among other things, that the Board of
Directors of the Company, and NBC, as its largest shareholder, breached their
respective fiduciary duties in approving (i) the dividend by the Company of
its shares of NBC common stock (the "Distribution") and (ii) the exchange of
certain shares of the Company's stock held by NBC for certain indebtedness of
NBC held by the Company (the "Exchange"; the Distribution and the Exchange are
hereinafter referred to as the "1991 Transaction"), in allegedly placing the
interests of NBC ahead of the interests of the other shareholders of the
Company.
Page 5 of 32
LEGAL PROCEEDINGS (Continued)
The derivative action claims allege, among other things, that the Board
of Directors of the Company has breached their fiduciary duties by approving
executive officer compensation arrangements, by financing NBC's operations
on a current basis, and by permitting the interests of the Company to be
subordinated to those of NBC. In the lawsuit, plaintiff seeks to rescind the
1991 Transaction and to recover damages. (See "Transactions with NBC" in
the Notes to Consolidated Financial Statements.)
In May 1993, plaintiff filed a motion to amend its class action and
shareholder derivative complaint (the "Proposed New Complaint").
The Proposed New Complaint alleges that the Special Committee (the
"Committee") that approved the 1991 Transaction was not independent and
that, therefore, the 1991 Transaction was neither protected by the
business judgement rule or in accordance with a settlement agreement
(the "1990 Settlement") entered into in 1990 pertaining to certain
prior litigation. The Proposed New Complaint also makes other
allegations which involve (i) further violations of the 1990 Settlement
by engaging in certain transactions not approved by the Committee;
(ii) the sale of a subsidiary of the Company to a former officer of the
Company; (iii) the timing of the 1991 Transaction and (iv) the treatment
of executive stock options in the 1991 Transaction.
The Company believes that the allegations in the complaint and the Proposed
New Complaint are without merit, and intends to vigorously defend this action.
William C. Deviney, Jr. v. Burnup & Sims, Inc. et al., Civil Action
No. 152350 was filed in the Chancery Court of the First Judicial
District of Hines County, Mississippi on May 3, 1993. The plaintiff in
this action filed suit seeking specific performance of alleged obligations
of the Company pursuant to a stock purchase agreement and related
agreements entered into in 1988. Pursuant to the agreements, the Company
sold to plaintiff a minority interest in a Telephone Services subsidiary
and granted to plaintiff an option to purchase the remaining stock if
certain conditions were satisfied. (See "Industry Segment Information"
in the Notes to Consolidated Financial Statements.) Alternatively,
plaintiff seeks unspecified damages for breach of contract and for
alleged breaches of fiduciary duties, and seeks an award of punitive
damages and attorney's fees for alleged bad faith conduct in connection
with the stock purchase agreement and related matters. The Company believes
that the allegations in the complaint are without merit and intends to
vigorously defend this action. Additionally, the Company has filed
counterclaims which, among other things, seek a declaratory judgement
that the plaintiff's failure to satisfy certain material conditions
terminated his rights under the stock purchase agreement.
The Company and its subsidiaries are parties to various legal proceedings,
including suits in which it is a defendant.
In the opinion of management, after consultation with counsel as to the claims
in the litigation and, if adversely determined, the assessment of potential
damages, the ultimate outcome of the legal proceedings will not have a
material adverse effect on the financial position of the Company.
Page 6 of 32
MANAGEMENT'S DISCUSSION
RESULTS OF OPERATIONS
The Company's operating results for its fiscal year ended April 30, 1993
reflect the results of prolonged economic pressures. Unsettled economic
conditions which have resulted in certain changes in utility spending and
competitive pressures upon contract prices have adversely affected the
Telephone Services segment and the Cable Television and Utility Services
segment. Results for the General Products and Other segment have also
experienced the effect of economic pressures which have resulted in reduced
theatre margins and competitive pricing in the printing industry.
Consolidated revenues declined 8% for the fiscal year ended April 30, 1993
following a 12% reduction in revenues for 1992. The Company incurred an
operating loss for 1993 and 1992 of $9,355,000 (substantially all of which
was realized by the Telephone Services segment) and $950,000, respectively,
after realizing an operating profit of approximately $4.1 million for the
fiscal year ended April 30, 1991, excluding the losses of a subsidiary sold.
The 1993 increase in general and administrative expenses is primarily due
to the settlement of certain claims for receivables due to the Company
pending since 1990 and related legal fees. Excluding additions to the
allowance for doubtful accounts of $1.5 million related to certain claims
and receivables, 1992 general and administrative expenses decreased
approximately $800,000 when compared to 1991 due largely to reductions in
compensation, including a reduction of the Company president's salary and
other personnel-related expenses.
Depreciation and amortization decreased in 1993 and 1992 due to reduced
capital spending by the company and a decrease in goodwill amortization
resulting from the subsidiary sold in 1991.
Interest expense decreased in 1993 and 1992 due to the reduction of
outstanding debt. Interest expense additionally decreased in 1992 due to
a lower prime interest rate and reduced interest accruals for income tax
related issues.
As a result of the Distribution, the Company has not recorded equity in the
net income of NBC subsequent to January 31, 1991 and, as a result of the
Exchange, interest income in 1992 decreased when compared to 1991. (See
"Transactions with NBC" in the Notes to Consolidated Financial Statements.)
In accordance with the sinking fund requirements of the Company's 12%
convertible subordinated debentures, approximately $2,625,000 face amount
of debentures were repurchased during each of the past three years. Other
income includes gains from the repurchases of $291,000, $1,111,000 and
$912,000 for 1993, 1992, and 1991, respectively. Additionally, other
expenses for 1993 include the write-off of intangible assets (goodwill) of
approximately $2.0 million for a Telephone Services subsidiary which has
closed several of its operating areas due to economic and competitive
pressures.
Other income in 1992 includes a gain of approximately $1.1 million from the
sale of the stock of a wholly-owned subsidiary to NBC. (See "Transactions
with NBC" in the Notes to Consolidated Financial Statements.) Other expenses
for 1991 include pretax losses related to a subsidiary sold of $7.4 million.
(See "Industry Segment Information" in the Notes to Consolidated Financial
Statements.)
Page 7 of 32
MANAGEMENT'S DISCUSSION (Continued)
The credit for income taxes in 1993 approximates 30% of the pretax loss
for the year due to the $2 million write-off of intangible assets with no
related tax benefit. The 1992 credit for income taxes approximates 35% of
the pretax loss for that year due to the effect on taxable income of certain
state income taxes and preferred stock dividends.
Operations of the Company are somewhat seasonal and this has historically
resulted in reduced revenues during the third quarter (November, December,
and January) relative to other quarters. During winter months, inclement
weather in certain areas reduces the volume and efficiency of outside
service activities. Additionally, certain utility customers may reduce
expenditures for plant construction and maintenance during the latter part
of their budgetary year, which typically ends in December. Also, certain
write-offs and allowances as further discussed herein have affected fourth
quarter operating profit for the last two fiscal years. (See "Quarterly
Financial Data" in the Notes to Consolidated Financial Statements.)
Telephone Services
The Telephone Services segment experienced revenue declines of 11% and 9%
for 1993 and 1992, respectively. The reduction in revenues resulted from
the loss of certain telephone service contracts due to pricing and economic
pressures, particularly in the southeastern United States and California.
Several new telephone services contracts which commenced in the third
quarter of 1993 as well as sales in offshore U.S. territories mitigated the
decline in revenues. The Company is attempting to expand its presence in
Europe, Micronesia, and South America as a means of countering the
competitive pricing pressures in the U.S. Difficulties encountered when
expanding into foreign countries include the acquisition of an understanding
of foreign laws, tax codes and customs and determining methods to safeguard
assets in those countries with volatile currency fluctuations. Work performed
under the Company's telephone master contracts decreased approximately 6% and
13% for 1993 and 1992, respectively, while work performed on a competitive
bid basis declined 17% and 2% for those same years.
Operating losses of the Telephone Services segment in 1993 and 1992 reflect
the reduced economies of scale related to the volume decline and lower
pricing on certain contracts performed by the Company. Margins in 1993 were
further impacted by higher than anticipated costs associated with starting
several new contracts. Additionally, 1993 results include charges of
approximately $2 million related to the write-down of intangible assets as
discussed above and approximately $1.5 million (less the related tax benefit
of approximately $500,000) related to the write-down of receivables,
inventory, and other assets with respect to closed and other unprofitable
Telephone Services areas of operation. Additionally, certain claims for
receivables due to the Company which had been pending since 1990 were
settled in 1993, resulting in an additional write-off of approximately
$1.5 million. The operating loss for 1992 also includes additions to the
allowance for doubtful accounts of approximately $500,000.
The Company sold a minority interest in a Telephone Services subsidiary,
and is party to various agreements providing an option to the minority
holder to purchase the remaining shares of the subsidiary, which is
currently the subject of dispute. (See "Industry Segment Information" and
"Litigation" in the Notes to Consolidated Financial Statements.)
Page 8 of 32
Cable Television and Utility Services
Revenues of the Cable Television and Utility Services segment
decreased 10% in 1993 and remained unchanged in 1992, excluding the
revenues of the subsidiary sold in 1991. The 1993 decline is due to
reduced cable television installation revenues of 5%, a 6% increase
in sales of CATV power supplies, and a 22% reduction in sales to
electric utility services customers.
The 1993 operating profit for the Cable Television and Utility Services
segment primarily results from certain higher-margin electrical service
contracts. The operating loss for 1992 primarily results from a charge
to provide for doubtful accounts of approximately $1,000,000.
General Products and Other
Revenues of the Company's General Products and Other segment increased
8% and 1% in 1993 and 1992, respectively. Theatre revenues are up 19%
and 8% for those years as a result of three new multi-screen theatres
which were opened in the third quarter of 1992 and one additional
multi-screen theatre which opened in the third quarter of 1993. The
increase in theatre revenues was offset by reduced printing sales of
6% in both 1993 and 1992 due to competitive pricing pressures.
The operating loss in 1993 includes reduced operating margins of the
printing business related to decreased volume and lower pricing, higher
operating costs of the Company's theatres, and the write-off of assets
related to closed areas other than theatres and printing of approximately
$500,000 (less the related tax benefit of approximately $200,000). The
1992 operating loss results from miscellaneous work performed by the
Company, other than printing and theatre operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet reflects total assets of $108,917,000 at
April 30, 1993 compared to total assets of $118,460,000 at April 30, 1992.
The reduction in total assets includes the effects of the decline in volume
and operating losses incurred by the Company in 1993 net of related income
tax credits, including the write-off of certain tangible and intangible
assets previously discussed. The decrease in the Company's cash and
investments to $9,612,000 at April 30, 1993 from $13,335,000 at April 30, 1992
is comprised of cash provided by operations of $2,936,000 less cash used in
investing activities of $3,270,000 (principally for capital expenditures) and
cash used in financing activities of $3,389,000 (due principally to net bank
repayments). Cash increased for the fiscal year ended April 30, 1992 by
$2,465,000 due to cash provided by operating activities of $5,050,000 and cash
provided by financing activities of $1,471,000 (due to net bank borrowings)
less cash used in investing activities of $4,056,000 (principally for capital
expenditures). For the year ended April 30, 1991, cash decreased by
approximately $6,808,000 including cash provided by operating activities of
$14,253,000 less cash used by financing activities of $17,449,000 (due
principally to net bank repayments and certain taxes payable) and cash used
in investing activities of $3,612,000 (principally for capital expenditures).
The Company's ratio of current assets to current liabilities decreased to
1.6 to 1 at April 30, 1993 from 1.8 to 1 at April 30, 1992 and working
capital decreased to $16,199,000 from $21,798,000 for those same periods.
Page 9 of 32
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (Continued)
In 1993, the Company converted a $5,000,000 advance under its revolving loan
to a term loan pursuant to the provisions of its bank agreement. Additionally,
in accordance with its term loan agreement, net proceeds of approximately
$2.9 million from the sale of certain real estate pledged as collateral for
the term loan, which was finalized during the first quarter of the Company's
fiscal year ending April 30, 1994, was applied to the non-current balance of
the term loan. The indenture under which the Company's 12% convertible
subordinated debentures are issued requires annual payments to a sinking fund
of $2,625,000.
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the maintenance of certain financial covenants. The
Company's 1993 financial results caused the Company to be in non-compliance
with certain financial covenants under its term loan agreement. The Company
has obtained waivers of such covenants for the fiscal year ended April 30, 1993
and the bank and the Company agreed to a modification for future periods for
various covenants, including those with which the Company had not complied.
In addition, the Company agreed if the Series C Preferred Stock of NBC
(see "Transactions with NBC" in the Notes to Consolidated Financial Statements)
is redeemed, the proceeds will be used to retire amounts due under the term
loan agreement.
Pursuant to its loan agreements, the Company is currently prohibited from
declaring or paying dividends. (See "Debt" in the Notes to Consolidated
Financial Statements.)
In February 1992, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The Company must adopt this pronouncement in its financial statements for
fiscal years beginning after December 15, 1992 and anticipates the adoption
of this pronouncement will be immaterial to its financial results.
The Company anticipates that for fiscal year 1994, operating cash requirements,
capital expenditures and debt service will substantially be funded from cash
flow generated by operations and dividend and interest income. The Company
currently anticipates that long-term obligations, including sinking fund
payments related to the 12% convertible subordinated debentures and balloon
payments due pursuant to the terms of the debentures and the term loan, will
be funded principally from cash generated by operations, dividend and interest
income, collections of notes receivable, and debt refinancing. Burnup & Sims
has no material commitments for capital expenditures and replaces operating
property as necessary. The Company does not expect to significantly change
the current level of capital spending and expects to redeploy machinery and
equipment from certain domestic areas of operations as necessary to support
international opportunities.
Page 10 of 32
FINANCIAL STATEMENTS
BURNUP & SIMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Years Ended April 30, 1993
1993 1992 1991
----------- ----------- -----------
Revenues $140,987,000 $153,521,000 $175,236,000
----------- ----------- -----------
Costs of Revenues (exclusive of
depreciation and amortization
shown separately below) 127,316,000 133,957,000 150,085,000
General and Administrative 18,438,000 16,239,000 15,572,000
Depreciation and Amortization 6,163,000 6,918,000 8,498,000
Interest Expense 4,583,000 4,847,000 6,161,000
Interest and Dividend Income (4,016,000) (4,035,000) (6,908,000)
Other Expense (Income) 1,761,000 (2,798,000) 4,520,000
----------- ----------- -----------
Total Costs and Expenses 154,245,000 155,128,000 177,928,000
----------- ----------- -----------
Loss Before Income Taxes and
Equity in Net Income of NBC (13,258,000) (1,607,000) (2,692,000)
Credit for Income Taxes (3,950,000) (560,000) (1,082,000)
----------- ----------- -----------
Loss Before Equity in Net
Income of NBC (9,308,000) (1,047,000) (1,610,000)
Equity in Net Income of NBC 0 0 828,000
----------- ----------- -----------
Net Loss $ (9,308,000) $ (1,047,000) $ (782,000)
=========== =========== ===========
Loss Per Share $ (1.06) $ (.12) $ (.08)
=========== =========== ===========
See accompanying notes.
Page 11 of 32
BURNUP & SIMS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Three Years Ended April 30, 1993
Pro Rata
(Dollars in Thousands) Common Capital Retained Interest Treasury
Stock Surplus Earnings in NBC Stock Total
------ ------- -------- -------- -------- --------
Balance April 30, 1990 $1,601 $71,926 $55,034 $(17,347) $(51,079) $ 60,135
Net Loss (782) (782)
Distribution of NBC
Common Stock (5,904) 17,347 11,443
Taxes Payable on the
Distribution of NBC
Common Stock (5,000) (5,000)
Exchange of Common Shares
for Debt due from NBC (23,061) (23,061)
Common Stock Issued Under
Stock Option Plans 1 99 100
------ ------- -------- -------- -------- --------
Balance April 30, 1991 1,602 72,025 43,348 0 (74,140) 42,835
Net Loss (1,047) (1,047)
------ ------- -------- -------- -------- --------
Balance April 30, 1992 1,602 72,025 42,301 0 (74,140) 41,788
Net Loss (9,308) (9,308)
Adjustment of Prior
Year Tax Benefits 835 349 0 0 1,184
------ ------- -------- -------- -------- --------
Balance April 30, 1993 $1,602 $72,860 $33,342 $ 0 $(74,140) $ 33,664
====== ======= ======= ======== ======== ========
See accompanying notes.
Page 12 of 32
BURNUP & SIMS INC.
CONSOLIDATED BALANCE SHEETS
April 30, 1993 and 1992
ASSETS 1993 1992
----------- -----------
Current Assets
Cash and Cash Equivalents $ 9,612,000 $ 13,335,000
Accounts Receivable - Net 19,314,000 23,065,000
Unbilled Revenues 3,572,000 4,096,000
Inventories 4,246,000 4,843,000
Accrued Interest Receivable and Other - NBC 568,000 1,139,000
Refundable Income Taxes 4,310,000 462,000
Other 998,000 1,247,000
----------- -----------
Total Current Assets 42,620,000 48,187,000
----------- -----------
Preferred Stock and Long-Term Notes
Receivable - NBC 31,184,000 31,437,000
----------- -----------
Property - At Cost
Land 3,192,000 3,261,000
Buildings and Improvements 12,221,000 12,464,000
Machinery and Equipment 59,441,000 60,683,000
----------- -----------
Total 74,854,000 76,408,000
Less Accumulated Depreciation (56,818,000) (57,197,000)
----------- -----------
Property - Net 18,036,000 19,211,000
----------- -----------
Other Assets
Excess of Cost over Equity of
Businesses Acquired 3,279,000 5,712,000
Real Estate Investments 11,663,000 10,342,000
Miscellaneous 2,135,000 3,571,000
----------- -----------
Total Other Assets 17,077,000 19,625,000
----------- -----------
Total $108,917,000 $118,460,000
=========== ===========
Page 13 of 32
LIABILITIES AND SHAREHOLDERS' EQUITY 1993 1992
----------- ----------
Current Liabilities
Current Maturities of Debt $ 3,873,000 $ 4,279,000
Accounts Payable 9,821,000 8,591,000
Accrued Insurance 2,839,000 2,644,000
Accrued Compensation 1,970,000 1,964,000
Accrued Interest 1,499,000 3,007,000
Accrued Income Taxes 57,000 507,000
Deferred Income Taxes 0 331,000
Other 6,362,000 5,066,000
----------- -----------
Total Current Liabilities 26,421,000 26,389,000
----------- -----------
Other Liabilities 12,076,000 10,253,000
----------- -----------
Long-Term Debt 12,256,000 12,905,000
----------- -----------
Convertible Subordinated Debentures 24,500,000 27,125,000
----------- -----------
Shareholders' Equity
Common Stock, $.10 par value, authorized
25,000,000 shares; issued 16,021,714 shares;
outstanding 8,768,339 shares in 1993 and 1992 1,602,000 1,602,000
Capital Surplus 72,860,000 72,025,000
Retained Earnings 33,342,000 42,301,000
Treasury Stock (74,140,000) (74,140,000)
----------- -----------
Total Shareholders' Equity 33,664,000 41,788,000
----------- -----------
Total $108,917,000 $118,460,000
=========== ===========
See accompanying notes.
Page 14 of 32
BURNUP & SIMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Years Ended April 30,1993
1993 1992 1991
---------- ----------- -----------
Cash Flows from Operating Activities:
Net Loss $(9,308,000) $ (1,047,000) $ (782,000)
Adjustments to Reconcile Net Loss
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 6,163,000 6,918,000 8,498,000
Undistributed Earnings of NBC 0 0 (828,000)
Losses Related to Subsidiary Sold -
Net of Income Taxes 0 0 4,500,000
Gain on Sales of Assets (1,075,000) (1,548,000) (667,000)
Gain on Repurchase of Debentures (291,000) (1,111,000) (912,000)
Write-off of Excess of Cost over
Equity of Business Acquired 2,017,000 0 0
Changes in Operating Assets and
Liabilities - Net of Effects of
Subsidiary Sold:
Accounts Receivable - Net
and Unbilled Revenues 4,277,000 3,146,000 6,210,000
Inventories 597,000 610,000 (563,000)
Interest Receivable 64,000 1,535,000 1,349,000
Refundable Income Taxes (3,848,000) (462,000) 0
Accounts Payable and Accrued Expenses 2,242,000 1,979,000 (4,119,000)
Interest and Income Taxes (1,681,000) (1,398,000) 2,835,000
Other Liabilities 2,399,000 (2,867,000) 189,000
Other, Net 1,380,000 (705,000) (1,457,000)
---------- ---------- ----------
Net Cash Provided by Operating
Activities 2,936,000 5,050,000 14,253,000
---------- --------- ----------
Cash Flows from Investing Activities:
Proceeds from Sales of Assets 1,068,000 437,000 783,000
Capital Expenditures (4,338,000) (4,493,000) (4,395,000)
---------- ---------- ----------
Net Cash Used in Investing Activities (3,270,000) (4,056,000) (3,612,000)
---------- ---------- ----------
Page 15 of 32
BURNUP & SIMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Three Years Ended April 30,1993
1993 1992 1991
---------- ----------- -----------
Cash Flows from Financing Activities:
Taxes Payable on Distributions
of NBC Common Stock 0 0 (5,000,000)
Costs of Exchange of Common Shares
for Debt due from NBC 0 0 (561,000)
Borrowings Under Line of
Credit Agreement 0 8,000,000 0
Repayments Under Line of
Credit Agreement (5,000,000) (3,000,000) 0
Short-Term Debt Borrowings
(Repayments) 0 0 (5,000,000)
Long-Term Debt Borrowings 5,640,000 9,381,000 267,000
Long-Term Debt Repayments (4,029,000) (12,910,000) (7,255,000)
Proceeds from Issuance of
Common Stock - Net 0 0 100,000
---------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities (3,389,000) 1,471,000 (17,449,000)
---------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (3,723,000) 2,465,000 (6,808,000)
Cash and Cash Equivalents -
Beginning of Year 13,335,000 10,870,000 17,678,000
---------- ----------- -----------
Cash and Cash Equivalents -
End of Year $ 9,612,000 $ 13,335,000 $ 10,870,000
========== =========== ===========
See accompanying notes.
Page 16 of 32
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Presentation
The consolidated financial statements include Burnup & Sims Inc.
and its subsidiaries (the "Company" or "Burnup & Sims"). All
material intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to
conform to the current presentation.
Contracts
Revenues from contracts are accounted for by the percentage of
completion method whereby income is recognized based on the
estimated stage of completion of individual contracts. Prospective
losses on such contracts are provided for when they become known.
Inventories
Inventories (consisting principally of material and supplies) are
valued at the lower of first-in, first-out cost or market.
Property
Property and equipment are recorded at cost. Depreciation is
provided for using the straight-line method over the estimated
useful life of the assets as follows: Buildings and Improvements -
5 to 40 years, and Machinery and Equipment - 3 to 15 years.
Depreciation expense was $5,517,000 for 1993, $6,240,000 for 1992,
and $7,788,000 for 1991.
Expenditures for maintenance and repairs are charged to income as
incurred. Major expenditures for betterments and renewals 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.
Income Taxes
Certain income and expense items are accounted for differently for financial
reporting purposes and for income tax purposes. A provision for deferred
taxes is made in recognition of these temporary differences using the
liability method in accordance with the provisions of Statement of Financial
Accounting Standards No. 96 "Accounting for Income Taxes" ("SFAS No. 96").
In February 1992, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes",
which will supersede SFAS No. 96. The Company must adopt this pronouncement
in its financial statements for fiscal years beginning after December 15, 1992
and anticipates the adoption of this pronouncement will be immaterial to its
financial results.
Page 17 of 32
NOTES TO FINANCIAL STATEMENTS (Continued)
Excess of Cost Over Equity of Businesses Acquired
The excess of cost over equity of businesses acquired (goodwill) is being
amortized generally over forty years. The Company periodically evaluates
its long-lived assets, including goodwill, and adjusts such assets
accordingly when it is deemed probable that the recorded amounts are not
recoverable. For the fiscal year ended April 30, 1993, the Company wrote
off $2,017,000 of the remaining goodwill of a Telephone Services subsidiary
which has closed several of its operating areas due to economic and
competitive pressures. Goodwill is net of accumulated amortization of
$4,456,000 for 1993 and $6,092,000 for 1992. Goodwill amortization was
$519,000 for 1993 and 1992, and $604,000 for 1991.
Accrued Insurance
The Company is self-insured for certain casualty and worker's compensation
exposures and, accordingly, accrues the present value of estimated losses
not otherwise covered by insurance.
Investments
The Company's investment in preferred stock of National Beverage Corp.
("NBC") is stated at cost, which does not exceed estimated net realizable
value. Until February 1991, the Company used the equity method to account
for its investment in the common stock of NBC. Equity in Net Income of NBC
for 1991 is reported net of costs incurred by the Company related to the
distribution of all of the common stock of NBC held by the Company. (See
"Transactions with NBC".)
Real estate investments are carried at cost, which is less than estimated
market value.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company generally
considers all highly liquid securities (consisting primarily of repurchase
agreements, short-term money-market investments, certificates of deposit,
and municipal obligations) with an original maturity or redemption option of
three months or less, to be cash equivalents. Cash paid (refunded) for income
taxes was $(205,000) in 1993, $2,670,000 in 1992, and $4,669,000 in 1991.
Cash payments for interest were $4,753,000, $5,030,000, and $6,009,000
for 1993, 1992, and 1991 respectively.
Non-cash transactions for the fiscal year ended April 30, 1993 include
the write-off of goodwill of $2,017,000 and the write-off of certain
receivables, inventory, and other assets with respect to closed and
other unprofitable areas of operation (primarily Telephone Services) of
$2,019,000 less the related tax benefit of $707,000.
Page 18 of 32
2. ACCOUNTS RECEIVABLE - NET
Accounts receivable are net of an allowance for doubtful accounts of
$803,000 and $3,972,000 at April 30, 1993 and 1992, respectively.
Accounts receivable include retainage which has been billed but is not
due until the completion of performance and acceptance by customers,
and claims for additional work performed outside original contract terms.
Retainage aggregated $590,000 and $840,000 at April 30, 1993 and 1992,
and claims aggregated approximately $3,100,000 at April 30, 1992. Such
claims were settled during the fiscal year ended April 30, 1993 which
resulted in a write-off of unreserved amounts of approximately $1,500,000.
While certain amounts are subject to litigation, negotiation, and
counterclaims in the ordinary course of business, which could delay
settlement, substantially all accounts receivable are collectable within
one year. Bad debt expense, including both provisions for doubtful accounts
and direct write-offs of certain claims and receivables, approximates
$3,053,000, $1,710,000, and $2,096,000 (including approximately $1,700,000
related to a provision for receivables of a subsidiary sold) for the fiscal
years ended April 30, 1993, 1992, and 1991, respectively.
3. OTHER LIABILITIES
Other Liabilities are summarized as follows:
(Dollars in Thousands) 1993 1992
------ ------
Deferred Income Taxes $ 3,612 $ 3,218
Accrued Interest - Prior Years' Taxes 2,187 1,985
Accrued Insurance 6,277 5,050
------ ------
Other Liabilities $12,076 $10,253
====== ======
4. DEBT
Debt is summarized as follows:
(Dollars in Thousands) 1993 1992
------ ------
Term Loan payable to Bank, at Prime
plus 1/2% (61/2% at April 30, 1993) $12,849 $ 8,729
Revolving Loan payable to Bank, at Prime
plus 1/2% 0 5,000
Capital Leases and Other, at Interest Rates
from 9% to 13%, due in Installments
through 1994 655 830
12% Convertible Subordinated Debentures
due 2000 27,125 29,750
------ ------
Total Debt 40,629 44,309
Less Current Maturities 3,873 4,279
------ ------
Non-Current Debt $36,756 $40,030
====== ======
Page 19 of 32
DEBT (Continued)
The indenture under which the debentures are issued requires an annual
payment to a sinking fund, which commenced November 15, 1990, calculated
to retire 75% of the issue prior to maturity. The Company has the option
to redeem all or part of the debentures prior to the due date by paying
the principal amount at face value. Included in Other Income is a gain
of approximately $291,000 in 1993, $1,111,000 in 1992 and $912,000 in
1991 from the repurchase of $2,625,000 face amount of debentures acquired
to meet sinking fund requirements. The debentures are convertible into the
Company's common stock (the "Common Stock") at an adjusted conversion price
of $16.79 per share. At April 30, 1993, approximately 1,616,000 shares were
reserved for conversion.
On August 2, 1991, the Company entered into an agreement with a bank
(the "Bank Agreement") to refinance an existing term loan. The facilities
extended to the Company under the Bank Agreement include (1) a six-year
term loan in the initial principal amount of $9,188,000 bearing interest
at one-half of one percent over the prime rate and payable in equal
quarterly installments computed on a fifteen-year amortization schedule
(the "Term Loan"); (2) a revolving line of credit facility bearing interest
at one-half of one percent over the prime rate (the "Revolving Loan");
and (3) a facility for the issuance of letters of credit. During fiscal
1993, the Company refinanced $5,000,000 which had been borrowed under the
Revolving Loan from an advance under the provisions of the Term Loan.
Real estate with a book value of approximately $2,500,000 at April 30, 1993
is pledged as collateral for the Term Loan. In April 1993, the Company
entered into an agreement to sell certain real estate which was pledged
as collateral for the Term Loan; the transaction was finalized during the
first quarter of the Company's fiscal year ending April 30, 1994.
Pursuant to the provisions of the Term Loan, the net proceeds from the
real estate sale of approximately $2,900,000 was applied to the
non-current portion of the Term Loan.
Debt agreements contain, among other things, restrictions on the payments
of dividends and require the maintenance of certain financial covenants.
The Company's 1993 financial results resulted in non-compliance with
certain financial covenants under its Term Loan. The Company has obtained
waivers of such covenants for the fiscal year ended April 30, 1993 and
the bank and the Company agreed to a modification for future periods for
various covenants, including those with which the Company had not complied.
In addition, the Company agreed that if the Series C Preferred Stock of NBC
(see "Transactions with NBC") is redeemed, the proceeds will be used to
retire amounts due under the Term Loan.
Pursuant to its loan agreements, the Company is currently prohibited from
declaring or paying dividends.
At April 30, 1993, debt matures as follows:
Fiscal Year Ending (Dollars in Thousands)
- ------------------- ----------------------
1994 $ 3,873
1995 3,690
1996 3,694
1997 3,695
1998 3,673
After 1998 22,004
------
Total $40,629
======
Page 20 of 32
5. LEASED PROPERTIES
The Company leases certain theatre locations, operating equipment, offices
and equipment yard facilities under cancelable and noncancelable agreements.
Total rental expense approximated $5,312,000 in 1993, $4,800,000 in 1992,
and $4,000,000 in 1991. Future minimum lease payments under all leases with
initial or remaining noncancelable lease terms in excess of one year,
at April 30, 1993, are as follows:
(Dollars in Thousands)
----------------------
Capital Operating
Fiscal Year Ending April 30, Leases Leases
------- ---------
1994 $280 $ 3,247
1995 130 2,473
1996 125 2,094
1997 115 1,653
1998 83 1,432
Remaining years 0 16,056
------- ---------
Total minimum lease payments $733 $26,955
=========
Less: Amount representing interest (129)
-------
Present value of net minimum
lease payments $604
=======
Lease agreements frequently include renewal options and require that
the Company pay for utilities, taxes, insurance and maintenance expense.
Options to purchase are also included in some lease agreements,
particularly capital leases.
The net book value of assets acquired under capital leases included in
Machinery and Equipment at April 30, 1993 and 1992 approximates $731,000
and $342,000, respectively. Amortization of such assets is included in
depreciation expense.
Page 21 of 32
6. INDUSTRY SEGMENT INFORMATION
Business segment information is summarized as follows:
(Dollars in Thousands)
Years Ended April 30, 1993 1992 1991
------- ------- -------
Revenues
Telephone Services $100,444 $112,260 $122,949
Cable Television and Utility Services 19,002 21,231 32,434
General Products and Other 21,541 20,030 19,853
------- ------- -------
Total Revenues $140,987 $153,521 $175,236
======= ======= =======
Operating Profit (Loss)
Telephone Services $ (9,083) $ (20) $ 3,780
Cable Television and Utility Services 113 (849) (6,917)
General Products and Other (385) (81) (120)
------- ------- -------
Total Operating Profit (Loss) (9,355) (950) (3,257)
General Corporate Income (Expense), Net (3,903) (657) 565
------- ------- -------
Loss Before Income Taxes and Equity in
Net Income of NBC $(13,258) $ (1,607) $ (2,692)
======= ======= =======
Identifiable Assets
Telephone Services $ 32,731 $ 39,172 $ 45,753
Cable Television and Utility Services 9,723 10,654 12,075
General Products and Other 17,248 18,233 18,773
Corporate Assets 49,215 50,401 46,072
------- ------- -------
Total Assets $108,917 $118,460 $122,673
======= ======= =======
Depreciation and Amortization
Telephone Services $ 4,380 $ 4,565 $ 5,657
Cable Television and Utility Services 728 1,021 1,603
General Products and Other 1,055 1,332 1,238
------- ------- -------
Total Depreciation and Amortization $ 6,163 $ 6,918 $ 8,498
======= ======= =======
Capital Expenditures
Telephone Services $ 2,610 $ 3,214 $ 3,165
Cable Television and Utility Services 721 625 838
General Products and Other 1,007 654 392
------- ------- -------
Total Capital Expenditures $ 4,338 $ 4,493 $ 4,395
======= ======= =======
The Company's operations are organized into three principal business
segments - Telephone Services, Cable Television and Utility Services,
and General Products and Other. General Products and Other includes the
Company's printing, theatre and real estate operations. Operating profit
consists of revenues less costs and expenses and does not include interest
and dividend income, general corporate expenses, interest expense and
income taxes. There are no material intersegment sales or transfers.
Identifiable assets are those assets used for operations in each business
segment. Corporate assets are principally cash and investments and amounts
due from NBC.
Page 22 of 32
INDUSTRY SEGMENT INFORMATION (Continued)
One operating unit of a Telephone Services customer accounted for
approximately 18% of revenues for each of the fiscal years ended
April 30, 1993, 1992, and 1991, respectively. Another operating
unit of the same customer comprised 14% of revenues for fiscal year
1993, 11% of revenues for fiscal year 1992 and 10% of revenues for
the fiscal year ended April 30, 1991.
On January 31, 1991, the Company sold a subsidiary which was
included in the Cable Television & Utility Services segment to a
company controlled by a former officer of the Company (the
"Buyer"). Revenues of the subsidiary sold approximated $11,100,000
for the nine-month period ended January 31, 1991, and pretax losses
related to the subsidiary sold of approximately $7,400,000 (which
includes a provision for doubtful accounts for receivables
transferred to the Company from the subsidiary as of the sale date
of approximately $1,700,000) are included in the operating loss of
the Cable Television and Utility Services segment for the year
ended April 30, 1991. The loss (net of estimated income tax
benefit) related to the subsidiary sold of $4,500,000 was recorded
in the quarter ended January 31, 1991. Subsequent to April 30,
1993, the Company accepted a cash payment in settlement of amounts
due from the Buyer.
Effective May 1, 1988, the Company sold a minority interest in a
Telephone Services subsidiary and is party to various agreements
providing an option to the minority holder to purchase the
remaining shares of the subsidiary effective April 30, 1993, if
certain conditions were satisfied. Since the required conditions
were not satisfied and certain disputed payments were not made, the
Company exercised its right to terminate the buyer's option to
purchase the remainder of the stock of the subsidiary. A lawsuit
related to the transaction was filed on May 3, 1993. (See
"Litigation" in the Notes to Condensed Consolidated Financial
Statements). The subsidiary's revenues approximated $19,000,000
for each of the three years ended April 30, 1993. Operating profit
of the subsidiary reflected in the table above approximated
$555,000, $1,092,000, and $1,436,000 for 1993, 1992, and 1991,
respectively.
General Corporate Income for 1993, 1992, and 1991 includes a pretax
gain of approximately $291,000, $1,111,000 and $912,000,
respectively, from the repurchase each year of $2,625,000 face
amount of the Company's 12% convertible subordinated debentures.
Until February 1991, the Company owned a 42.1% interest in NBC. NBC
produces and distributes its own branded carbonated beverage and
water products as well as products for third parties. (See
"Transactions with NBC".)
Page 23 of 32
7. INCOME TAXES
The provision (credit) for income taxes consists of the following:
(Dollars in Thousands) 1993 1992 1991
------ ---- ------
Current
Federal $(4,034) $(549) $ 1,057
State (100) (165) 363
------ ---- ------
(4,134) (714) 1,420
------ ---- ------
Deferred
Federal 163 97 (2,099)
State 21 57 (403)
------ ---- ------
181 154 (2,502)
------ ---- ------
Total $(3,950) $(560) $(1,082)
====== ==== ======
The provision (credit) for deferred income taxes consists of the
following:
(Dollars in Thousands) 1993 1992 1991
------ ---- ------
Cash Basis Accounting - - $(1,913)
Installment Sale $ (19) $ (88) (247)
Accrued Liabilities and Expenses (50) 443 (107)
Accelerated Depreciation 148 (52) 35
Retainage (116) (50) (207)
Other 221 (99) (63)
------ ---- ------
Total $ 184 $ 154 $(2,502)
====== ==== ======
The difference between the effective income tax rate and the statutory
federal income tax rate applied to pretax income (loss) before income
taxes and equity in net income of NBC is accounted for as follows:
1993 1992 1991
------ ------ ------
Federal Statutory Rate (34.0)% (34.0)% (34.0)%
Effect of State Taxes - (4.4) (1.0)
Effect of Dividend Exclusion (1.9) (15.0) (10.6)
Amortization and Write-off
of Intangibles 6.5 11.0 7.7
Adjustment of Prior Years' Taxes (0.3) 4.4 (0.6)
Other (0.1) 3.1 (1.7)
------ ------ ------
Provision (Credit) for Income Taxes (29.8)% (34.9)% (40.2)%
====== ====== ======
In 1993, the income tax consequences of certain prior year charges to
shareholders' equity were adjusted, resulting in an increase of capital
surplus and retained earnings of $835,000 and $349,000, respectively.
Page 24 of 32
8. STOCK OPTION PLANS
The Company has two non-qualified stock option plans (the "1976 Plan"
and the "1978 Plan") which provide for the granting of options to
purchase Common Stock to key employees at prices equal to the fair market
value on the date of grant. The 1976 Plan and the 1978 Plan expire in
August 1994 and November 1993, respectively.
The 1976 Plan provides that options may be exercised in four increments
beginning eighteen months subsequent to the date of grant. Upon exercise
of the option, the Company will reduce the optionee's purchase price by
an amount equal to the increase in the fair market value on the exercise
date of the shares being purchased over the fair market value of such
shares on the date the option was granted. The purchase price, however,
cannot exceed 85% of the fair market value of such shares on the exercise
date, and in no event can the exercise price be less than $.10 per share.
The holder of the option has the alternative right to cancel such option
and instead to exercise a stock appreciation right entitling the holder
to receive cash under certain circumstances. The aggregate amount received
by participants in each fiscal year is subject to certain maximum limitations.
Accordingly, the Company accrues compensation based upon the present value
of its estimated future obligation. Due to the decrease in market value of
the Common Stock, accrued compensation was reduced by $75,000 in 1993,
$341,000 in 1992, and $1,523,000 in 1991.
On February 13, 1991, NBC sold 24,650 shares of its common stock to the
Company for an aggregate purchase price of approximately $376,000, which
was accrued as compensation expense by the Company. The Company distributed
such shares of NBC common stock to employees who held options to purchase
the Company's Common Stock on January 28, 1991.
The 1978 Plan provides that options may be exercised in four increments
beginning one year subsequent to the date of grant. There is no subsequent
adjustment of the purchase price.
The following is a summary of all option transactions:
Average Option
Shares Price Per Share
------- ---------------
Outstanding April 30, 1990 281,000 $5.75
Granted 0 -
Exercised (16,000) 4.01
Cancelled (27,000) 5.22
------- -----
Outstanding April 30, 1991 238,000 5.93
Granted 0 -
Exercised 0 -
Cancelled 0 -
------- -----
Outstanding April 30, 1992 238,000 5.93
Granted 0 -
Exercised 0 -
Cancelled 0 -
------- -----
Outstanding April 30, 1993 238,000 5.93
(Exercisable 238,000) ======= =====
Reserved for future options 561,000
=======
Page 25 of 32
9. TRANSACTIONS WITH NBC
Preferred Stock and Notes Receivable - NBC is comprised of the following:
(Dollars in Thousands) 1993 1992
------ ------
Series C 7% Preferred Stock
150,000 shares, $1.00 par $12,700 $12,700
14% Subordinated Debenture,
due 1994 through 2000,
net of discount 17,265 17,213
Promissory Note
due April 30, 1998 1,524 2,050
------ ------
Total 31,489 31,963
Less: Current Portion* 305 526
------ ------
Preferred Stock and Long-Term
Notes Receivable - NBC $31,184 $31,437
====== ======
*Included in Accrued Interest Receivable and Other -NBC.
NBC owns approximately 36% of the Company's outstanding stock. IBS
Partners Ltd., whose general partner is Nick A. Caporella, Chairman
of the Board, President and Chief Executive Officer of the Company,
owns 74.7% of the $.01 par value common stock of NBC (the "NBC
Common Stock").
In December 1990, the Company and NBC approved a plan whereby (a)
the Company distributed as a dividend to its shareholders of record
on January 28, 1991, including NBC, all of the NBC Common Stock held
by the Company (the "Distribution") and (b) NBC exchanged 3,846,153
shares of the Company's Common Stock held by NBC for certain
indebtedness of NBC held by the Company (the "Exchange").
The Company paid the Distribution by depositing its shares of NBC
Common Stock with a depositary. When NBC's registration Statement
on Form S-1 was declared effective by the Securities and Exchange
Commission on September 6, 1991, the depositary released the shares
to NBC's transfer agent for distribution. The shares of NBC Common
Stock are quoted on the NASD National Market System.
The indebtedness exchanged consisted of a $20,000,000 principal
amount 11 1/2% Senior Subordinated Note which was due on February
1, 1991 and the initial sinking fund payment of an aggregate of
$2,500,000 which was payable on November 1, 1990 on the 14%
subordinated debentures issued by NBC to the Company in the
aggregate principal amount of $20,000,000 (the "Old Subordinated
Debentures"). Upon completion of the Exchange, NBC retained
ownership of approximately 36% of the Company's outstanding Common
Stock and the Company continued to hold $17,500,000 principal
amount of NBC's subordinated debt (the "Subordinated Debenture") as
well as all of NBC's outstanding preferred stock which has a
liquidation value of $15,000,000.
Page 26 of 32
TRANSACTIONS WITH NBC (Continued)
The maturity date of the Subordinated Debenture is November 1, 2000
and annual sinking fund payments of $2,500,000 commence on November
1, 1994. Pursuant to the Old Subordinated Debentures, sinking fund
payments were to have commenced on November 1, 1990 with the final
principal payment on the Old Subordinated Debentures due on
November 1, 1997. The initial sinking fund payment was deferred
pending the resolution of a previously announced reorganization
plan. The Old Subordinated Debentures also contained covenants with
respect to restrictions on NBC's ability to pay dividends, incur
additional indebtedness, merge or sell substantially all of its
assets or consummate additional acquisitions, which are not
contained in the Subordinated Debenture.
In fiscal 1991, expenses related to the Exchange of approximately
$561,000 were charged to the cost of treasury stock and estimated
income taxes of approximately $5,000,000 resulting from the excess
of the fair market value of the NBC stock distributed over its tax
basis was charged to retained earnings. Also, as a result of the
Distribution, the Company's pro rata interest in the cost of its
shares held by NBC of $17,347,000 was eliminated.
The Company received an opinion from PaineWebber Incorporated that
the Distribution, Exchange and the modification of the terms on the
remaining debt owed by NBC to the Company, taken as a whole, are
fair to the Company's shareholders from a financial point of view.
In April 1992, the Company and NBC entered into a Securities
Purchase Agreement pursuant to which NBC purchased all of the
issued and outstanding shares of common stock of a wholly-owned
subsidiary of the Company (the "Subsidiary") for an aggregate
purchase price of $2,050,000. NBC paid the purchase price by
delivery to Burnup & Sims of a six-year promissory note due April
30, 1998 bearing interest at 1% above the prime interest rate. The
note provides for quarterly principal and interest payments
beginning July 31, 1992. The obligations under the note are secured
by the shares of the Subsidiary. The selling price of the
Subsidiary's stock was determined based upon an independent market
valuation of the two aircraft which comprised the Subsidiary's
primary assets. The Company recognized a pretax gain of
approximately $1,100,000 from the sale of the Subsidiary to NBC.
During 1991, NBC sold 24,650 shares of NBC Common Stock to the
Company for an aggregate purchase price of approximately $376,000.
(See "Stock Option Plans".)
The Company has billed NBC approximately $662,000, $1,312,000 and
$874,000, for certain services rendered and expenses reimbursed for
the years ended April 30, 1993, 1992 and 1991, respectively.
Interest and dividend income includes dividends of $1,050,000 for
each of the three years in the period ended April 30, 1993 and
interest income of $2,632,000 for 1993, $2,502,000 for 1992, and
$4,553,000 for 1991, respectively, related to the Company's
investment in NBC.
The Company has not recorded Equity in Net Income of NBC subsequent
to January 31, 1991.
Page 27 of 32
TRANSACTIONS WITH NBC (Continued)
Results of operations of NBC for the fiscal year ended April 1991
as follows:
(Dollars in Thousands) 1991
-------
Sales - Net $307,181
Income Before Equity in
Earnings (Loss) of
Burnup & Sims Inc. 3,500
Net Income 1,807
10. EARNINGS PER SHARE AND CAPITAL STOCK
Primary average shares outstanding were 8,768,000 in 1993 and 1992,
and 9,460,000 in 1991.
Primary earnings per share is based on the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding for the fiscal year ended April 30, 1991 exclude approximately
2,900,000 shares through January 31, 1991, which represented 42% of the
7,000,000 restricted shares of Common Stock held by NBC. (See "Transactions
with NBC".)
Fully diluted earnings per share (assuming conversion of convertible
subordinated debentures with corresponding adjustments for interest
expense, net of tax) is not presented as the effect is anti-dilutive.
At April 30, 1993 and 1992, the Company had 5,000,000 shares of authorized
but unissued preferred stock and 7,253,000 shares of common stock held in
treasury.
11. LITIGATION
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890 was
filed in December 1990 by a shareholder of the Company in the Court of
Chancery of the State of Delaware in and for New Castle County against
the Company, the members of its Board of Directors, and against NBC as
a purported class action and derivative lawsuit. The class action claims
allege, among other things, that the Board of Directors of the Company,
and NBC, as its largest shareholder, breached their respective fiduciary
duties in approving (i) the dividend by the Company of its shares of NBC
common stock (the "Distribution") and (ii) the exchange of certain shares
of the Company's stock held by NBC for certain indebtedness of NBC held by
the Company (the "Exchange"; the Distribution and the Exchange are
hereinafter referred to as the "1991 Transaction"), in allegedly placing
the interests of NBC ahead of the interests of the other shareholders of
the Company. The derivative action claims allege, among other things, that
the Board of Directors of the Company has breached their fiduciary duties
by approving executive officer compensation arrangements, by financing
NBC's operations on a current basis, and by permitting the interests of the
Company to be subordinated to those of NBC. In the lawsuit, plaintiff seeks
to rescind the 1991 Transaction and to recover damages. (See "Transactions
with NBC" in the Notes to Consolidated Financial Statements.)
Page 28 of 32
LITIGATION (Continued)
In May 1993, plaintiff filed a motion to amend its class action and
shareholder derivative complaint (the "Proposed New Complaint").
The Proposed New Complaint alleges that the Special Committee (the
"Committee") that approved the 1991 Transaction was not independent
and that, therefore, the 1991 Transaction was neither protected by
the business judgement rule or in accordance with a settlement
agreement (the "1990 Settlement") entered into in 1990 pertaining
to certain prior litigation. The Proposed New Complaint also makes
other allegations which involve (i) further violations of the 1990
Settlement by engaging in certain transactions not approved by the
Committee; (ii) the sale of a subsidiary of the Company to a former
officer of the Company; (iii) the timing of the 1991 Transaction
and (iv) the treatment of executive stock options in the 1991
Transaction.
The Company believes that the allegations in the complaint and the
Proposed New Complaint are without merit, and intends to vigorously
defend this action.
William C. Deviney, Jr. v. Burnup & Sims, Inc. et al., Civil Action
No. 152350 was filed in the Chancery Court of the First Judicial
District of Hines County, Mississippi on May 3, 1993. The plaintiff
in this action filed suit seeking specific performance of alleged
obligations of the Company pursuant to a stock purchase agreement
and related agreements entered into in 1988. Pursuant to the
agreements, the Company sold to plaintiff a minority interest in a
Telephone Services subsidiary and granted to plaintiff an option to
purchase the remaining stock if certain conditions were
satisfied. (See "Industry Segment Information" in the Notes to
Consolidate d Financial Statements.) Alternatively, plaintiff seeks
unspecified damages for breach of contract and for alleged breaches
of fiduciary duties, and seeks an award of punitive damages and
attorney's fees for alleged bad faith conduct in connection with
the stock purchase agreement and related matters. The Company
believes that the allegations in the complaint are without merit
and intends to vigorously defend this action. Additionally, the
Company has filed counterclaims which, among other things, seek a
declaratory judgement that the plaintiff's failure to satisfy
certain material conditions terminated his rights under the stock
purchase agreement.
The Company and its subsidiaries are parties to various legal proceedings,
including suits in which it is a defendant.
In the opinion of management, after consultation with counsel as to the
claims in the litigation and, if adversely determined, the assessment of
potential damages, the ultimate outcome of the legal proceedings will not
have a material adverse effect on the financial position of the Company.
Page 29 of 32
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars In Thousands, Except Earnings Per Share)
First Second Third Fourth
1993 Quarter Quarter Quarter Quarter
------- ------- ------- -------
Revenues $37,814 $36,020 $32,776 $34,377
Operating Profit (Loss) 932 1,995 (2,084) (10,198)
Net Income (Loss) 237 251 (2,178) (7,618)
Earnings (Loss) Per Share .03 .03 (.25) (.87)
======= ======= ======= =======
1992
Revenues $38,430 $43,111 $34,600 $37,380
Operating Profit (Loss) 1,013 1,395 (912) (2,446)
Net Income (Loss) 52 730 (527) (1,302)
Earnings (Loss) Per Share .01 .08 (.06) (.15)
======= ======= ======= =======
The fourth quarter of 1993 includes a charge of $3,300,000 net of
tax, or $.38 per share, relating to tangible and intangible assets
which were written-off with respect to closed and other
unprofitable Telephone Services areas of operation. The fourth
quarter of 1992 includes a charge of approximately $1,000,000 net
of tax, or $.12 per share, to provide for additional allowances for
doubtful accounts.
Page 30 of 32
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Burnup & Sims Inc.:
We have audited the accompanying consolidated balance sheets of Burnup & Sims
Inc. and subsidiaries (the "Company") as of April 30, 1993 and 1992 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended April 30, 1993. Our
audit also included the financial statement schedules listed in Item 14 (a) 2.
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 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 provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at April 30, 1993
and 1992 and the results of its operations and its cash flows for each of the
three years in the period ended April 30, 1993 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE
Certified Public Accountants
Fort Lauderdale, Florida
July 29, 1993
Page 31 of 32
FORM 10-K/A
BURNUP & SIMS INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Burnup & Sims Inc.
Registrant
Date: January 19, 1994 \s\ George R. Bracken
_________________ __________________________
George R. Bracken
Vice President & Treasurer
(Principal Financial Officer)
and
Authorized Officer of the
Registrant
Page 32 of 32